Rule Breaker Earnings Roundup
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What earnings are being discussed in this episode?
Earnings season has been historically rough, but today seems to be the exception. We're breaking down fourth quarter earnings for three controversial rule breakers today on Motley Fool Money.
Today is Tuesday, February 10th. Welcome to Motley Fool Money. I'm your host, Emily Flippen, and today I'm joined by Fool analysts Jason Hall and Toby Bordelon as we break down earnings from three of the most popular rule-breaking stocks out there. Now, guys, I know we know which companies are reporting ahead of time, so of course, we had an idea of what we wanted to cover today. But what we didn't know was that somehow these three companies would be breaking the mold of an otherwise really rough earnings season. So I don't know about you, but for me, it's really nice to have some positive news today as we're going to dive into Datadog and whether or not its fourth quarter earnings really show that this usage-based observability platform is more insulated than other software companies, as well as Ferrari, which saw its worst day on record last quarter after guidance came in weaker than expected.
Was management sandbagging? We'll get there first. But of course, we have to start with my favorite of the bunch, which is Spotify. Now, Spotify basically needs no introduction. It's the audio listening platform that everybody loves to hate.
There's probably people listening to us on Spotify right now, Emily.
Exactly. Exactly. And I will say, if you had alternatives, maybe you would go to alternatives. But Spotify continues to deliver a superior product that people continue to flock to. And to your point, Jason, there aren't a lot of alternatives out there that's offer that superior product. That's part of the reason why they added a record number of monthly users this quarter. I think they hit 290 million paid subscribers. It's been a really rough year for Spotify prior to reporting earnings this season, but this quarter was incredible. I mean, what stood out to me was an operating margin north of 15%. There's always this overhang about Spotify of, okay, good. They have the users, they have the engagement, but can they monetize it?
This quarter showed the highest operating margin ever for Spotify. That's what stood out to me. But Jason, to your point, what stood out to you?
A couple of things, really. Firstly, MAUs, monthly active users, it does continue to grow both at double-digit rates, but also faster than premium subscribers. That land and expand, bring people into the fold, and then they get tired of the ads, or maybe their spouse is using it, too, and it just makes sense to go ahead and upgrade and get a family account or something like that. That premium subscribers number is growing slower than MAU's, but the gap is starting to narrow. MAU growth was 11%, premium growth was 10%. We've continued to see that gap narrow. I think it just indicates how much more mature the business has become while still growing. A double-digit rate, that's fantastic. But it's also becoming more and more reliant on premium prescriptions.
It has to continue to add value for those subs. If we had gone back five or six years ago, and the company had reported ad-supported revenue was down 4% in the quarter, the financial results would have looked very, very different. But because the mix has grown so much to now that the premium members are so much more, they're less tied to the cyclicality of the ad business and more just those steady revenues that come in from those paying subscribers. As long as they can continue to create value, then seeing that number continue to be more and more important should serve them well across different economic environments.
I was a little surprised to see ad revenue relatively weak this quarter. Now, this quarter is generally bad for ad revenue, but my hopes are high that the rest of 2026 might be good for them. This is a midterm election year, so ad spend generally tends to have a bit of a rebound, or I think expectations are for it to have one. Whether or not that ad spend goes to Spotify, I think, remains a question mark.
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