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Spotify’s latest financials drop its market cap to $18.62bn


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We reported yesterday on Spotify’s latest financial results, as the company added a net two million subscribers in Q1 2022 despite losing around 1.5 million by pulling out of Russia. It added 16 million listeners overall during the quarter (including free users) and saw its revenues grow by 24% year-on-year. All good? Investors weren’t so sure.

Spotify’s share price closed at 96.67, giving the company a market cap (valuation) of $18.62bn. That’s a daily drop of $2.65bn sparked by the results. It’s a long way from Spotify’s peak market cap of $69.35bn in February 2021. In a little over 14 months, the company has lost just over 73% of its market value.

This isn’t just about a single set of financials that disappointed analysts, then – although Spotify will be unhappy about yesterday’s drop, given its efforts to stress that if it weren’t for Russia, its subscriber growth would have been “above expectations”.

One perception it’s having to push back against is the suggestion that it may suffer the same ‘attention recession’ (hat tip: Midia Research) that has just reversed Netflix’s subscriber growth. No wonder Spotify CEO Daniel Ek addressed that directly in the company’s earnings call yesterday.

“A lot of people are grouping us and Netflix together. And I have said this before, but I will say it again, besides both being media companies and being primarily subscription revenue companies, that’s kind of where the similarities end for me,” said Ek.

“With Spotify, for instance, we are a platform. Netflix is not. With Spotify, we have a free service. Netflix does not. We have hundreds of millions of pieces of content. Netflix makes its own original content solely and license a little bit. So, it’s just vastly different businesses.”

The tone of one question during the call from LightShed analyst Rich Greenfield – “Investors have gone from being believers in your podcast strategy to penalizing you for the investment with no confidence it creates long-term value” – hints at some of the external doubts about Spotify’s ‘audio-first’ strategy, although naturally Ek and chief financial officer Paul Vogel differed in their views.

“We feel really good about the investments we are making and the long-term implications that we will have for our business and our shareholders,” said Ek. Later, he was asked if Spotify is facing a “natural engagement ceiling” for listeners, and offered this view.

“When we look at even some of the more mature markets for us and the music growth and now the growth with podcasting, and we look at the comparisons like radio, i.e. audio consumption patterns, we still see the sort of ceiling being probably 2x to 3x from where we are today in hours,” he said. “So plenty of growth left ahead.”

On another facet of growth – geographic – Ek said that “the big MAU opportunity we are certain in the near future is in South East Asia… just massive, massive opportunities from an MAU perspective”. All part of the pitch that Spotify hopes will regain investors’ confidence in its longer term future.

As for music, these comments by Ek made Music Ally’s ears prick up. “It’s still – you publish content to Spotify and people consume it, but there is not a lot of interaction happening between creators and consumers on the platform,” he said.

“You are starting to see some experiments, but no sort of massive rollouts yet. And that’s what we are focused on in ‘22 and ‘23 is to take some of those experiments, double down on them and expand on them so that more and more consumers and creators are using these tools.”

That’s useful context for Spotify’s moves into developing its own tips economy and other ways for musicians and podcasters to interact with – and make money from – their audiences. The question is to what extent investor confidence, and that share price, will affect Spotify’s ability to invest in this and make it a success.

Music Ally archive: Spotify


Written by: Stuart Dredge