earnings
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SM Entertainment, home of such K-pop groups as NCT 127, SuperM and Girls’ Generation, had revenue of 238.1 billion KRW ($165 million at the Sept. 30 exchange rate) from July 1 to Sept. 30 — up 65.4% year-over-year and a 29.1% improvement from the previous quarter, the company announced Monday (Nov. 14).
Operating margin — operating profit as a percentage of revenue — improved to 12.5% in the third quarter of 2022, up from 6.9% in the prior-year period. Net income was 29.2 billion KRW ($20.2 million), up 129.5% year-over-year and 15% higher than the second quarter.
The company’s multi-pronged business, which generates revenue across all facets of its artists’ careers, improved across the board: Recorded music revenues grew 46.6% to 135.1 billion won ($93.6 million). SM Entertainment’s album sales improved from 3.25 million units in the prior-year period to 4.7 million units. It had two standout releases in the quarter: NCT 127’s 2 Baddies peaked at No. 3 on the Billboard 200 albums chart and Aespa’s Girls: The 2nd Mini Album topped Billboard’s Top Album Sales chart.
Concert revenues climbed to 10.9 billion won from virtually nothing a year ago. In the quarter, Revenue from appearances — including television, advertising and events — grew 96.4% to 24.3 billion KRW ($16.8 million). Licensing revenue improved 76.1% to 26.4 billion KRW ($18.3 million).
Revenue at SM Entertainment’s subsidiaries grew 119.5% to 136.9 billion KRW ($94.9 million). These companies include Dream Maker, a Hong Kong-based concert booking agency; SM Culture & Contents, a content production and advertising business; and Keyeast, a Korea-based merchandising and licensing business. According to the release, these subsidiaries benefitted from the reopening of domestic and international touring and increased demand for advertising promotion and business-to-business travel.
Several SM Entertainment artists are on tour in the fourth quarter: NCT 127 has nine dates in Korea, U.S., Thailand and Indonesia; Super Junior has six concerts in Indonesia, Hong Kong and Taiwan; and Ryeowook and NCT Dream have six and five concerts in Japan, respectively.
The company’s fourth-quarter release schedule includes new mini albums by Chen, BoA and Red Velvet and Red Velvet member Seulgi. Red Velvet’s Feel My Rhythm album peaked at No. 20 on the Billboard Global Excl. US chart in April; it also landed on the Indonesia Songs (No. 3), Malaysia Songs (No. 5), Phillippines Songs (No. 15) and Taiwan Songs (No. 16) charts. The group’s The ReVe Festival: Finale EP reached No. 40 on Billboard’s Top Album Sales chart in January 2020.
SM Entertainment’s shares rose 0.5% on Monday to 65,800 KRW. Down just 11.3% in 2022, SM Entertainment’s share price has fared better than Korean music companies HYBE (down 61.2%) and YG Entertainment ( down 26.4%) but lags behind JYP Entertainment (up 12.0%), home of Twice, Stray Kids and iTZY.
SM Entertainment’s shares rose 19% on Sept. 16 after the company announced would prematurely end a contract with a production company owned by the company’s founder and largest shareholder, Lee Soo-man. Its share price, however, has fallen 14% since then.
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Most publicly traded companies have released earnings for the latest quarter (ended Sept. 30), and most of those results have shown encouraging signs for investors and the music industry alike. Earnings by Universal Music Group, Spotify, Live Nation, SiriusXM are in the books. Notable companies yet to announce include Warner Music Group (Nov. 22) and Tencent Music Entertainment (Nov. 15).
If there is one over-arching narrative, it’s that inflation and economic uncertainty haven’t ruined music’s post-pandemic recovery. Revenue growth is strong, aside from some softness related to a slowdown in advertising spending that impacts broadcast radio and ad-supported streaming. Consumer spending on everything from concerts to vinyl records is healthy – despite the around-the-clock warnings of an impending recession and the highest inflation rates in four decades eating into consumers’ wallets. When companies have raised prices for tickets and concessions at concerts, music fans, by and large, haven’t blinked. Even long-stagnant music subscription prices are on the rise, and nobody expects a consumer backlash.
