Spotify (SPOT) plans to report fiscal fourth-quarter earnings before the bell on Tuesday, as the music streaming platform remains focused on profitability amid changes to its podcasting strategy.
Spotify turned a profit in the third quarter for the first time in more than a year, as recent price increases and lower-than-expected costs related to payroll and marketing spending boosted revenue.
The company also pledged to reduce its investment in podcasts, which boosted its profit margin to 26% in the quarter. Spotify is expected to lead to further margin improvement in the fourth quarter, with the metric coming in at 26.6%.
The company has previously said it expects this metric to grow between 30% and 35% in the long term as it plans to further expand its podcasting and advertising businesses. Except for the third quarter, profit margins in recent quarters have hovered between 21% and 25%.
Excluding margins, subscriber numbers are expected to surge again, with monthly active users up about 28 in the quarter, including 9 million premium subscribers, analysts said. .
Spotify had been targeting an increase of 27 million monthly active users, which matched Wall Street expectations of 9 million premium members.
Here's what Wall Street is expecting, according to Bloomberg consensus estimates.
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Revenue: 3.72 billion euros
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Adjusted loss per share: -0.31 euro
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Total Monthly Active Users (MUA): 602 million
Analysts are generally bullish on Spotify after the audio giant pledged to improve profitability on a gross and operating profit basis starting in 2023.
Spotify has spent $1 billion over the past four years entering the podcast market with splashy A-list deals and more than $400 million worth of studio acquisitions.
This expense significantly reduced gross profit and put significant pressure on profitability. In response, Spotify has committed to several rounds of layoffs, implementing three layoffs in 2023 alone. The company also announced that Chief Financial Officer (CFO) Paul Vogel will resign effective March 31st.
In addition to the layoffs, Spotify raised prices, changed its royalty structure and made audiobooks free for paid subscribers.
But further changes are expected as Spotify further revamps its podcast strategy to focus on distribution over exclusivity.
Late last week, Spotify announced a new deal with its most popular podcaster, Joe Rogan.
The company revealed that Logan's podcasts, previously exclusive to Spotify, will now be available on additional services including Apple Podcasts (AAPL), Amazon Music (AMZN), and YouTube (GOOGL) for the first time in years.
The multi-year deal, valued at $250 million by the Wall Street Journal, represents a broader push into podcast distribution that Spotify first began rolling out last year.
Under the new agreement, Spotify will be responsible for distribution and ad sales to maximize revenue. Meanwhile, Logan will receive a guaranteed lowest price and a cut of advertising revenue.
The company recently renegotiated a similar contract with Alexandra Cooper from “Call Her Daddy's.”
The podcast, which Spotify purchased in 2021 for a reported $60 million, is now available on all major audio platforms after more than two years as a Spotify exclusive. The company will maintain exclusive rights to the video portion of the podcast.
Spotify stock has soared about 80% over the past year and is up more than 15% year-to-date. The stock is still down about 40% from its all-time high of $364.59 per share in February 2021.
alexandra canal I'm a senior reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, Email alexandra.canal@yahoofinance.com.
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