1/17 $SPOT 4Q'21 Update
If someone gave me the call transcript and press release a day before and asked me how do you think the market would react, I would probably say +5%?
In reality, stock went down 22% AH, then recovered to -10%. Investing is hard.
Let's dig in.
If someone gave me the call transcript and press release a day before and asked me how do you think the market would react, I would probably say +5%?
In reality, stock went down 22% AH, then recovered to -10%. Investing is hard.
Let's dig in.
2/17 So what spooked the market initially? It's the soft Q1 MAU guidance. After adding 64 mn, 74 mn, and 61 mn MAU in the last 3 yrs, SPOT guided only 12 mn MAU add in 1Q'22. On a run-rate basis, that's material deceleration of MAU add.
Market HATES unprofitable decel narrative.
Market HATES unprofitable decel narrative.
3/17 Why do I think market's initial reaction was misguided?
"we do not anticipate any material changes in the trajectory for net growth in MAUs and subs in 2022 when compared to the net growth we experienced in 2021."
"we do not anticipate any material changes in the trajectory for net growth in MAUs and subs in 2022 when compared to the net growth we experienced in 2021."
4/17 Because of change of cadence in promotional campaign, MAU add will be back end loaded.
"What we've seen over the last couple of years is Q1 has become increasingly less important to us for yearly growth."
"What we've seen over the last couple of years is Q1 has become increasingly less important to us for yearly growth."
5/17 Okay, but subs are leaving in drove post-Rogan controversy, right?
"the easy answer is we don't reflect any churn from the recent JRE thing. In general, what I would say is it's too early to know what the impact may be."
JRE is #1 podcast in >90 markets.
"the easy answer is we don't reflect any churn from the recent JRE thing. In general, what I would say is it's too early to know what the impact may be."
JRE is #1 podcast in >90 markets.
6/17 Q4 was the largest quarter of MAU growth in SPOT's history.
"last quarter, we confirmed that Spotify had become the #1 podcast platform U.S. listeners used the most, and we continue to see meaningful market share gains.":
What about the labels?
"last quarter, we confirmed that Spotify had become the #1 podcast platform U.S. listeners used the most, and we continue to see meaningful market share gains.":
What about the labels?
7/17 "Labels have all the power"-Bears
"FY 2021 did benefit from close to 50 bps of favorable royalty adjustments." Hmmm, I wonder how SPOT can get favorable royalty adjustments if they had no power.
"FY 2021 did benefit from close to 50 bps of favorable royalty adjustments." Hmmm, I wonder how SPOT can get favorable royalty adjustments if they had no power.
8/17 "some may still describe us as the leading music subscription service... don't think it properly captures all the future initiatives that we're working on either"
9/17 Ads growth +40% in Q4, 15% of total revenue in Q4
In 2021, Ads was 12% of overall revenue (~9% in 2020). LT target was ~20% (and potentially even 30-40%). Don't think too many people expected them to hit 15% of revenue this soon.
In 2021, Ads was 12% of overall revenue (~9% in 2020). LT target was ~20% (and potentially even 30-40%). Don't think too many people expected them to hit 15% of revenue this soon.
10/17 "Acquiring exclusive content doesn't make economic sense"-Bears
"revenue per listening hour increasing at faster rate than cost per listening hour"
Following the exclusive deals, SPOT expected gross margin to go down initially, but they've exceeded expectations by lot.
"revenue per listening hour increasing at faster rate than cost per listening hour"
Following the exclusive deals, SPOT expected gross margin to go down initially, but they've exceeded expectations by lot.
11/17 "Music is commodity, so no power for the distributor"-Bears
After price increases in the US/UK, churn went down YoY. ARPU in 2022 expected to be up a little or flat despite more MAU growth from RoW.
Listening hrs/user is up, DAU/MAU ratio also increased YoY.
After price increases in the US/UK, churn went down YoY. ARPU in 2022 expected to be up a little or flat despite more MAU growth from RoW.
Listening hrs/user is up, DAU/MAU ratio also increased YoY.
12/17 "Gross margin can never scale because of variable cost to labels"-Bears
Revenue from two-sided marketplace continues to grow at rapid pace at 80-90% gross margin. Expect ad revenue contribution to increase which will have favorable impact on GM.
Revenue from two-sided marketplace continues to grow at rapid pace at 80-90% gross margin. Expect ad revenue contribution to increase which will have favorable impact on GM.
13/17 "if we're building this creative platform, it will not be a function of just those licenses. But more and more, it will be based on these tools and services that we're building for creators on top"
"We see an enormous amount of demand from advertisers.
"We see an enormous amount of demand from advertisers.
14/17 And the #1 thing that we're stretched for at the moment is more inventory."
Publishers in SPAN up double digit QoQ
Publishers in SPAN up double digit QoQ
15/17 "long term, I think you can look at markets like China, for instance, to look at just the innovation that's happening in audiobooks there.
For me, it's strange to imagine why not more of that type of innovation have come to many of the Western markets as well."
For me, it's strange to imagine why not more of that type of innovation have come to many of the Western markets as well."
16/17 Evolution of Music: From piracy to monetize at scale to Super Fans. Spotify has seen/seeing the first two stage, and they need to unlock the next stage at some point.
"We have tuk tuks driving around in markets collecting physical cash to pay for the subscription"
"We have tuk tuks driving around in markets collecting physical cash to pay for the subscription"
17/17 Investor Day in Q2 this year. Gotta admit I'm tempted to add a little here if it opens around AH level.
I'll cover $AMZN tonight. Another beating?
All my twitter threads: mbi-deepdives.com/twitter-thread…
I'll cover $AMZN tonight. Another beating?
All my twitter threads: mbi-deepdives.com/twitter-thread…
Okay, added at $170. Ready to be inflicted with more pain 😬
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