Shares of Spotify Technology SA (NYSE:SPOT) are down 15.7% since the company reported fourth-quarter revenue and earnings beats on Feb. 2. In addition to user growth guidance that may have fallen short of lofty market expectations, Spotify has been dealing with controversy surrounding the content of its most popular podcast, the "Joe Rogan Experience."
Unclear Trajectory: On Monday, Bank of America analyst Jessica Reif Ehrlich said Spotify's gross margin trajectory has become less clear, and the company's decision to stop providing full-year guidance doesn't help.
Related Link: Could Joe Rogan Leave Spotify For Rumble?
"We appreciate the company’s long term goals of 1bn users and 50mn creators and the necessity to invest to reach these targets, however we believe additional clarity on the underlying leverage in the core business would go a long way in assuaging these business model concerns," Ehrlich said.
She noted that it's unclear at this point when Spotify will transition from "investment mode" to "harvest mode," and said the company needs to provide details and timelines for investors at its investor day event later this year.
Ehrlich reiterated her Buy rating for Spotify, but cut her price target from $352 to $262.
Rogan Controversy: Joe Rogan signed a $100 million deal to bring his podcast exclusively to Spotify in 2020. A handful of musical artists, including Neil Young and Joni Mitchell, have recently announced plans to remove their music from Spotify in protest of alleged COVID-19 misinformation on the Rogan podcast. In response, Spotify said it would add a new content advisory to future podcasts discussing COVID-19, and Rogan said he would do a better job to "balance things out" in future coronavirus discussions.
On Sunday, Spotify CEO Daniel Ek apologized to Spotify staff in a memo but said he has no intention of "silencing" Rogan because of his past use of "racially insensitive language." On Saturday, Rogan reportedly requested that Spotify remove dozens of his past podcast episodes after a conversation with the company.
On Monday, YouTube competitor Rumble offered Rogan $100 million to leave Spotify and bring his podcast exclusively to Rumble.
Ehrlich said she remains bullish on Spotify's long-term potential and noted advertising revenue growth and new market launches as potential bullish catalysts.
In the near-term, Ehrlich said the Rogan controversy is "increasingly becoming a risk" for Spotify investors, although she sees no indication of a meaningful increase in churn at this point.
Benzinga's Take: "The Joe Rogan Experience" reportedly has an average audience size of 11 million people per episode, making it an incredibly valuable asset for Spotify. For perspective, the highest rated cable TV network of 2021 was Fox News, which averaged just 2.3 million prime time viewers.
Photo: Courtesy of newsroom.spotify.com
