-MAU 381mm (+19% y/y, high end of guide)
-Premium 172mm (+19% y/y, midpoint of guide)
-Rev +26% (fx adj)
-Ad-Supported revs up 75% (13% of revs)
-Gross margin 26.7% (up 200bps y/y,above guide)
-ARPU up y/y from price increases
-FCF of 99mm EUR
More details to follow.
This is a good print. Let’s dive in.
MAUs DD growth across all regions, back to trend (after 2Q of misses)
Strength in RoW, specifically India, Philippines, Indonesia. Also called South Korea, Bangladesh, Pakistan.
Just in case These are huge population countries.
Premium subs growth strong and in-line with trend. Helped by various partnerships with telcos, hardware providers and financial institutions.
Churn down q/q and up y/y (historic low, tough comp). Still expects churn to be down for the full year
Revenue strength was attributed to advertising, this is exactly what we want to see. Ek said “the days of 10% advertising revenues are behind us” and this seems to be the case now.
ARPU getting a lift from price increases, but don’t expect that to keep going as EM users grow
Advertising commentary is worth pointing out:
“Ad-Supported Revenue meaningfully outperformed, driven by higher sold impressions, increased CPMs, and accelerated demand within the Spotify Audience Network. The strength in advertising was broad-based across all sales channels…
with the US and UK meaningfully exceeding expectations. Our music business was driven by growth in impressions, a meaningful improvement in sell-through rate, and double-digit CPM growth. Our Podcast business was driven by strong double-digit Y/Y growth at Spotify studios”
“The Spotify Audience Network continued to outperform driven by higher available inventory and incremental revenue from international sales. Since launch, the number of podcasts in our network has grown by more than 50%, nearly 1/5 Spotify advertisers are already participating.”
Gross margin – likely one of the most encouraging signs of the release:
“The Gross Margin improvement reflected a favorable revenue mix shift towards podcasts, marketplace activity, improved music advertising operating leverage, and Other Cost of Revenue efficiencies”
Personalization remains a key priority in music and podcasting to drive higher engagement and lower retention.
Introduced enhanced playlists (you+algo), Blend (you+friend/crush), Episodes For You (recommended podcasts) and What’s New (notifications from creators you follow)
Launched paid podcast subscriptions to all US creators with intentions to expand internationally.
Launched Q&A and polls for Anchor creators, which allows listeners to respond to short questions posed by show creators.
“Two-Sided Marketplace, we continued to test Discovery Mode with record labels and distributors, where we saw Q/Q growth in customers and Gross Profit contribution. Sponsored Recommendations also continued to gain traction as we expanded into more international markets.”
with respect to 2SMP, it’s encouraging to see it contributing to Gross Profit, there’s no question this highly questioned initiative since the beginning is starting to bear fruit. Would like them to give more details of where they see it going though
Content:
Added 300K podcasts in Q. 3.2mm, vs. 2.9mm in Q2, incredible pace.
Among MAUs that engaged with podcasts, consumption trends remained strong (+20% Y/Y p/user) MoM retention rates continued to trend positively.
“The % of MAUs that engaged with podcast content continued to increase throughout the quarter, marking an acceleration relative to Q2 trends”
Some would like this number given, but there are competitive reasons why they wouldn’t want to give it out. We’ll see on the call
32 O&E (originals&exclusives) releases in the US incl. Armchair Expert and Call Her Daddy
76 new releases Internationally with traction in India and Latam.
108 new podcasts in the Q (70% intl), strong number and I hope it keeps growing. This is right from the $NFLX playbook
Interesting marketing initiative by partnering with Drake:
“Spotify launched a global partnership with Drake including an offer for fans and new users to stream the album free on-demand for the first two weeks of release.”
Ek on potential Advertising size:
“Long term at the very least 20% of revenues but possibly as high as 30 or 40% in 5-10years”
Increased inventory bringing increased demand, music ads also seeing strength.
Two-sided marketplace:
“we have proven the product market fit, we’re iterating the product and rolling it out”
“there’s a lot more we can do, and Live is one of those opportunities”
“Marketplace contributing, growing above expectations. Really pleased with how it’s grown”
Some Highlights from Daniel Ek’s prepared remarks $SPOT
Is it “cheap”? Yes, by many measures. It’s an incredible business, one of the best in the world.
But I disagree with most adjustments people make (cash, core/ex blah earnings, WA, growth capex)
I don’t value it that way. Why?
1/n 🧵
As a shareholder you either want cash flows back quickly and in size, or be very patient and get a big payday down the line in return.
Even though you can slice the numbers to make $FB look really cheap, you’re not seeing many of those earnings returned to you
Let’s take a look
It trades at a ~3% (30x) ‘22 FCF yield — cash flow, minus guided capex, adj for SBC; which is roughly equal to buyback minus SBC. Call it ~$30b (75-31-12)
As a shareholder that’s the only cash you’re seeing TODAY. You can’t buy it for that reason, you have to expect a big payday
$FB revenues up a cool 35% y/y
Total expenses up 39%
EBIT 36% vs 37% y/y
New reporting segments
FoA: Family of Apps (fb/ig/wa)
FRL: Facebook Reality Labs (ar/vr software, hardware, content)
Getting serious about the Metaverse.
Let’s try to put all these tech buybacks in context by netting out SBC please.
$FB
$50B buyback announced
$10B SBC
$40B adjusted buyback (~4% of s/o)
How is it that $FB plans to spend $30+B in Capex in 2022 from a ~$140B revenue base when $GOOG spent $22B last year on $183B of revenues? I’d think FB was lower given they’re not a hyperscale cloud provider
A few highlights from a Global Music Report by @MusicAlly
Mexico:
-Over 60% of all Mexican label revenue came directly from Spotify
-The World’s streaming mecca, according to Spotify
-20mm people use a streaming service, while 80mm people own a smartphone (& quickly growing)
Brazil:
Amazon Music passed Deezer to become the second DSP in number of subscribers, behind Spotify, which
has 61% of total subscribers and contributed 45% of all Brazilian recorded music revenues in 2019.
Don’t have a very big Apple hardware user base in the country
Brazil (cont.)
Paid streaming accounted for almost three quarters of recorded music revenues in the region
Overall, Brazilians became more aware of the benefits of music streaming services, and started adopting and using it more.