🎧 Can Spotify Handle The Rogan Aftermath?

Ford shares skid despite bullish outlook.

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🎧 Spotify: The Rogan Conflagration?

Streaming platform Spotify Technology SA’s (SPOT) subscriber guidance for this quarter wasn’t in line with estimates, and neither did the company provide a full-year projection. Fundamentals have returned to haunt the shareholders after the brouhaha surrounding Joe Rogan and a fleeting rally. (Tweet This)

Quick Gun Rogan!

Spotify went public in April 2018, choosing to list its shares directly rather than with the help of investment banks. Even without any of the market-making mechanisms from the banks, Spotify started trading at $165.90, compared to the reference price of $132, giving it a  valuation of $29.5B.

In a bid to diversify beyond music streaming, the company has acquired podcast producers like Gimlet, Parcast, and Anchor, spending close to $1B in sealing those deals. Spotify also partnered with Swedish audiobook company Storytel to deliver audiobook streaming. Storytel’s catalog includes 500K+ audiobooks from around the globe and charges users $22 per month for access.

Spotify signed a multi-year $100M deal last May with American Commentator Joe Rogan to further expand podcast offerings. Rogan’s podcast – The Joe Rogan Experience, is downloaded by 200M people each month. So did Joe deliver the goods?

Since Spotify doesn’t divulge how many unique listeners tuned in to a specific podcast, it’s tough to say what impact Rogan had on the company. As proxies, though, Google searches on Rogan dipped once the episodes went behind the Spotify wall. Also, guests appearing on the podcast gained half the number of followers as earlier did.

And then Rogan ran into hot water for spreading Covid-19-related misinformation – specifically conspiracy theories and the use of Ivermectin (even if there’s no proof of the drug’s efficacy). The backlash was immediate.

Musicians Neil Young and Joni Mitchell pulled their music from Spotify, along with David Crosby and Stephen Stills, in protest against Rogan’s remarks. Users announced that they deleted the app from their phones altogether on social media. The company responded by saying it would put advisories on its Covid-19-related podcasts. But that was too little too late.

Spotify shares fell to a 52-week low of $164.41 last week. Eventually, Rogan apologized to Spotify, Young, and Mitchell, and he pledged to be more balanced in the future. This call for detente led to a brief rally in Spotify’s shares as investors heaved a sigh of relief. And then gravity took over once again.

Subscribers Or Ads?

Spotify’s Q4 results may have surpassed estimates, but the future outlook didn’t give investors much to cheer about. Shares tanked in after-hours trading.

Key Highlights From Q4:

  • Revenue: $3.08B Vs $3.06B expected
  • Loss per Share: $0.24 Vs $0.45 expected
  • Monthly Active Users: 406M, up 18% Y-o-Y
  • Paid subscribers in Q4: 180M

Spotify’s premium revenue (no ads in the product) grew 18% Y-o-Y to $2.58B. Revenue for products with advertising rose 34% Y-o-Y to $444M. Ad-supported revenue now contributes 15% to the overall topline. Monthly Active Users (MAU) grew in India, Indonesia, and Latin America. The Average Revenue Per User (ARPU) for its premium product rose only 3% Y-o-Y to $4.97.

The Rogan controversy notwithstanding, Spotify’s share of podcasts as part of overall consumption hours on its platform reached an all-time high in Q4. The paid podcast subscription service was expanded to 33 more markets, including Russia, Egypt, and Saudi Arabia.

So, where’s the catch in the middle of all this positivity? The company expects current-quarter paid subscribers to be at 183M (Vs. 184M expected). However, the company refused to project how many subscribers it hopes to have this year. It simply acknowledged it does not expect a material difference in net subscriber additions in 2022 compared to last year.

Be that as it may, the analysts believe that subscriber count is no more a key metric for a company as mature as Spotify. They’d instead focus on ad revenue which is large enough not to ignore or be eclipsed by all the talk about subscriber growth.

CEO Daniel Ek estimates Spotify will sign up ~1B users in the long-term. The time frame for “long-term,” though, is unclear. The company is still fighting the aftermath of the fire lit by Joe Rogan. The Long-term will come at some point. For now, Spotify has its hands full as it works to contain the Rogan fire from becoming a conflagration!

Market Reaction
SPOT ended at $159.76, down 16.76%, hitting a new 52-week low.

Company Snapshot 📈

SPOT $159.76 -32.16 (16.76%)

Analyst Ratings (31 Analysts) BUY 55%  HOLD 35%  SELL 10%

Newsworthy 📰

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Today’s Market Terminology: Payout Ratio

A payout ratio is the proportion of earnings paid out to the common stockholders as dividends. It is the firm’s cash dividend divided by the firm’s earnings in the reporting period

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