If the trends in Spotify’s business, namely slowing user growth, falling margins, and a plan to expand original content (podcasts) sound familiar, it’s because there’s been a similar story playing out at Netflix. Over the TTM, Spotify’s FCF sits at -$457 million.įigure 4: Spotify Cumulative Free Cash Flow: 2017-2021 In 1Q22, Spotify’s FCF was -$442 million, which was worse than the -$160 million in FCF in 1Q21.
Performance in 1Q22, along with guidance for 2Q22, provide evidence that the company’s profitability in 2021 was likely an anomaly, rather than a new normal.įrom 2017-2021, Spotify burned through a cumulative $884 million in free cash flow (FCF). Management also guided for 2Q22 gross margins to equal 1Q22, which indicates negative NOPAT margins are likely to continue in the upcoming quarter. NOPAT margin fell from 0.5% in 1Q21 to -0.1% in 1Q22 and ROIC fell from 4% to -0.5% over the same time.
Profitability Is Not Making Up for Slowing GrowthĪfter achieving a positive net operating profit after-tax (NOPAT), NOPAT margin, and return on invested capital (ROIC) on an annual basis for the first time in 2021, Spotify’s business reverted to historical norms in 1Q22. SPOT Conversion Rate Of Premium Subscribers New Constructs, LLC Even with the stock down 54% year-to-date, the company’s current fundamentals cannot justify the expectations baked into its stock price, especially given slowing growth and weak guidance. Since my original report, the stock has outperformed as a short by 86%, falling 35% while the S&P 500 rose 51%. I first put Spotify (SPOT) in the Danger Zone in April 2018 prior to its IPO and have reiterated my opinion on the stock numerous times. (Photo by Chesnot/Getty Images) Getty Images Spotify, the world's largest streaming music company, is expected to be listed on the Wall Street stock market in the first quarter of 2018.
As a comparison, in September, Apple Music claimed 30 million subscribers and Deezer had fewer than 10 million subscribers. Spotify announced, via a tweet published Thursday, that it now has 70 million paid subscribers. service Spotify is displayed on the screen of an iPhone on Januin Paris, France. PARIS, FRANCE - JANUARY 06: In this photo illustration, the logo of the Swedish music streaming.
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