Spotify Technology S.A. (SPOT) stock has soared 150% during the last year to crush Meta, Amazon, Apple, and tons of other tech standouts. Spotify stock looks ready to break out to new all-time highs, even as SPOT’s valuation improves immensely.
Spotify’s commitment to efficiency and profits, mixed with a string of price hikes and strong user growth are leading to booming earnings expansion and impressive revenue growth.
The streaming music powerhouse posted another blowout beat-and-raise quarter in late July that sent Spotify’s earnings outlook soaring even higher.
Spotify Stock’s Bull Case
Spotify was one of the pioneers of paid streaming music. The company forever altered the music industry the way Netflix changed TV and movies. Like Netflix (NFLX), Spotify’s success inspired challengers such as Apple, Amazon, and Alphabet to enter the streaming music space.
Despite competition from the giants of tech, Spotify remains the king of streaming music. Spotify reportedly held 32% of the global streaming music market share in 2023, blowing away No. 2 Apple (AAPL) Music’s 15%, as well as YouTube’s (GOOGL) 14% and Amazon’s (AMZN) 13%.
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Spotify is thriving as users flock to the service for music, podcasts, and more recently, audiobooks. SPOT nearly doubled its revenue between 2019 and 2023. Spotify grew its Premium Subscribers by 80% between Q2 FY20 and Q2 FY24, while monthly active users surged 110%.
Spotify is projected to grow its monthly active users by roughly 45% to 900 million by 2028, based on some Wall Street estimates. Spotify’s user growth expansion is key to helping it continue to negotiate favorable rights deals with artists.
Spotify’s streaming service often becomes an essential aspect of its users’ daily lives, helping SPOT successfully raise its prices in back-to-back summers. Spotify in the summer of 2023 hiked its monthly prices for its ad-free Premium plans to match competitors such as Apple and Amazon. Fast forward to June 2024, and SPOT upped its prices again to help keep up with inflation and boost profits.
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Higher interest rates sparked Spotify to focus on efficiency and the bottom line, much like Amazon and other former sales and user growth-over-everything-else tech firms. Spotify has cut down its workforce and rolled out other streamlining efforts.
Spotify appears to have reached an inflection point on profits and cash flow growth.
Spotify’s Recent Quarter and Growth Outlook
Spotify boosted its gross margin by 510 bps to a record high of 29.2% in the second quarter. SPOT expanded its free cash flow to €490 million in Q2, up from €207 in the first quarter of 2024 and just €9 million in the year-ago period.
Spotify grew its monthly active users by 14% YoY in the second quarter to 626 million, expanding its paid Premium Subscribers by 12% to 246 million. Spotify grew its revenue by 18% last quarter and swung from an adjusted loss of -$1.69 a share in the year-ago period to +$1.43, crushing our EPS estimate by 32%.
Spotify boosted its outlook once again as its combination of price hikes, efficiency, and user growth lead to soaring earnings expansion. SPOT’s FY24 EPS estimate has surged 27% since its Q2 release, with its FY25 figure 21% higher.
SPOT’s recent bottom-line revisions are part of an impressive trend that’s seen its FY24 EPS estimate skyrocket 940% over the last 12 months from $0.61 a share to its current $6.32, while its FY25 figure soared 280%. Spotify’s improving EPS estimates help SPOT stock land a Zacks Rank #1 (Strong Buy).
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Spotify is projected to swing from an adjusted loss of -$2.95 a share last year to +$6.32 per share in 2024 and then surge 38% next year to $8.70 a share. Meanwhile, