Oppenheimer Analyst Rerates Spotify Citing Bearish Sentiment, Highlights Strong MAUs and Positive Podcasting Growth

Oppenheimer analyst Jed Kelly maintained a Perform rating on Spotify Technology S.A. SPOT.

Spotify reported 2Q22 ARPU 2% below Street on product/markets mix-shift and announced global pricing increases with a similar margin structure. 

The analyst sees bears anchoring to 1) a lower unit economic market generating incremental growth and 2) labels commanding favorable terms by leveraging four large platforms (now TikTok) utilizing music to drive engagement, not profit. Positively, MAUs beat Street by 20 million. 

Podcasting reaccelerated to 30%+ growth while tracking toward break-even. Guidance implies a limited impact on price increases in 3Q, conservatism around premium net-adds, sequential GM improvement, and accelerating advertising revenue. 

Kelly takes 4QE ARPU up 7% Q/Q, and FY24E revenue upticks by 1%. Shares currently trade at 5.8x FY24E gross profit, in line with subscription peers. 

The analyst writes that announced price increases across 50 markets with 4Q should realize the full benefit. Ad-supported revenue was 13% of the total music/podcast revenue, growing MSD/30%-plus Y/Y due to impressions sold growing double-digits. 

The analyst left FY23E gross profit essentially unchanged, with gross margin 17bps higher. He raised FY24E gross profit by 1%; gross margin, 13bps higher. He increased FY23/FY24E EBIT to €207 million/€229 million—better opex leverage. 

Price action: SPOT shares traded lower by 3.04% at $144.59 on the last check Thursday.

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