What to expect when Spotify (SPOT) reports Q1 2020 results

Spotify Technology S.A. (NYSE: SPOT) is scheduled to report first quarter 2020 earnings results on Wednesday, April 29, before the market opens. Analysts expect the company to deliver a loss of $0.49 per share compared to a loss of $0.89 per share reported a year ago. Revenue is estimated to increase over 17% to $2 billion year-over-year.

The stock has dropped 7% since the beginning of the year but gained over 13% in the past one month. It is currently down nearly 14% from its 52-week high of $161.38.

The company’s topline numbers benefit from growth in user metrics as this provides opportunities to convert users to premium subscribers and generate revenues from advertising. Last quarter, total monthly active users (MAUs) grew 31% year-over-year to 271 million. The company ended 2019 with 124 million premium subscribers, which reflected an increase of 29% year-over-year.

Spotify is expected to benefit from its expansion into diversified revenue streams like podcasts. Last quarter, the company saw increased engagement and retention thanks to podcasts. Consumption hours grew around 200% year-over-year.

Based on data from Counterpoint Research, in 2019, Spotify was the leader in the music streaming market with a 31% share of total revenue and 35% share of total paid subscriptions. Global online music streaming subscriptions grew 32% year-on-year to 358 million subscriptions. The report states that online music streaming subscriptions are expected to surpass 450 million by the end of 2020, reflecting a year-over-year growth of 25%.

The COVID-19 outbreak led to an increase in demand for streaming services in general as people stay at home, and while Spotify was expected to benefit from this trend, this does not seem to be happening. The report stated that demand for music streaming has dropped as people show more interest in news channels and podcasts for updates on the pandemic.

It remains to be seen how this trend will translate into the results for the quarter and what impact it will have on the outlook for the year. The management is expected to provide more clarity on the outlook during its announcement.

Spotify faces tough competition in the US from Apple Music as well as the music streaming services of other tech giants, who have significantly more resources to expand their footprint. The company however, is seeing strong growth in international markets which is an advantage.

The company’s losses are a cause of concern as are its increasing expenses. Last quarter, operating expenses jumped 80% year-over-year due to higher-than-expected social charges.

In the fourth quarter of 2019, revenues increased 7% to EUR1.85 billion while loss per share amounted to EUR1.14. At the time, the company guided for Q1 2020 revenues in the range of EUR1.71-1.91 billion and total MAUs of 279-289 million. For the full year, revenues were estimated in the range of EUR8.08-8.48 billion while MAUs are expected to be 328-348 million. Updates to these numbers are worth watching.