Earnings preview: Subscribers to tune Spotify Technology Q1 results

Spotify Technology S.A. (NYSE: SPOT) is scheduled to report its earnings results for the first quarter of 2019 on Monday before the market opens. The music streaming giant will be benefited by the solid growth in revenues and monthly active users as well as continued solid growth in Latin America and other emerging regions.

The results will be benefited by continued healthy premium subscriber growth and an increase in ad-supported revenues, which will be driven by direct and programmatic channels. However, the growth in family and student plans and market mix shift could negatively impact the average revenue per user. And the premium revenue growth could face a significant headwind from the foreign exchange during the first quarter.

The premium subscriber base could rise backed by better-than-expected intake from its Google Home promotion and annual Holiday campaign. Spotify rolled out an affordable family plan three years ago, which will likely drive growth in its premium subscription base for the first quarter.

Analysts expect Spotify Technology to report a loss of $0.39 per share on revenue of $1.64 billion for the first quarter. In comparison, during the previous year quarter, the company posted a loss of $1.16 per share on revenue of $1.3 billion.

The company has surprised investors by beating the expectations in the two of the past four quarters. Traders predict Spotify Technology to surprise the market by exceeding the consensus. Majority of the analysts recommended a “strong buy” or “buy” rating while expecting the stock reach $162.58 per share in the next 52 weeks.

For the fourth quarter, the company posted a 30% jump in revenue helped by healthy premium subscriber growth and higher ad-supported revenues. Monthly active users (MAU) grew 29% to 207 million at the end of Q4, primarily due to strong growth in Latin America and other emerging markets. The average revenue per user (ARPU), meanwhile, slid 7% due to the increasing popularity of Family Plan and Student Plan.

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For the first quarter, Spotify had expected total revenues in the range of EUR 1.35 billion to EUR 1.55 billion, up 19% and 36% year-over-year. Premium subscribers were anticipated to grow by 29% and 33% to the range of 97 million to 100 million. Gross margin was predicted to be in the range of 22.5% to 24.5% and operating loss guidance remained at EUR 50 million to EUR 120 million.

For the full year 2019, the company had predicted total revenue to grow by 21% to 29% to the range of EUR 6.35 billion to EUR 6.8 billion. Premium subscribers were projected to increase by 21% to 32% and MAU was anticipated to be up 18% to 28% to the range of 245 million to 265 million. The company has been looking to spend $400 million to $500 million in acquisitions this year.

Meanwhile, the music streaming competition has been increasing as Amazon (NASDAQ: AMZN) ventured into the new ad-supported streaming music offering, which will help incrementally grow Amazon’s advertising business. Also, Alphabet (NASDAQ: GOOG) and Apple (NASDAQ: AAPL) have come up with competing products. However, investors were less concerned about the Amazon threat to Spotify as this would unlikely have a noticeable impact.

Shares of Spotify Technology has fallen over 14% in the past year while it has risen over 18% in the year so far.

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