Spotify Reports Strong Q2 User Growth; Likely to Continue in Q3; FVE $187; Shares Attractive

Spotify reported mixed second-quarter results with revenue beating the FactSet consensus estimates while missing on the bottom line. We are impressed with continuing user growth, which was not affected by the firm’s higher prices, resulting in higher user monetization. Advertising growth remained strong and the firm is not experiencing much impact from the uncertainties surrounding the macro environment. We remain confident in Spotify's ability to attract more users, increase ad loads, and bring in more advertisers especially as it increases its offerings such as audiobooks. In addition, with more user monetization, the platform may become more appealing to artists and other audio content creators. We slightly increased our revenue projections for 2022 and beyond, but lowered our fair value estimate to $187 from $195, mainly because of the stronger U.S. dollar. While the stock has jumped 13% in reaction to the report and the firm's strong third-quarter guidance, Spotify remains attractive, trading at only 0.62 times our fair value estimate.