Spotify likely to post weak Q3 earnings on costs, competition

Spotify Technology S.A. (NYSE: SPOT) is set to release its third-quarter earnings results on Monday before the market opens. The monthly active users along with premium subscribers are expected to be driving the top-line growth of the music streaming giant while costs and expenses, as well as stiff competition, could hurt the bottom line.

The company has been struggling to achieve consistent profits but the focus towards podcasting could likely lower costs and drive growth. The company remains deeply rooted in the music streaming business model and this is likely to increase the costs for keeping pace with technological advancement. The average revenue per user (ARPU) is likely to fall further due to its push for more global expansion into the highly-populated emerging countries.

In addition, for surviving the stiff competition, Spotify could expand podcasting by using its cash and investments to owing content. The company is likely to turn beneficial from the emerging countries’ expansion due to user experience, accumulation of market share, and the possible increase in ARPU due to users’ adoption growth.

The company continues to invest aggressively in improving the user experience both from a content perspective and app usage as this remained the strategic goal of the business. The advertising in podcasts could increase as it continued the development of owned and exclusive non-music audio content, with revenue growth expected from podcasts through the balance of 2019 and into 2020.

Analysts expect the company to report a loss of $0.32 per share on revenue of $1.9 billion for the third quarter. In comparison, during the previous year quarter, Spotify posted a profit of $0.26 per share on revenue of $1.54 billion. The company has surprised investors by beating analysts’ expectations twice in the past four quarters.

Read: Microsoft Q1 earnings review

For the second quarter, Spotify reported a narrower loss driven by higher revenue and lower finance costs. The total monthly active users (MAUs) grew by 29% year-over-year to 232 million, outperforming the high end of its 222 million to 228 million MAU guidance range. Premium Subscribers increased by 31% to 108 million.

For the third quarter, the company expects revenue of EUR1.57 billion to EUR1.77 billion and operating results between loss of EUR78 million and profit of EUR2 million. For the fourth quarter, revenue is expected to be EUR1.74 billion to EUR1.94 billion and the operating loss of EUR131 million to EUR31 million.

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