Spotify announces plan to cut 6% of staff ahead of Q4 earnings
Yahoo Finance media reporter Allie Canal highlights what to expect in Spotify's earnings report next week amid layoffs and the music streaming service's refocused growth outlook.
SEANA SMITH: All right, let's switch gears here and talk about Spotify because that stock up a little bit today, up just about 1%. The company announcing staff cuts earlier this week. Of course, now the focus is all on earnings. Their fourth quarter results are on deck for next Tuesday. Allie Canal here with a closer look at this. And, Allie, what should we expect next week?
ALLIE CANAL: Well, Seana, I think it was very clear that 2022 was a rough one for Spotify. The stock lost more than 2/3 of its value. And today, shares are still off more than 65% since that record closed in February, 2021. So investors will closely be watching this earnings report to see if there are any improvements when it comes to profitability along with gross margins. Now, here are the top and bottom-line expectations. And a reminder here that Spotify does report in euros.
Estimates for revenue are expected to come in at roughly 3.2 billion euro on an adjusted loss of roughly 130 a share. Total monthly active users, that's expected to tick higher to reach 479 million on a premium subscriber basis, those numbers expected to grow 7 million in the quarter to reach 202 million, with ad-supported users estimated to come in at roughly 287 million. That would be a 14 million jump compared to Q3.
But again, I think the main focus here is going to be on gross margins. Those numbers disappointed in the third quarter, sending shares down 13% following the results. The expectation for Q4 is pretty muted, with current estimates hovering around 24.5%. So anything less than that will likely trigger a major sell-off. And this is a narrative that Spotify has been grappling with for quite some time. Impressive top-line growth, really strong subscriber numbers, really strong user numbers, but those sky-high investments really just hammering the bottom line, hammering overall profitability, and certainly, right now, that's something that investors want to see improve.
- And, Allie, just thinking about those job cuts that we were talking about just a few minutes ago, how is that playing out there? And especially, what do you expect to hear from them on their earnings call about that?
ALLIE CANAL: Well, certainly, profitability is the number one issue. And I do think the layoffs that we saw announced earlier this week will help with that. Investors seem to think the same, considering the positive stock reaction we got on the heels of that news. But one thing to watch in this earnings report is the possibility of a price hike announcement. We saw YouTube Premium, Apple Music raise prices on their respective plans late last year. Spotify's CEO Daniel Ek did hint during the last earnings call that this is something the company is actively exploring.
They do believe they have the pricing power to play around with those subscription fees. So I do feel strongly that price hikes are on the horizon for Spotify. Overall, though, the company has reiterated to Yahoo! Finance that they are looking to improve those rates of profitability beginning in 2023 on both a gross margin and operating income basis. They categorized 2022 as a sort of peak investment year as the platform really dove into those medium to long-term investments, like podcasts.
So the potential for margin expansion is really what analysts are focused on. They're relying on that for the company. But again, those macro challenges, especially for these tech companies, weigh heavy in the background. So I think that has to be a concern going into this earnings report.