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Spotify shares sink after subscriber forecast falls short

Yahoo Finance Live's Julie Hyman and Brian Sozzi discuss fourth quarter earnings for Spotify and the decline of its stock as the music streaming company forecasts lower subscriber growth in Q1.

Video transcript

JULIE HYMAN: --is Spotify. And Spotify shares are down by 13%. This has a lot to do with the company's forecast for first quarter subscribers. So it's going to end the first quarter, it says, with 418 million total users, 183 million paid subscribers. Both of those numbers short of analysts' estimates. You can see here, the year-over-year change that it saw last quarter in those subscribers. Actually, last quarter was relatively strong for Spotify. So it really seems here that it is the outlook, in this case, that is problematic for the company, Soz.

BRIAN SOZZI: Julie, I wonder if in that image that person listening to Spotify knows this type of quarter that Spotify came out with because it wasn't that good. It wasn't as bad as Meta, and they'd probably be pulling their hair out if they were reading this thing. Again, here's another big cap tech stock, you're seeing the street come out here really defend here this morning after a disappointing quarter from them. I know they beat on earnings, or the loss per share number. But still, margins were under pressure here.

I believe the gross profit margin with the street follows closely on this company, flat year over year. And the bigger issue here, and we'll get into the Joe Rogan stuff in a second, Julie, but no full year outlook. Now I have a piece on the Yahoo Finance homepage really digging down deep into this. But still, an environment that is still nervous for tech stocks as we're seeing here by Meta, you need to come out with an outlook for the full year. Spotify didn't do it. Had some concerns, I think, about how the growth will shake out in the first quarter. Hence, no full year outlook from them.

JULIE HYMAN: Yeah. At the same time, Daniel Ek, the CEO, is sort of trying to get investors to focus on the long-term rather than just a one year outlook. And he has given some big numbers for the longer term outlook. Eventually, he says, the goal is to sign up a billion users for the company's platform. So that's something if you're a long-term investor, maybe you can sort of focus on. You and I have talked a lot about podcasting versus music and getting creators on the platform. Advertising sales, by the way, were 15% of revenue last quarter, which is the highest that we have seen. A lot of that advertising is, indeed, happening on podcasts as well.

But if you're going to talk about podcasts, you have to talk about the aforementioned Joe Rogan, don't you, and the controversy that he has engendered, leading some of the sort of classic artists like David Crosby, Stephen Stills, Neil Young, Joni Mitchell-- Neil Young, of course, started it-- pulling their music from the platform. Ek talked about this as well. He said, usually when we have controversies in the past, they're measured in months, not days. But I feel good about where we are. So he didn't express a lot of concern about this on the call, Soz.

BRIAN SOZZI: No. But still, you heard the concern in his voice. And just to say that, you know, you may not see an impact in the first quarter from this, but just him pointing out, perhaps, it's something that plays out longer term. What does that mean for premium subscribers? What does it mean for ad-supported subscribers? And we always like to say, the long term is great, and Spotify might hit a billion users. And in the long term, everything is OK, and that'll be the Metaverse's universe as well, too.

But in the near term, in this market, investors want to see companies put up results and solid guidance, and we just did not get that from Spotify.

JULIE HYMAN: We did not. As we've been talking about, some people on the street have been cutting their price targets, cutting their recommendations on the likes of Spotify and Facebook this morning. Mark Mahaney--