Not that music companies’ stock prices reflect this optimism. Stocks in general have taken a beating in 2022. Music stocks have suffered, too, although stocks ended the week on a high note. The Billboard Global Music Index, a measure of 20 publicly traded music companies’ stocks, climbed 12.7% this week after markets rallied on Thursday and Friday on encouraging news about the slowing U.S. inflation rate.
Here are five quick takeaways from third-quarter earnings and the statements made by the companies’ management teams.
1. The subscription business model is insulating creators and rights holders from economic uncertainty. Music royalties are popular with investors in part because they are counter-cyclical, meaning their returns have little correlation with changes in the broader market. Put another way, when the economy sours, people are more likely to cut back on grocery spending or travel than cancel a Spotify subscription. Consumers might feel pinched in their pocketbooks, but Spotify and SiriusXM added 7 million and 187,000 subscribers, respectively, in the third quarter, and YouTube announced on Wednesday that it surpassed 80 million subscribers to YouTube Music and Premium, an increase of 30 million in about 14 months. Stock prices at companies more exposed to inflation pressures fared best on Thursday, as stocks surged on news that the annual change in the consumer price index in the U.S. fell to 7.7%. Shares of radio companies iHeartMedia and Audacy climbed 10.0% and 14.0%, respectively. Live entertainment companies also did well: MSG Entertainment was +5.6%, Live Nation was +5.1%, and ticketing companies Eventbrite and Vivid Seats were +8.3 and +9.2%, respectively.
2. Podcasts are a growing, stabilizing force. Spotify’s podcast business has rightly captured headlines as the company uses spoken-word content to build engagement, generate advertising revenue and improve on the gross margins of its core music business. The number of monthly users who consumed podcasts grew “in the substantial double-digits” year-over-year, the company said. But other companies’ podcast businesses get less attention despite their importance to their own futures. Radio companies – namely iHeartMedia, Cumulus Media and Audacy – have fast-growing podcast businesses. LiveOne, primarily a music streaming company, has a fast-growing podcast division, PodcastOne, that made $17.2 million of revenue in the last two quarters on the strength of such shows as The Adam Carolla Show, Cold Case Files and Uncut with Jay Cutler. The catch is that podcast growth has little direct impact on the music business outside of helping those platforms – digital and broadcast – that produce royalties for record labels and publishers. Music rights owners could better tap into this growing market if there were better systems for licensing music to podcast creators.
3. With share prices relatively low, companies are increasingly buying back shares to bolster shareholder value and help share prices. Among the companies currently engaged in stock repurchase programs are Spotify, MSG Entertainment, Cumulus Media, Audacy, SiriusXM, Townsquare Media and LiveOne. Spotify announced a $1 billion share buyback program in August 2021, and it spent $2 million and $24 million repurchasing shares in the second and third quarters, respectively. Cumulus Media has $21.1 million remaining in its $50 million share repurchase authorization announced in May. Last month, MSG Entertainment authorized $75 million for share buybacks on top of a $175 million, one-time dividend worth $7 per share paid on Oct. 31 to shareholders of record on Oct. 17. And LiveOne announced on Thursday that it will expand its share repurchase program, originally planned for 2 million shares (worth about $1.5 million at Friday’s closing price), by an additional $2 million. More buybacks could be on the way soon: Universal Music Group shareholders voted in May to give the company’s board the ability to repurchase up to 10% of the issued share capital.
4. Strong growth in “rest of world” markets. Believe’s revenue in Asia Pacific and Africa grew 61.1% to 52.3 million euros ($53.2 million), about the same as its European revenues excluding France and Germany. Spotify’s “rest of world” markets improved their share of monthly active users to 26% in the third quarter, up from 21% in the prior-year period. Also, “rest of world” and Latin America each gained a percentage point in shares of Spotify subscribers while North America and Europe both lost a percentage point of subscriber share. As Billboard’s Elizabeth Dilts Marshall reported last week, investors are increasingly eyeing companies in the Middle East and North Africa as streaming transforms those regions.
