2Q18 Takeaways
- Sub numbers were just OK, Advertising hit a wall: SPOT beat 2Q sub estimates, and in turn guided slightly ahead for 3Q. But SPOT had a relatively low hurdle in 2Q since anything less would have marked a precipitous slowdown in its rate of gross adds on a 2-yr basis,. Gross adds did marginally accelerate on a y/y basis, but on a significantly easier comp by our estimates. Ad revenue growth decelerated by almost 20 percentage points. GPDR had less than $1M impact according to SPOT's CFP and the FX drag improved in 2Q18. We estimate that ARPU on an FX-neutral basis was flat y/y vs. +18% in 1Q18. We're not sure what's going on here, so need to dig into this further.
- Still long but on a short leash. As a reminder, we're cautious on the longer-term story given that SPOT's main competitive advantage was granted to it by the Labels, who can't risk letting SPOT separate too far from the pack (see deck/replay below for detail). We're long for now, but the closer we get to 2019, the more likely we are to exit given both the current trajectory of consensus estimates and the stagnating growth in ad-supported users, which is the primary funnel for the sub business. Granted, accelerating sub growth like we saw in 2Q is a naturally drag on ad-supported users, but that's irrelevant as it relates to 2019 sub growth. All said, we're looking for the exit.
SPOT DECKS & REPLAYS
- INTERNET | BEST IDEAS MID-YEAR UPDATE | 6/28/2018 | CLICK HERE
- SPOT | BULL VS. BEAR | 3/28/2018 | CLICK HERE
See the decks/replays above for supporting detail/analysis on our Long thesis. Let us know if you have any questions or would like to discuss further
