After suffering sharp losses in early morning trading, Spotify SPOT shares fought to finish just above their previous close on Wednesday, the last day before the music streaming giant is scheduled to release its second-ever earnings report as a publicly-traded company.
Spotify has had a pretty solid first few months on the market since its direct listing IPO in April, with shares gaining about 24% so far—and that is with competition from the likes of Apple AAPL, Amazon AMZN, and Google GOOGL ratcheting up.
However, the company’s (very brief) earnings history has not been impressive, and its first report introduced the young stock to volatility.
In fact, Spotify tumbled in the wake of its first earnings announcement after posting disappointing results. We prefer to gauge earnings season moves by comparing the closing price of a particular stock two days before it reports and two days after it reports. Last quarter, Spotify dropped nearly 3% in this period.
That is, of course, not that dramatic of a post-earnings drop, but investors will be hoping for better performance this time around. It is also worth noting that estimates might be a bit more accurate this time around.
It takes time for analysts to start tracking these stocks—and even longer for them to truly understand their businesses. In the previous quarter, we had just three earnings estimates for the stock, but for the soon-to-be-reported period, our consensus projections—which are calling for a loss of 62 cents—are based on eight analyst estimates.
In preparing for tomorrow’s report, we also have the added advantage of having seen Spotify’s own guidance. In its first earnings release, management told investors that the company expected to see revenue in the range of €1.1 to €1.3 billion, up 10% to 29% year over year.
Excluding the impact of forex headwinds, the company said it expected revenue to improve by 20% to 38%. MAUs were expected to be between 175 and 180 million, while Premium users were expected to reach 79 to 83 million. Spotify finished the previous quarter with 170 million MAUs and 75 million Premium users.
Investors should also note that Spotify has been busy expanding its media offerings recently. Last month, the streaming leader appointed Dawn Ostroff, who is currently serving as the President of Entertainment at Condé Nast, as its new Chief Content Officer.
Ostroff won’t be starting at Spotify until August, but the hiring underscores Spotify’s broader media ambitions. The executive has experience heading up the entertainment division of the parent company of Vogue, Vanity Fair, GQ, and The New Yorker, and before that, she worked on the development of Gossip Girl and The Vampire Diaries at the CW and UPN networks.
So what’s a multimedia executive with TV production experience doing at a music streaming company? Well, Ostroff will actually be in charge of Spotify’s content partnerships across music, audio, and video. That’s right, Spotify does video—including a number of original, music-based programs like music videos and behind-the scenes-type shows.
But will investors reward the stock for working on video? Will Spotify’s new earnings report show any indication that its multimedia ambitions are paying off?
We will have to wait and see tomorrow morning, as Spotify’s latest results are due out before the bell. It is worth mentioning that the options market is a bit nervous ahead of the report, with Spotify’s July 27 $200.00 Call seeing some of the highest implied volatility of all equity options on Tuesday.
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