Spotify (SPOT) reported first-quarter earnings before the bell on Tuesday that came in mixed as the music streamer's margins showed signs of improvement after a tough 2022 for investors.
The company, which saw profits suffer after doubling down on big podcast investments, slashed jobs and eliminated certain initiatives like Spotify Live in an effort to drive profitability and save on costs.
Those efforts, coupled with its largest ever first-quarter growth in monthly active users, helped boost margins. At the same time, a softness in its ad business and further pressures related to foreign exchange hurt overall revenue in the quarter.
Spotify, which was down as much as 5% immediately following the results, reversed earlier losses to climb more than 8% at the market open before shares settled at around 5% in mid-afternoon trading.
Here are Spotify's first-quarter results compared to Wall Street's consensus estimates, as compiled by Bloomberg:
Revenue: 3.04 billion euros versus 3.09 billion euros expected
Loss per share: -1.16 euros versus -0.85 euros expected
Total monthly active users (MUAs): 515 million versus 502 million expected
The surge in overall monthly active users comes after Spotify revealed it crossed 500 million MAUs last month, an announcement applauded by Wall Street.
Premium subscribers came in at 210 million in the quarter, beating guidance of 207 million.
The company guided that monthly active users will grow to 530 million in the second quarter with premium subscribers anticipated to reach 217 million. It also guided revenue of 3.2 billion euros.
Investors have remained hyper-focused on Spotify's declining gross margins, although recent signs of margin expansion have helped buoy sentiment.
In the first quarter, the company beat gross margin expectations of 24.9% to reach 25.2%. Spotify had warned "severance-related charges" would impact results after the company laid off 6% of its workforce earlier this year. Spotify guided a slight Q2 boost in gross margins to 25.5%.
The company said it expects gross margins to come in between 30% to 35% over the long term amid plans to further scale its podcasting and ads business. However, execution remains murky amid macroeconomic challenges.
Free cash flow, another key metric for investors, came in positive for the quarter at 57 million euros compared to negative 73 million euros in the prior quarter and 22 million euros in year-over-year.
Spotify CFO Paul Vogel previously revealed the platform will look to improve its profitability beginning in 2023 on a gross margin and operating income basis, categorizing 2022 as a "peak investment year," especially around its podcast business.
To date, Spotify has spent $1 billion pushing into the podcast market, signing on celebrities like the Obamas, Prince Harry, and Kim Kardashian. The company paid $230 million to acquire podcast studio Gimlet in 2019. Spotify then paid a reported $200 million to bring Joe Rogan exclusively to the platform, and another $200 million for The Ringer in 2020.
The company did not reveal price increases on its U.S.-based premium subscription plan, despite recent hikes at Apple Music (AAPL) and YouTube Premium (GOOGL). Ek previously said he's taking a "a balanced portfolio approach" when it comes to the company's pricing strategy, but analysts largely expect the streamer to announce higher prices at some point in the coming months given the profitability push.
Spotify stock, which lost more than two-thirds of its value in 2022, is up more than 60% year-to-date and up about 20% on a year-over-year basis. Still, shares remain roughly 50% below their record close of $364.59 in February 2021.
Alexandra is a Senior Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at [email protected]
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