5. Spinoffs are going to separate high-growth, high-potential businesses. MSG Entertainment plans to spin off its MSG Sphere venue currently under construction in Las Vegas along with its Tao Hospitality Group. The remaining MSG Entertainment will retain the live entertainment business – namely the portfolio of venues such as Madison Square Garden and Radio City Music Hall – and MSG Networks, a sports broadcast network. Ryman Hospitality will spin off its Opry Entertainment Group – possibly within four years, based on its agreement with two new investors, Atairos and NBCUniversal. LiveOne plans to file an S-1 document with the SEC by Dec. 15 for a spin-off of its podcast division, PodcastOne, which accounted for about 37% of the company’s total revenues in the six-month period ended Sept. 30. LiveOne’s management and board believe the company’s share price undervalues the sum of its parts and spinning off PodcastOne would maximize shareholder value and better position the division for M&A and talent acquisition.
Despite various economic headwinds, including inflation, we have not seen any pullback in demand,” Live Nation CEO Michael Rapino said during the company’s earnings call on Thursday (Nov. 3). In the third quarter, Live Nation posted record revenue for its concerts division of $5.3 billion as well as the company’s best-ever gross transaction value at its Ticketmaster division of $6.7 billion. Its high-margin sponsorship and advertising division also produced record adjusted operating income of $226 million, up 56% from the same period in 2019.
Looking ahead to 2023, Live Nation is “feeling very good about the attendance levels for next year,” said president and CFO Joe Berchtold. “Our tickets sold for the shows that we have on sale for next year are up consistently across all venue types relative to a year ago.” Excluding rescheduled events, Ticketmaster’s sales for 2023 concerts are up by double digits compared to advance ticket sales at the same point in 2021.
Demand depends on the supply of artist tours, and Live Nation executives believe next year’s tours will have a similar level of quality as this year’s headline tours, which included runs by Bad Bunny, Red Hot Chili Peppers and The Weeknd, among others. “If you were a stadium act, a large selling arena act, you probably debated whether you went out in ‘22 or you went out in ‘23,” said Rapino. “From clubs to stadiums to arenas, it looks like a similar year [in terms of] quality.” Next year, Live Nation will promote tours by Taylor Swift, Blink-182, Shania Twain, Dead & Company, Depeche Mode and the Eagles.
The warning signs for pending economic doom are everywhere. On Thursday, hedge fund giant Elliott warned of a “global societal collapse” and a further 50% decline in equity markets due to hyperinflation and an end to an “extraordinary” period of cheap money. The same day, the Bank of England warned that the U.K., facing high energy costs and rising interest rates, could suffer its longest-ever recession and a possible doubling of unemployment over the next two years.
The biggest banks have raised concerns, too. On Wednesday, Citi said the U.S. could fall into a recession in the second half of 2023. JPMorgan Chase & Co. CEO Jamie Dimon said earlier this month the global U.S. economies would hit a recession in mid-2023, although he added the U.S. economy was “actually still doing well” at present.
The U.S. economy is a grab bag of mixed signals that point to both resilience and stress. U.S. payrolls increased by 261,000 in October. Yet auto loan delinquencies are on the rise, according to TransUnion, and repeated interest rate hikes by the Federal Reserve means consumers with credit card balances will pay more in interest.
But Live Nation’s numbers show fans are spending money on concerts in record numbers. At Live Nation’s U.S. amphitheaters and global festivals, ancillary fan spending — which covers items such as food, beverage, merchandise and parking — in the third quarter increased almost 30% to $38 per fan from the same period in 2019. At U.S. and U.K. theaters, ancillary fan spending increased by over 20% relative to 2019.
Even with BTS on hiatus, the band’s label and agency HYBE grew revenues 445.5 billion KRW ($308.7 at the Sept. 30 exchange rate) from July to September — up 30.6% from the year-prior period, according to the company’s third-quarter earnings report released Thursday. But compared to second-quarter revenue of 512.2 billion KRW ($354.9 million), revenue was down 13%.
The “artist direct-involvement” segments of the business showed mixed results in the quarter. Music sales of 129.2 billion KRW ($89.5 million) were 0.4% year-over-year and 38.7% lower than the previous quarter. Concert revenue of 47.2 billion KRW ($32.7 million) was a vast improvement over zero in the third quarter of 2021 but lower than the first and second quarters. Revenues from ads, appearances and management fell 11.7% year-over-year to 29.8 billion KRW ($20.2 million).
HYBE saw better performance from its “artist indirect-involvement” segments that are less dependent on the timing of music releases and tour dates. Merchandising and licensing revenue grew 49.5% year-over-year to 144.7 billion KRW ($100.3 million). Contents revenue climbed 22.9% to 107.2 billion KRW ($74.3 million). And fan club revenue improved 27.5% to 17.3 billion KRW ($12 million).
