Spotify Posts Impressive Listener Growth; Margin Expansion to Begin in 2023; Shares Undervalued

Spotify reported mixed third-quarter results with a top-line beat but a miss on the bottom line when compared with the FactSet consensus estimates. While the ad-supported segment displayed some weakness due mainly to the macro environment, the premium segment’s subscriber count and monetization continued to post healthy growth, although contribution from foreign exchange was material. The firm’s fourth-quarter outlook was also mixed with revenue and operating guidance ahead of and worse than current expectations, respectively. We adjusted our revenue estimates lower to account for lower ad spending during this year and part of 2023. Our new fair value estimate for Spotify, which also takes into account the stronger dollar, is now $170, down from $187. In our view, shares of no-moat Spotify remain attractive at current levels.