Spotify Technology S.A. (NYSE: $SPOT) is the leading audio streaming platform globally, with over 615 million monthly active users, of those, 239 million have paid subscriptions.
The company reported stellar fiscal first quarter 2024 earnings, surpassing Wall Street expectations on revenue and earnings fronts. The impressive results come after a year of rigorous cost-cutting measures and streamlining operations for the audio streaming behemoth.
Spotify’s Impressive Q1 2024 Financial Performance
For the first quarter of 2024, Spotify reported a total revenue of €3.64 billion ($3.88 billion), marking a substantial 20% surge compared to the same period in 2023. This impressive performance exceeded Wall Street’s projections, which had anticipated revenue of €3.61 billion. Additionally, the company’s earnings per share soared to 97 euro cents ($1.04), surpassing the forecasted 65 euro cents, as analyzed by LSEG.
Spotify’s gross margins exceeded expectations, reaching 27.6% compared to the company’s guidance of 26.4%. The company anticipates this positive trend to continue, projecting a rise to 28.1% in the second quarter, primarily attributed to improvements in the music and podcasting sectors.
Despite falling slightly short of its guidance with an operating income of €168 million ($179 million), Spotify showcased a significant improvement from the previous year’s loss of €156 million. The company attributed this to higher-than-expected social charges driven by share price appreciation during the quarter.
Spotify reported a net income of €197 million ($210 million), surpassing analyst expectations and marking a substantial improvement from the year-ago period’s loss of €225 million. Free cash flows also impressed, reaching €207 million—a nearly fourfold increase from the €57 million generated last year.
Robust User Growth and Improved Monetization
Total monthly active users (MAUs) reached 615 million in the quarter, a 19% improvement compared to the year-ago period, albeit slightly below the company’s estimates of 618 million. Premium subscribers met Wall Street expectations of 239 million, representing a 14% year-over-year increase.
The average revenue per paying user increased by 7% to €4.55 (or 5% year over year, excluding foreign exchange headwinds). This growth was driven by price increase benefits, partially offset by discounted plans and lower prices in emerging markets.
CEO Optimistic Despite Setbacks
Spotify’s Chief Executive Officer, Daniel Ek, acknowledged that the company’s decision in December to terminate 17% of its workforce caused more operational disruptions than anticipated. However, he expressed confidence in the company’s ability to regain momentum, stating, “I expect to continue improving our execution throughout the year, getting us to an even better place than we’ve ever been.”
Ek also cited significant cuts to the company’s marketing budget in 2023 as a reason for the slowdown in MAU growth, adding, “We’re already correcting this as we move into (the second quarter).”
Optimistic Outlook
Looking ahead, Spotify provided optimistic revenue guidance for the second quarter, anticipating €3.8 billion compared to the expected €3.76 billion. The company anticipates operating income of €250 million for the second quarter, well ahead of Wall Street consensus expectations.
The streaming service aims to achieve 631 million monthly active users (MAUs) and expects its subscriber count to grow to 245 million in Q2.
Leadership Transition and Strategic Pricing Adjustments
In a significant leadership change, Spotify CFO Paul Vogel stepped down from his position on March 31 and will be replaced by Christian Luiga, previously at Swedish aerospace and defense company Saab. Luiga is expected to join the company in Q3 of 2024, with Ben Kung, Spotify’s Vice President of Financial Planning and Analysis, serving as the interim CFO.
Bloomberg reports that Spotify plans to raise prices by approximately $1 to $2 per month in five markets, including the UK, Australia, and Pakistan, with changes expected at the end of April. US prices are expected to rise later this year, while Spotify also plans to introduce a cheaper option that does not include audiobooks.
Spotify Stock Update
On Tuesday, April 23, Spotify Technology (SPOT) shares closing trading 11.41% higher at $303.31, after surging over 14% at one point during the trading session. This surge follows the release of the company’s Q1 2024 earnings report. Over the past year, Spotify’s stock has seen an impressive rise of 125%, with a year-to-date increase of 65.48%.
Currently, SPOT is trading above its 50-day Moving Average, which stands at $266.97, and its 200-day Moving Average, which is $195.57. SPOT’s 52-week high is $319.30, while its 52-week low is $128.67. As of March 28, 2024, the short interest in SPOT stands at 1.64 million shares, representing a decrease of 8.04% from the previous reporting period.
Analysts Bullish on Spotify
Wall Street analysts are bullish on Spotify Technology (SPOT) stock, giving it an overall “buy” rating. The average price projection is $271.76, with forecasts ranging from a high of $330.00 to a low of $195.00. Notably, this average forecast implies a potential decline of 11.6% from SPOT’s recent closing price of $303.31.
Should You Buy SPOT Stock?
Spotify’s stellar fiscal performance in Q1 2024, marked by robust revenue growth, improved margins, and impressive user metrics, paints a promising picture for potential investors. Despite setbacks such as operational disruptions from workforce reductions and marketing budget cuts affecting MAU growth, CEO Daniel Ek remains optimistic about the company’s trajectory.
With optimistic revenue guidance for Q2 and strategic pricing adjustments underway, including leadership transitions and planned price hikes in select markets, Spotify’s upward momentum appears strong. While analysts give it a “buy” rating, potential investors should weigh the bullish outlook against projected declines in stock price to make informed investment decisions.
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