Though the first nine months of the year, HYBE’s revenue improved 55.7% year-over-year to 1.24 trillion KRW ($859.2 million) and its operating profit increased 59.% to 185.9 billion KRW ($128.8 million). Operating margin improved from 14.6% to 15%.
Despite the impressive growth, HYBE is facing a dilemma. The company is without its biggest artist, BTS, after members went on hiatus earlier this year and will soon face mandatory military service in Korea. Losing its cash cow — until “around 2025,” according to an Oct. 17 letter to shareholders from CEO Park Ji-won — leaves Hybe with a tricky balancing act: In the absence of BTS new music and tours, the company must make up the difference with individual members’ solo projects and a slate of successful and up-and-coming artists. With only a retrospective album, Proof, and no concert dates since April, BTS will still account for 60-65% of HYBE’s 2023 revenue, Park said during the earnings call. The remaining 35-40% of revenue will come from a growing roster of young artists and Ithaca Holdings, which HYBE acquired in 2021.
In recent years, HYBE has diversified to reduce its reliance on BTS and build a more stable portfolio of companies and artists. Through its nine record labels in Korea, Japan and the U.S., HYBE has built a diversified roster that “helps us avoid a risk of concentrating on a certain country, a certain genre, and allows us to flexibly respond to the changing external situations and trends, thereby reducing the overall business risk,” said CFO Lee Kyung-Joon.
Ithica Holdings added both recorded music catalog (through Big Machine Label Group) and artist management clients (through SB Projects). Its founder, Scooter Braun, is now co-CEO of HYBE America. When asked by an analyst what synergies Ithaca provides more than a year after the merger, Park pointed to the newfound ease and efficiency of launching projects in the U.S. under Braun and co-CEO Lenzo Yoon. Also, Ithaca’s U.S. artists will join HYBE’s WeVerse social media platform in 2023, Park added, and HYBE is pursuing opportunities for the businesses of Ithaca artists Justin Bieber (Drew House) and Ariana Grande (R.E.M. Beauty) in Asia.
In Korea, HYBE’s roster includes such up-and-coming artists as Le Sserafim, released through its Source Music imprint, whose first two albums have surpassed a combined 1 million units sold. NewJeans, released through HYBE’s ADOR imprint, has cumulative sales of 620,000 of its debut, self-titled EP released in August. Outside of Korea, HYBE is taking its model for discovering and developing new artists to the world’s two largest music markets. In Japan, HYBE Labels Japan is prepping the December launch of &Team, a nine-person, multinational boy band. In the U.S., HYBE has a joint venture with Universal Music Group’s Geffen Records and is developing a global girl group.
Hybe’s plan for global growth goes beyond its growing artist roster. A broad strategy termed by Park as “expansion through cooperation across boundaries” includes mergers and acquisitions, joint ventures, equity investments and partnerships. “In order to expand the multi-label strategy, we’re considering various partnerships and investments with labels, catalog companies and talent management companies in overseas markets such as the U.S. and Japan, thereby strengthening our music I.P. portfolio,” Park said. “Through this approach, we except that greater synergies will be created with our superior solutions capability on concerts, merchandising and content to deliver greater results.”
But in the short term, HYBE doesn’t have a quick solution for replacing BTS, and Park warned that declining BTS revenue — namely lost concert revenue — will put pressure on HYBE’s margins in 2023. That should change as groups such as Seventeen and Tomorrow X Together gain popularity and perform in larger venues. Compared to BTS, those artists’ margins are “not very different from the margin of BTS — other than concert revenue,” he said. “Therefore, as these groups continue to grow, I believe that margin will improve accordingly…starting from 2024.”
With HYBE’s share price down 64.9% year to date, mostly due to BTS’s hiatus, the company is considering additional ways to improve shareholder return, including share buybacks and dividends. Park said the company will reveal more about those plans in early 2023.
Live Nation set records for concert revenue and ticket sales in the third quarter of 2022 as the touring industry continued its recovery from the COVID-19 pandemic. Third-quarter revenues were $6.2 billion, 66.8% greater than the same period in 2019, while adjusted operating income increased 45% to $621 million, the company announced Thursday (Nov. 3).
