Spotify stock plunges on Q1 earnings despite adding subscribers

Yahoo Finance Live’s Julie Hyman and Brian Sozzi discuss first quarter earnings for Spotify.

Video Transcript

JULIE HYMAN: We're just a few minutes until the opening bell. And let's talk about some other earnings reports. Joe who? Spotify came out with numbers that did beat analysts' estimates, although looking forward, it's a little bit short of estimates. The shares are down by 11%.

The company, if you look at the numbers here, revenue was about 2.66 billion. That should be euros there. And the company coming out and talking about, in terms of its users as well, that it saw growth that was pretty much in-line with estimates.

Paid subscribers, 182 million in the first quarter. However, at the end of the second quarter, it says it's going to have 187 million premium subscribers, which is a bit short of estimates. So it doesn't seem like, Brian Sozzi, that it is that much to blame for-- Joe Rogan doesn't seem to be the reason, necessarily, that it's seeing a shortfall of subs.

BRIAN SOZZI: I continue to wait, Julie, for this big, explosive quarter out of Spotify, given all the podcasts they have dumped on this platform, all the folks that they have signed up here to do various podcasts and other efforts at Spotify. We're just not getting it.

And just look at the very basic numbers here on Spotify. They still operated at a loss. Free cash flow down year over year. Looking at quarter over quarter, monthly active users sequentially, or quarter over quarter, only up 4%. Premium subscribers, up 1% quarter over quarter. Ad-supported monthly active users up about 7% quarter over quarter. So no real big strong growth.

And on that too, we've been talking all week-- we were talking about it before too, Julie, stock buybacks. Look, Spotify has been a terrible stock since the company went public via its highly publicized direct listing in 2018. The reference price for that IPO was $165.90. Now we're looking at a potential open here on Spotify below $100 a share! It's been a disappointing public company, yet they're not out here buying back their stock in a big way.

JULIE HYMAN: They are not. And we've been talking this morning all about advertising demand, because we've been looking at those Alphabet numbers. Spotify has been trying to not necessarily decrease its reliance on subscribers, but it has tried to increase its diversity of income streams by increasing advertising.

So advertising now is about 11% of the company's revenue. So it's not a big diversification, right? But the company is-- the percentage is actually decreasing. Last quarter, Spotify said advertising represented 15% of sales. So it's going down a little bit. That is probably not the right direction, Soz.

BRIAN SOZZI: Yeah. And I'll just mention too, I forgot how fascinating the Spotify board of directors is. Of course, very important for investors to know who is on the company's board, especially now, a lot of deal activity.

Nonetheless, Barry McCarthy, former Spotify CFO. He's now the CEO of Peloton. He's still on that board. Also on that board is Ted Sarandos, the co-CEO of Netflix, who has had, I'm sure, a challenging week and a half as well. Thomas Staggs, who was in line to report to take over at Disney from Bob Iger, he's on this company's board. It's a very intriguing set of executives on that company.

JULIE HYMAN: It is. And yet it hasn't translated into the explosive quarter that you were talking about, Soz.

BRIAN SOZZI: Still looking for explosiveness. Still didn't get it.