Analyst Note| Ali Mogharabi |
We are maintaining our $207 Spotify fair value estimate and view the stock as fairly valued. Spotify reported better-than-expected second-quarter top and bottom lines, but the user count was below guidance. While management cited COVID-19 and technical difficulties related to email verification behind the disappointing total user count, the impact of those headwinds are likely to linger through the rest of the year as the firm lowered its full-year monthly active user outlook for the second consecutive quarter. However, the firm also increased its total revenue guidance for the year. Overall, our takeaway from Spotify’s numbers was positive as growth in premium subscribers and slower decline in monetization of those subscribers, along with strong growth in advertising revenue, more than offset slower total user growth. We believe this can continue as we expect further advertising revenue growth driven by the firm’s increasing podcast content.