“Fans around the world continue prioritizing their spend on live events, particularly concerts,” said president and CEO Michael Rapino in a statement. “Despite varying economic headwinds including inflation, we have not seen any pullback in demand, as on-sales, on-site spending, advertising and all other operating metrics continue showing strong year-on-year growth.”
The concerts division tallied its highest-ever quarterly attendance with 44 million fans at 11,000 events that generated $5 billion of revenue and $281 million of adjusted operating income (AOI), up 67% and 44%, respectively, from the same period in 2019. Demand was strong across all types of venues and markets. Stadium attendance tripled to almost 9 million as many top artists, including Bad Bunny (the highest grossing Latin tour in Boxscore history), Red Hot Chili Peppers and The Weeknd, took advantage of strong fan demand by performing the larger venues.
Ticketmaster also had a record-breaking quarter by delivering its highest fee-bearing gross transacted value of $7.3 Billion, a 62% increase from the same period in 2019. Ticketing revenue was $343 million, up 96.7% year-over-year and 36.8% greater than the same period in 2019. Ticketing’s AOI of $163.2 million was 5% lower year-over-year but 28.2% above the third quarter of 2019.
Ticketmaster has made headlines because some artists — namely Bruce Springsteen and Blink-182 — opted for dynamic pricing that charged more for the best seats. The practice may frustrate some fans, but Live Nation expects to transfer over $550 million to artists through higher primary ticket prices — value that might otherwise have been captured on the secondary ticketing market.
Sponsorship and advertising revenue was up 59.4% to $343 million on the strength of Live Nation’s festivals and Ticketmaster platform integration. The high-margin segment’s AOI of $226.2 million was 103.4% better year-over-year and 69.8% higher than the same period in 2019. Confirmed sponsorship revenue for 2023 is up 30% over the same period a year ago.
Through September, ancillary fan spending at U.S. amphitheaters was up 30%. “The consistent theme is that fans are eager to enhance their experience, as we continue elevating our hospitality operations and provide more premium options,” said Rapino.
Looking ahead, the busy touring season will continue into 2023 and consumer demand appears to be holding strong despite widespread fears of an upcoming recession and tightening budgets due to persistent inflation. “Ticket sales for shows in 2023 are pacing even stronger than they were heading into 2022, up double-digits year-over-year, excluding sales from rescheduled shows,” said Rapino. Through the third quarter, Ticketmaster sold over 115 million, up 37% from the same period in 2019.
Live Nation’s share price rose 4.6% to $79.90 in after-hours trading on Thursday following the earnings release.
Financial metrics
Total revenue: $6.2 billion, up 63.TK% from 2019
Adjusted operating income: $621 million, up 45% from 2019
Concert revenue: $5.29 billion, up 66.8% from 2019
Ticketing revenue: $531.6 million, up 36.8% from 2019
Sponsorship and advertising: $343 million, up 59.4% from 2019
Fan metrics
North America concerts; 8,261, up 14% from 2019
International concerts: 2,958, up 57.4% from 2019
North American fans: 29.1 million, up 27.7% from 2019
International fans: 15.2 million, up 71.9% from 2019
Fee-bearing tickets: 73.4 million, up 32.7% from 2019
Ryman Hospitality Properties’ country-focused entertainment business, Opry Entertainment Group, saw its revenue grow 57.3% to $77.2 million in the third quarter, the company reported Monday (Oct. 31). Through the first nine months of 2022, the entertainment segment grew 86.2% to $183.6 million.
Excluding acquisitions and investments over the last three years, Opry Entertainment Group revenue and EBITDA were 19% and 21% higher than over the same period in 2019, said CEO Colin Reed. Among its properties are Grand Ole Opry, the Ryman Auditorium and Wild Horse venues, as well as the media network Circle, a three-year-old joint venture with Gray Television.
“This is the same type of growth we saw pre-pandemic,” said Reed. However, the company lowered the top end of its guidance range for full-year entertainment adjusted EBITDAre (a real estate version of EBITDA) from $80 million to $76 million (the bottom end of the range remained at $72 million).
