Spotify earnings: CEO Daniel Ek admits to getting ‘carried away’ with spending

Yahoo Finance’s Allie Canal joins the Live show to discuss quarterly earnings for Spotify.

Video Transcript

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BRIAN SOZZI: Spotify out with earnings, adding subscribers during the quarter. Those numbers one of the key metrics investors are watching, as the streaming service grapples with advertising costs and higher headcount. Yahoo Finance's Allie Canal has the latest. Allie, really a strong market response for Spotify. Stocks almost 10%. It's the third-most visited ticker page on our platform. Where this quarter even come from because they've been struggling?

ALEXANDRA CANAL: They have been struggling. And honestly, I think investors are just very happy with the fact that Spotify's growth at all strategy, that seems to be no longer. Daniel Ek admitting on the earnings call that he got, quote, "carried away" with the investments in 2022. And that in 2023, there's gonna be significant pullback when it comes to some of that spending.

We did see layoffs at the company last week along with a restructuring of its organization. And Spotify said that that's due to both speed and efficiency. That the motto for 2023 and beyond. He even said, you know, I know investors, they probably don't believe me, but I am very, very staunch. And this driving efficiency is paramount for this company at this point.

I also think investors are happy to see those subscriber numbers continue to tick higher a beat on monthly active users, a beat on premium. And ad-supported subscribers, the company guided that for the fourth-- first quarter, they expect subscribers to come in at 500 million, beating estimates on the Street of about 492 million. So that's a positive.

But we did see widening losses. We did see a slight miss on revenue. But gross margin, that is also another key metric for investors, that came in above expectations at 25.3%. But is expected to dip in the first quarter, as some of those investments from the end of the year continue to trickle through. But for now, Spotify really confident that throughout 2023, you're gonna see an easing on some of those cost pressures.

BRAD SMITH: And Allie, the company surprisingly did not raise prices on its US-based subscription plan. So what was your reaction to that?

ALEXANDRA CANAL: I was very surprised there was no announcement on price hikes, especially since at the end of last year we saw price increases at both YouTube Premium and Apple Music. And analysts have been largely expecting this, too, considering those widening losses, which we did see in Q4 as a result of those heavy podcast investments, higher personnel costs.

Ek did say that there have been constant discussions surrounding price increases and that they have raised prices in 40 markets outside of the US. They said, their approach to pricing is a "balanced portfolio approach." So it's possible that we could see price increases over time.

But I think people think it's interesting that they're sort of waiting back to see how their competitors do, to see if that influences those subscriber counts in any way. But for now, they're growing exponentially on the subscriber and user front. So they might not have to do it quite yet. But I think eventually we're gonna see those price hikes go up. I just think that's inevitable, at this point.

BRAD SMITH: All right, if those price hikes go up, they won't be in my business. I can tell you that, Allie.

BRIAN SOZZI: Apple Music--

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Apple Music, they'll raise prices, too, Brad. Don't you worry.

BRAD SMITH: They already did.

ALEXANDRA CANAL: Again. Again. They'll do it again.

BRAD SMITH: Yahoo Finance's Allie Canal, thanks so much for breaking down Spotify's earnings for us.