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What to expect as platform doubles down on podcasts

Spotify (SPOT) is set to report its fiscal second quarter earnings on Wednesday before the bell as the platform doubles down on podcasts amid an increasingly crowded music streaming landscape.

Here’s what Wall Street expects, according to Bloomberg consensus estimates:

  • Revenue: $2.87 billion expected

  • Adjusted loss per share: -$0.66 expected

  • Total monthly active users (MUAs): 428 million expected

In the first quarter of 2022, total monthly active users grew 19% year-over-year to 422 million in the quarter, up from 406 million in Q4 and above the company guidance by 4 million.

Spotify officially closed its operations in Russia on April 11. The platform anticipates that Russian closures, coupled with the full reversal of its March service outage benefit, will result in a loss of 8 million users.

Consequently, the company’s Q2 guidance implies the addition of approximately 14 million net new MAUs.

Total paid subscribers are expected to come in at 187 million, a slight increase from the first quarter’s 182 million.

In April, Spotify issued quarterly gross margin guidance that fell short of Wall Street’s estimates, in part due to its spending on non-music content.

Spotify “has been a public company for a while, and they’ve really never been profitable,” CFRA analyst John Freeman previously told Yahoo Finance, signaling that the platform’s sky-high costs for its podcast deals (which included a reported $200 million multi-year licensing contract with Joe Rogan) can only go so far.

“The problem with paying Joe Rogan, or whoever, a lot of money is that you lose leverage on a certain percentage of your subscriber base and it then becomes the ‘Joe Rogan show,'” the analyst explained.

He added, “I have no problem with them sacrificing growth — if they can show some profitability.”

Investors seem to have similar concerns with shares tumbling by more than 50% so far in 2022 and by about 70% since reaching an all-time high in February 2021.

Spotify reportedly signed a $200 million multi-year licensing contract with Joe Rogan.

Spotify reportedly signed a $200 million multi-year licensing contract with Joe Rogan.

The company attempted to revive sentiment during its most recent investor day, revealing that it brought in roughly $215 million in podcast revenue last year.

Spotify’s chief content and advertising business officer Dawn Ostroff told investors that the audio giant is still in “investment mode” after spending a whopping $1 billion on its podcast unit so far; yet, she expects the business to be a “$20 billion opportunity” with continued improvements in both ad products and monetization.

CEO Daniel Ek also underscored the potential of the platform’s podcast unit, estimating that he expects it to generate margins between 40% to 50%.

As of the end of Q1 2022, Spotify had 4 million podcasts on its platform, up from 3.6 million in the fourth quarter of 2021.

Still, analysts remain cautious as a possible recession could cause a pull-back in advertising revenue. One executive told CNBC a 20% retreat is possible by year-end.

I have no problem with [Spotify] sacrificing growth — if they can show some profitability…John Freeman, CFRA analyst

Spotify has battled a slew of analyst headwinds in recent months, including downgrades from Goldman Sachs, Loop Capital, Pivotal Research and Guggenheim.

Wells Fargo, Bank of America, Raymond James, and KeyCorp, however, recently upgraded the stock, increasing price targets to $124, $164, $150, and $210, respectively.

According to TipRanks, Wall Street price targets range from a low of $103 per share to a high of $230 per share. The stock’s average price target of $147 suggests an upside of more than 30% with shares currently trading between $105 to $110.

Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com

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