Opry Entertainment Group is benefitting from increasingly strong tourist interest in Nashville. Outgoing CEO Reed said Nashville International Airport had a record 1.83 million travelers in June, up 9% from the same month in 2019. Nashville also set a record for hotel demand in June of 875,000 room nights, 11% greater than in June 2019.
Ultimately, Ryman wants Opry Entertainment Group to “flourish as a standalone, separate entity,” said Reed. To that end, in the second quarter, Ryman sold 30% of Opry Entertainment Group to investment firm Atairos Group and media giant NBCUniversal for a combined $300 million in a deal that closed in the second quarter. The new investors have a right to request an initial public offering four years after the deal — in 2026 — or sell their stake back to Ryman for cash or shares, said president Mark Fioravanti, who will succeed Reed as CEO on Jan. 1, 2023. Prior to the seventh anniversary in 2029, Atairos Group and NBC Universal can sell their stake back to Ryman if there has not been a sale, spin-off or IPO.
Bringing aboard new investors should help Opry Entertainment Group’s efforts to capitalize on the popularity of country music and culture. Ole Red, a chain of multi-level bar/music venues the company created in partnership with country star Blake Shelton, opened its fourth location in Orlando in 2020 and a fifth location in May at Nashville International Airport. A sixth location in Las Vegas is scheduled for 2023.
The company branched out to another fast-growing city in the second quarter by closing its acquisition of Block 21, a mixed-use property in Austin, Texas that includes ACL Live at Moody Theater, home of the television show Austin City Limits Theater, as well as the W Austin Hotel and retail and office space.
Reed is optimistic that Nashville’s growth will benefit Opry Entertainment Group without hurting its core hospitality business. There are more than 50 new hotel developments in Nashville-Davidson County, Reed said, and the city projects over 2,600 additional rooms will be available in the next two years. These hotels aren’t competitors to Ryman’s Opryland Resort and Convention Center on the outskirts of town, he noted, and they will bring additional customers to Ryman’s entertainment properties in the city.
“Many of these new visitors will end up seeing a show at the Ryman, touring the Opry House or spending an evening at Ole Red or the Wild Horse,” another downtown Nashville venue in its portfolio, said Reed. “When they leave Nashville and return home, or they go to Austin or Las Vegas for their musical pilgrimage, we’ll be there, continuing to engage with them whether through our investments in expanding the Ole Red footprint or deepening our virtual reach across linear television, digital streaming or online.”
Apple services, the category which encompasses Apple TV+ and Apple Music, saw another slight drop in revenue during the fourth fiscal quarter ending in September.
The category generated $19.2 billion in revenue, down slightly from the $19.6 billion reported during the third fiscal quarter ending in June — a figure that was another decline compared to the record $19.8 billion in sales the services collectively generated during the second quarter. But compared to the previous year, Apple’s FY Q4 services revenue represented a five percent year-over-year increase.
Apple now has more than 900 million paid subscriptions, up from the 860 million reported during Q3, according to Apple CEO Tim Cook.
Accounting for the tech giant’s product sales, Apple brought in $90.1 billion during the quarter — a quarterly record for the company driven by continued iPhone sales. “Our record September quarter results continue to demonstrate our ability to execute effectively in spite of a challenging and volatile macroeconomic backdrop,” Apple CFO Luca Maestri said in announcing the results.
The company’s earnings report comes just days after Apple instituted price hikes across Apple TV+, Apple Music and the Apple One subscription bundle. Apple TV+ — home to Ted Lasso and Severance — now costs $6.99 per month, compared to the $4.99 per month price point the service has maintained since its 2019 launch, while the annual plan for Apple TV+ now costs $69, compared to $49.
Speaking with analysts on the company’s earnings call, Cook said the increased price for Apple TV+ was a reflection of the increase in content available on the streamer. “We’re very focused on originals only, and so we had four or five shows or so in the beginning and priced it quite low,” he said. “We now have a lot more content and are coming out with more each and every month, and so we we increase the price to represent the value of the service.”
Apple Music subscriptions now start at $10.99, making it more expensive than Spotify, while the family plan costs $16.99 per month and the annual plan costs $109.
Apple also quietly updated its App Store rules to require iOS publishers to give the company a 30 percent cut for any boosted, or sponsored, posts purchased within their respective apps. The move has frustrated platforms like Meta, which sells sponsored posts.
