Mixed Quarter for Spotify, but Raising Fair Value
Although we're more confident in the no-moat firm's ability to operate more efficiently while aggressively growing its number of listeners, shares remain overvalued.
Total revenue came in at EUR 1.1 billion, up 26% over last year, driven by a 47% growth in Spotify’s premium subscribers. Total listener count at the end of the quarter was 173 million, up 29% year over year. First-quarter ARPU declined 14% year over year and 10% sequentially, indicative of the firm’s aggressive customer acquisition strategy. Spotify’s operating loss of EUR 41 million was significantly lower than last year’s EUR 139 million as the company controlled costs such as R&D, sales and marketing, and G&A, to offset the impact of the lower ARPU. We note that once ARPU stabilizes and gross margin widens a bit, the firm is likely to begin investing more aggressively in R&D to come up with additional features for the app, which we view as necessary for Spotify to protect its market-leading position.
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