SPOT's Q1 2022 MAU guidance of 418 million was -1% below the market consensus' estimate of 422 million, while its expected number of premium subscribers for the first quarter of this year was 183 million, or -1% short of the Wall Street analysts' forecast of 185.3 million. The key metrics, that were part of SPOT's first-quarter management guidance that investors should take note of, are Monthly Active Users or MAUs and total premium subscribers. Spotify provided guidance on a number of financial metrics for Q1 2022 as part of the company's Q4 2021 results announcement. I also explain why SPOT's share price has been weak in 2022 year-to-date in the next two sections of the article. In other words, Spotify is sacrificing short-term margin expansion by investing more to drive future growth, and this has affected the company's recent gross margin trends in a negative way. As per S&P Capital IQ's financial data, SPOT's gross margin expanded from 25.5% in Q1 2021 to 28.4% in Q2 2021, prior to contracting to 26.7% and 26.5% for Q3 2021 and Q4 2021, respectively.Īt the company's most recent Q4 2021 results call on February 2, 2022, Spotify seemed to have acknowledged that its gross profit margins in recent quarter have disappointed the market to some extent, noting that a focus on "investments may slightly alter the progress we've seen in consolidated gross margin over the past 2 years." But Spotify also emphasized at the call that "it is exactly this progress that has given us the conviction to increase our investments in certain areas and gives us confidence that we are on the right path over the long term." I think Spotify's shares did badly in 2021, because it doesn't seem to be getting closer to its long-term gross profit margin target in the 30%-40% range. Spotify's Share Price Performance In 2022 Year-to-date Spotify also underperformed the S&P 500 significantly during these time periods. SPOT's shares fell by -24.8% in full-year 2021 and dropped by a further -25% in this year thus far.
Spotify's share price performance was poor in 2021, and things didn't get better in early-2022. As such, I think that SPOT's shares are currently undervalued and deserving of a Buy rating. This should be the major re-rating catalyst for SPOT's shares, which are only trading at a low single digit forward Enterprise Value-to-Revenue multiple. I expect Spotify to achieve the lower end of the company's long-term gross profit margin goal (30%) in five years' time. My prior article for SPOT was written on January 18, 2022, which focused on the company's "competition with TikTok and Resso." I will spend time on Spotify's historical stock price performance, Q1 2022 guidance and its medium-term five-year outlook in my latest article.
I continue to rate Spotify Technology S.A. Sony Alpha User/iStock Editorial via Getty Images Elevator Pitch Travel the world to capture moments and beautiful photos.
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