Spotify's First Earnings Report On Wall Street: The Sell-Side Reacts

Spotify Technology SA SPOT reported its first earnings as a public company Wednesday afternoon. Here what the Street is saying after the print. 

The Analysts

• Morgan Stanley's Benjamin Swinburne maintains an Overweight on Spotify's stock with an unchanged $190 price target.
• Bank of America Merrill Lynch's Jessica Reif maintains at Buy, unchanged $195 price target.
• Canaccord Genuity's Maria Ripps maintains at Buy, unchanged $200 price target.
• The Buckingham Research Group's Matthew Harrigan maintains at Neutral, unchanged $175 price target.
• Stifel's John Egbert maintains a Buy, unchanged $180 price target.

Morgan Stanley

Spotify said in its earnings report it saw 4 million premium net user additions, "modestly ahead" of the Street's expectations and in-line with guidance, Swinburne said. Advertising monthly active user net adds were "up nicely" from a year ago, while monthly churn among premium users fell to a record 4.7 percent.

Spotify offered an outlook that was mostly in-line with expectations, including net additions of 4-8 million premium users in the second quarter and total MAU net adds of 5-10 million users, the analyst said. The gross margin guidance of 24-26 percent is in-line with expectations, while the operating income guidance is "broadly in line to modestly lower."

Overall, Spotify's earnings report and guidance show it continues to drive "healthy" net additions and supports a long-term bullish thesis, Swinburne said. 

Bank Of America

Spotify's earnings report showed better-than-expected growth in premium revenue, but the high-retention family and student plans resulted in lower average revenue per user, Reif said. Revenue growth also exceeded expectations in the quarter, but more importantly, video advertising was Spotify's fastest-growing source of ad revenue, the analyst said. Vdeo ad revenue should boast a "solid runway" ahead, as it is highly conducive to viewership rates, especially among younger users, according to BofA. 

Related Link: Despite 'Challenging' Economics, Goldman Sachs Is Bullish On Spotify

Canaccord Genuity

Spotify's earnings report showed it managed to deliver in audience growth, Ripps said in a research report. Audience growth will prove to be the most important metric to watch over the coming years, as streaming music is "catching on in a big way globally" and investors are likely underestimating Spotify's massive global reach, the analyst said. Also important for Spotify's growth story: a "more engaging" free product that creates "volume growth at the top of the user funnel." 

Buckingham

Spotify cited the International Federation of the Phonographic Industry's findings, which showed that 2017 global music sales rose 8.1 percent to $17.3 billion and streaming services accounted for 39.4 percent of all music revenue, Harrigan said in a note.

Spotify's F-1 filing claims it held a 42-percent market share in the 2016 global streaming market. Using the IFPI numbers, this implies Spotify's 2016 global streaming share was actually 69 percent and fell slightly to 68 percent in 2017, the analyst said. 

"The divergence in numbers is so marked that mixing of retail and wholesale estimates it not enough of an explanation," Harrigan said. 

Stifel

Spotify's affirmation of its 2018 guidance implies ongoing "healthy" growth metrics and continued leadership positioning in the global music streaming business, Egbert said. Spotify's guidance offers no signs that its growth narrative has diminished, and the company could see incremental upside from the following, the analyst said:

• Improved top-of-funnel growth.
• Compelling distribution partnerships.
• A growth ramp in underpenetrated emerging and developed markets.

Price Action

Spotify shares were down 5.66 percent at $160.38 at the close Thursday.

Related Link:

Stifel: What To Expect From Spotify's First Earnings Report As A Public Company