- 3Q18 = Mixed Bag: There were were a couple things that concerned us this print. First, the majority SPOT's sequential revenue growth came from improving Fx. Second, gross adds slowed considerably despite an easier comp. On the positive, we estimate that SPOT saw record improvement in its quarterly churn rate (both y/y and q/q) and produced positive EBITDA for the first time. On the latter, the leverage came from improving gross margins, which is likely due to lower subscription commissions as SPOT actively attempts to steer users away from in-app signups, but that may have also contributed to the aforementioned deceleration in its gross adds growth. SPOT cautioned not to expect positive EBITDA moving forward since it plans to invest further into growth, but that doesn't matter all that much considering that its been cash flow positive over the LTM.
- Tempering Expectations: SPOT's 4Q revenue guidance came in light at the mid-point and mgmt reverted it sub guidance back to its original estimate for the year. As we mentioned during our Internet Risks call (deck & replay below), we were concerned with the recent ramp in sub estimates following 2Q18 results. Mgmt also took note, suggesting that it didn't want to be in a situation were it exceeded its own 4Q18 expectations but missed the Street. So naturally the question now is whether consensus will lower the bar enough for 2019 considering that they were previously expecting limited if any moderation in SPOT's revenue growth rate through 4Q19; something that we doubt this mgmt team would be willing to guide to. We remain long, but evaluating the position.
SPOT DECKs & REPLAYs
- INTERNET | Dodging Landmines (MTCH, SPOT, YELP, TWTR, SNAP) | 10/18/18 | CLICK HERE
- SPOT | Bull vs. Bear | 3/28/2018 | CLICK HERE
Let us know if you have any questions or would like to discuss in more detail.