Spotify's second-quarter (Q2) results were surprising many Wall Street experts on July 27, but the streaming service's stock has lost about 60% year on year.
Let's look at the earnings report in more detail by comparing Spotify's actual Q2 results.
Spotify's Q2 earnings: Still the #1 Audio Streaming Service
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Results vs Consensus: What Happened?
Spotify reported revenues of $2.91 billion, compared to an estimated $2.89 billion.
The company also surprised Wall Street by revealing that it had 433 million monthly active users (MAUs) in the quarter, compared to a forecast of 429 million. That's a significant increase from the 365 MAUs the company recorded in the previous quarter.
In addition, the number of paid subscribers increased by 14% year over year, accounting for a large part of Spotify's higher-than-expected income.
Spotify's Q2 2022 results are shown in Figure 2.
Spotify is a service that offers free streaming services.
Spotify's cost and margin performance remained a tad disappointing. For the second quarter, Spotify reported a gross margin of 25.3%, compared to an expected 25.4%.
Spotify's Ad-Supported business is still dragging down the company's gross margin. This unit has very low margins compared to the Premium segment. However, Premium also had lower margins in Q2 than in the previous four periods.
Spotify's gross margin in Q2
Spotify is a service that allows you to play music.
Spotify's main challenge is generating recurring earnings. Its small margins resulted in a earnings-per-share (EPS) decrease.
Spotify reported a loss of 85 cents per share for the quarter on Wall Street.
What Does Next Mean?
Spotify has provided guidance that is consistent with market forecasts for the third quarter. That's a positive sign for investors who were concerned about a possible slowdown in the second half of the year.
Spotify's recommendation vs. consensus, in Figure 4.
Yahoo Finance is a publicly traded company.
Announcing that it would reduce employment by 25% for the second half of 2022, the company also stated that it would cut employment by 25%.
Currently, IT startups are making a pretty common announcement. They are being forced to lower costs in every way they can to mitigate potential problems as a result of interest rate rises.
Spotify Is the #1 Audio Streaming Service, According to Our Test
Spotify is evidently dominating the audio streaming segment. However, the company's margins remain problematic.
Nevertheless, the company's lower-revenue segments are gradually forming a smaller percentage of its total profit, while more profitable segments (such as podcasts) are expanding.
SPOT is a good option for long-term investors who like the technology sector and anticipate the audio streaming segment to grow more.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this article. Also, the article may contain affiliate links. These partnerships do not affect editorial content.)