Key points:
- Spotify reports Q3 earnings
- The company was impacted by slower ad growth
- Spotify shares declined over 4%
Spotify (NYSE: SPOT) reported its third-quarter results after the bell on Tuesday, which the company said was impacted by slower advertising growth, causing concerns about the economy's effect on digital advertising.
The group saw its margins impacted due to slower-than-forecasted advertising growth, given the challenging macro environment.
As a result, Spotify's gross margins dropped to 24.7%, and its operating margin came in at -7.5%.
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Daniel EK, Spotify's Chief Executive, told Reuters that it is an “early indicator of the concerns businesses are having about the economy” and that it is impacting Spotify in the short term.
Shares of Spotify are down 4.87% following its earnings release. Additionally, the stock declined 58% in 2022 as the surge in inflation has impacted the macroeconomic environment and threatened consumer spending.
However, the streaming service said many of its key metrics surpassed guidance, led by monthly active users (MAU) and subscriber outperformance.
MAUs grew 20% year-on-year to 456 million, 6 million above guidance. Meanwhile, net additions reached a record Q3 high of 23 million and subscribers came in 1 million ahead of guidance.
As a result, the group reported that revenue grew 21% to €3 billion, driven by premium revenue of €2.7 billion. In addition, Spotify's ad-supported income rose 19% to €385 million.
For the fourth quarter, the firm anticipates total MAUs to be 479 million, adding 23 million new MAUs. Furthermore, total revenue is expected to be €3.2 billion.
Elsewhere, analyst Jeffery Wlodarczak at Pivotal Research reduced Spotify's price target to $100 from $105. The analyst kept a Hold rating on its shares, stating its 2022 MAU guidance was only slightly ahead of expectations.
In addition, the analyst said Spotify is spending aggressively to drive growth.
