What to Watch For in Spotify’s Earnings

Spotify Technology S.A. (NYSE: SPOT) is scheduled to release its third-quarter financial results before the markets open on Thursday. Note that this is the third report that Spotify will make as a public company. The consensus estimates from Thomson Reuters are calling for a net loss of $0.41 in earnings per share (EPS) and $1.51 billion in revenue.

Over the summer, Digital Music News cited an unnamed major music distributor who said that Apple’s streaming music service, Apple Music, has pulled ahead of Spotify in total paid U.S. subscribers. The source declined to give exact numbers, noting that both Apple and Spotify have more than 20 million paid U.S. subscribers but that Apple is now “a hair ahead.”

Spotify, which came public in early April, has more worldwide paid subscribers than Apple Music, tallying 75 million to Apple’s 45 million. Including non-paying and ad-supported users, Spotify’s total reaches roughly 170 million to Apple’s 50 million to 55 million.

A Wall Street Journal report in February predicted that Apple would overtake Spotify in U.S. subscribers sometime this summer. That prediction was based on the fact that Apple bundles its streaming music app on every iPhone, Watch and other piece of hardware the company sells. Since that report, Apple has launched its Home Pod smart speaker, and that has added even more hardware to the Apple playpen.

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As is the case in most other markets that Apple competes in, music streaming revenues in the United States probably favor the company as well. Spotify offers both a free, ad-supported tier of its service and cut-rate plans for some groups, like students. Apple offers a more limited selection of discounted subscriptions.

Excluding Wednesday’s move, Spotify has underperformed the markets, with its stock down 16% in the past six months.

A few analysts weighed in on Spotify ahead of the report:

• Goldman Sachs has a Buy rating with a $200 price target.
• Rosenblatt Securities has a Buy rating and a $181 target.
• Pivotal Research has a Buy rating with a $190 price target.
• Guggenheim has a Buy rating with a $210 price target.
• UBS has a Buy rating.

Shares of Spotify were last seen up about 5% at $149.09, with a consensus analyst price target of $207.01. The stock has a post-IPO trading range of $131.01 to $198.99.

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