The market sold off shares of Spotify (SPOT 1.46%) sharply on Thursday after the streaming audio company reported earnings. Shares were down as much as 18.9% and closed trading off 16.8% for the day.
Quarterly revenue growth of 24% to $2.7 billion and a net loss of $39 million, or $0.20 per share, weren't particularly surprising, but there were concerns about the company's outlook for 2022. And that's where the focus is today.
Spotify isn't painting a complete picture
Spotify normally gives a full-year outlook for monthly active users and subscribers, which investors can then use as a proxy for how the company is growing. But management decided not to give full-year guidance, instead choosing to give guidance for a single quarter. The logic is that the company is investing in multiyear strategies, so yearly targets aren't what investors should focus on, but that was a shock to investors.
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As far as quarterly guidance goes, management expects monthly active user growth of 12 million to 418 million users. Revenue is also expected to decline slightly from 2.69 billion euros ($3.04 billion) in the fourth quarter of 2021 to 2.60 billion euros in the first quarter of 2022. Management blamed currency headwinds, but there's a lot of concern that growth is slowing.
Is Spotify's growth in trouble?
There's a lot of noise around Spotify today, but the long-term picture is worth keeping in mind. The company is trying to own the podcast market by signing expensive exclusive deals to attract both content and listeners.
At the same time, it's building out an advertising business that will match ads with individual listeners. Ad revenue was up 40% last quarter to $394 million, but that's still a small percentage of the company's $2.7 billion in revenue.
Over the long term, I think the podcast strategy is the right one, but it'll take years to play out. That's longer than investors want to wait right now, but I think that presents a buying opportunity. Podcasts continue to grow, and ads are a natural monetization strategy, which ultimately will make this a great growth stock for patient investors.
