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Earnings Results: Spotify stock slammed by light subscription forecast, but CEO says Joe Rogan was not the reason

Spotify Technology SA executives said Wednesday they expect fewer subscriber additions in the first quarter than Wall Street expected, sending shares spiraling lower, but they contended the forecast miss was not because of recent controversy.

Spotify SPOT, -5.75% guided for 1 million fewer net subscriber additions in the first quarter of 2022 than analysts expected, and did not provide an annual forecast as they have in the past. Shares dove more than 18% in after-hours trading immediately following the release of the report Wednesday, though they rebounded to a loss of less than 10% after Spotify’s chief financial officer gave a bit of color on expectations for the year in a conference call.

Spotify has found itself in an uncomfortable spotlight early in 2022, as a New Year’s Eve episode from podcaster Joe Rogan — whom the streaming service signed to an exclusive contract for $100 million in 2020 — allowed a discredited doctor to spew inaccurate information about COVID-19 vaccines. Hundreds of scientists and members of the medical community openly called for Spotify to institute a misinformation policy, and prominent musicians like Neil Young and Joni Mitchell publicly asked for their music to be taken off the service if Spotify did not act to counter Rogan’s influence.

“Spotify has become the home of life-threatening COVID misinformation,” Young wrote in a blog post confirming his music was being taken off the service. “Lies being sold for money.”

Customers joined in the protest, openly canceling their subscriptions to Spotify, leading to a statement from the company’s chief executive Sunday. Daniel Ek said Spotify would add content warnings to podcasts that contain discussions about COVID-19.

More on the Spotify controversy: ‘There’s a half-life to these protests and boycotts’

Executives avoided mentioning the controversy or Rogan in a letter to shareholders, though Ek did discuss it in a conference call later Wednesday.

“I’m pleased that Spotify is already implementing several first-of-its-kind measures to help combat misinformation and provide greater transparency,” he said in summing up a short discussion. “We believe we have a critical role to play in supporting creator expression while balancing it with the safety of our users, and we will continue to partner with experts and invest heavily in our platform functionality teams and product capabilities to meet this evolving need head-on.”

Asked specifically about Rogan and podcast policies by an analyst at the top of a question-and-answer session, Ek said “We don’t change our policies based on one creator, nor do we change it based on any media cycle or call from anyone else.”

“Our policies have been carefully written with the input from numbers of internal and external experts in this space, and I do believe they’re right for our platform,” Ek said. “And while Joe has a massive audience, is actually the No. 1 podcast in more than 90 markets, he also has to abide by those policies.”

While being optimistic about 2022 in general, executives did not get specific, avoiding an annual forecast that they have provided in years past. In the letter, they said that “since the vast majority of our initiatives are multiyear in nature and measured as such, we no longer plan to issue annual guidance.”

In the call, Chief Financial Officer Paul Vogel did provide a slight bit of color around yearly trends, saying “We do not anticipate any material changes in the trajectory for net growth in MAUs and subs in 2022 when compared to the net growth we experienced in 2021,” but reiterated that annual guidance would end.

For the first quarter, Spotify guided for 183 million total premium subscribers, suggesting they expect to add 3 million net new subscribers in the quarter, 1 million fewer than analysts’ average estimates of 184 million. Asked specifically if that guidance was affected by recent cancellations related to the Rogan controversy, Ek said “Um, no.”

“So the easy answer is we don’t reflect any churn from the recent Joe Rogan thing in general,” Ek said. “What I would say is it’s too early to know what the impact may be. And usually when we’ve had controversies in the past, those are measured in months and not days.”

Read: CD sales increased in 2021 for the first time in 17 years

Executives did not reveal any specific information about recent subscription cancellations, after reaching 180 million subscribers by the end of 2021 thanks to 25 million net adds in 2021.

“As we move into 2022 and beyond, the opportunities in front of us are large and we see a tremendous amount of greenfield on the horizon,” they wrote in the letter.

Spotify also guided for first-quarter revenue of 2.6 billion euros, matching analysts’ average estimate, according to FactSet. With the current controversy and Spotify’s current business model, analysts were more focused on the subscription guidance than revenue heading into the report, and expected annual guidance.

“The key to watch here is the cadence of Premium Net Adds in the FY22 guidance,” Evercore ISI analysts wrote in a preview of Spotify’s report. “While we expect new geo expansions to serve as a tailwind for [user] growth, we would look for commentary on the potential implication of emerging markets rollout on Subs conversion, esp. as price plans vary across geos.”

Spotify announced a fourth-quarter loss of 39 million euros ($44.1 million), or 21 cents a share, an improvement from a loss of 66 cents a share in the holiday quarter a year ago. Revenue rose to 2.69 billion euros from 2.17 billion last year, topping $3 billion for the first time and beating analysts’ expectations, thanks to a subscriber total that grew 16% in the final three months of the year. Analysts on average expected a loss of 51 cents a share on sales of 2.65 billion euros and total premium subscribers of 180 million, according to FactSet.

Spotify credited a strong majority of its revenue to its premium-subscription offering, which totaled 2.3 billion euros in the fourth quarter while ads accounted for 394 million euros. Some analysts believe that the smaller segment of advertising revenue is set to grow much faster as Spotify moves beyond music into areas where advertising is more lucrative, however.

“As Spotify moved from a music platform to an audio platform (podcasting, live audio, audiobooks), it has unlocked the potential for a robust advertising business that is now too large for investors to ignore,” Lightshed Partners analysts wrote Wednesday morning, while initiating Spotify shares at a “buy” rating with a $260 price target

See also: Netflix stock has best day in a year as analysts say subscriber slowdown doesn’t tell the full story

For the full year, Spotify recorded revenue of 9.67 billion euros ($10.9 billion), topping $10 billion for the first time after recording sales of $9.47 billion in 2021. The music-streaming service remains unprofitable but came closer to break-even in 2021, recording an annual loss of 34 million euros after losing 581 million euros in 2020.

Spotify stock has suffered during the controversy, falling 18% so far this year, but that continued a previous downward trajectory. Shares have declined 44.4% in the past 12 months, as the S&P 500 index SPX, +0.94% gained 18.8%.

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