Streaming giant Spotify (SPOT) released its second quarter results a month ago, reporting $2.9 billion in revenues, up 6% YoY, compared to $2.7 billion a year ago, observes Todd Shaver, editor of The Bull Market Report.
The company posted a loss of $125 million, or $0.66 per share, as against a loss of $20 million, or $0.19. Despite posting a mixed quarter, investors had a lot to smile about, pertaining to user growth and advertising.
Monthly active users (MAUs) during the quarter stood at 430 million, up 20% YoY, compared to 365 million a year ago, and 5 million ahead of guidance. Among the MAUs, premium subscribers accounted for 190 million, up 14% YoY, while the ad-supported MAUs stood at 260 million, up 22% YoY, and driving $360 million in advertising revenues, an increase of 31% YoY, compared to $275 million.
Spotify continued its expansionary spree into other audio verticals beyond music, and its acquisition of audiobooks marketplace, Findaway Voices, which closed during the quarter, will add more value to the creator ecosystem, increasing the overall user experience on the platform. Further entrenching its presence across the value chain, the company announced the acquisition of AI voice platform Sonantic for $320 million, adding to its many acquisitions in this segment.
Spotify for Artists, the company’s new advertising service aimed at creators and musicians to promote their content on the platform continues to witness traction among creators, with 30% growth expected in 2022. While this segment makes up just 6% of the overall sales mix, it has the potential to forge a steady path for itself in the future. It is no longer just a streaming service; it is focused on building a platform and marketplace to bring together creators, listeners, and advertisers.
Following a fall of over 55% YTD, the stock remains substantially undervalued trading at just under 2 times sales. Given the massive potential it offers, getting in at current levels is a stellar opportunity to create substantial long-term value. Spotify ended the quarter with $3.6 billion in cash, $1.8 billion in debt, and $320 million in cash flow, giving it plenty of resources to weather any headwinds and uncertainties. Our target price is $150.