This article was originally posted on THR.com.
Meta, the parent company of Facebook and Instagram, reported $27.7 billion in second-quarter revenue, down 4 percent compared to the same quarter a year ago, continuing a trend of ad-supported tech companies feeling the pain of a tougher macroeconomic environment and renewed competition from competitors like TikTok.
However, the company beat Wall Street expectations for revenue. The company had previously forecast revenue of $26 billion–28.5 billion for the quarter, so it met its own guidance.
Going forward, however, things look tough. The company forecast Q4 revenue of $30-32.5 billion, below Wall Street expectations, sending its share price lower after hours.
Meta net income fell by 52 percent to $4.4 billion, while its daily active user base rose by 4 percent to 2.93 billion.
The company is in the midst of a strategic pivot toward the “metaverse,” which it seems to define as being driven by virtual reality and augmented reality. However, its early efforts in the space remain niche, even as it has committed billions of dollars toward investing in the space.
In its Q3 earnings report, the company said it was making “significant changes across the board to operate more efficiently,” including shrinking some teams and keeping others flat, so that it is “investing headcount growth only in our highest priorities.”
Those priorities will include developing its AI discovery engine, its ads and business messaging platforms, and its future investment in the metaverse.
In the near-term, the company expects savings as it “rationalizes” its office footprint.
The AI discovery engine is particularly relevant to Meta’s TikTok competitor Reels, which CEO Mark Zuckerberg says is stealing time spent from the other app. Reels is now a $3 billion annual run rate business, he added.
When the discovery engine is built out, the company will be able to “recommend photos, text, links, communities, short and long form videos, alongside posts from family and friends,” Zuckerberg said, differentiating it from TikTok.
“While we face near term challenges on revenue, the fundamentals are there for a return to stronger revenue growth,” Zuckerberg added in a statement. “We’re approaching 2023 with a focus on prioritization and efficiency that will help us navigate the current environment and emerge an even stronger company.”
Still, on the company’s earnings call, Zuckerberg also projected some optimism, telling analysts that “our product trends look better from what I see than what some of the commentary suggests.”
On Facebook specifically, the number of people using it each day is the highest it has ever been,” he added, noting that it now has nearly 2 billion users, and that WhatsApp’s fastest-growing region is now North America.
Meta’s quarterly report follows similarly disappointing results from Snap and Alphabet, which have also been feeling the pinch of the advertising environment. Snap cut about 20% of its staff last quarter, and saw its losses widen, as it seeks to restructure. It did, however, see double digit user growth.
Alphabet, the owner of YouTube and Google, also missed expectations, with YouTube revenue falling year-over-year for the first time since it was broken out by the company.
This article was originally published on THR.com.
In the third quarter of 2022, Spotify revenue improved to 3.04 billion euros ($2.98 billion at the Sept. 30 exchange rate), marking an increase of 12% at constant currency and 21.4% as reported, the company reported Tuesday (Oct. 25). Subscription revenue grew 13% (22% as reported) to 2.5 billion euros ($2.46 billion) while subscribers improved 13.4% to 195 million — 1 million ahead of guidance. Led by podcasting, the company’s ad-supported revenue grew just 3% at constant currency (19% as reported) to 385 million euros ($378 million).
Spotify’s gross margin of 24.7% — which is 50 basis points below guidance — was slightly better than the 24.6% registered in the second quarter, but it was still two percentage points lower than 26.7% in the prior-year period. The company attributed the decline to its spending on non-music content and product enhancements, increased publishing rates and an adjustment to prior-period accruals. Those negative effects served to offset a favorable revenue shift to podcasting and continued growth in Marketplace, Spotify’s hub for artist services.
Spotify shares fell 6.7% to $90.54 in after-hours trading.
Financial metrics
Revenue: 3.04 billion euros ($2.98 billion), +21.4% y/y, +13% at constant currencyGross margin percentage: 24.7%, down from 26.7% in Q3 2021 Operating loss: 228 million euros ($223.8 million), down from 75 million euros operating income in Q3 2021 Average revenue per user: 4.63 euros ($4.55)
Listener metrics
Subscribers: 195 million, +13.4% y/y Ad-supported monthly active users: 273 million, +24.1% y/y Monthly active users: 456 million, +19.7% y/y
This is a developing story.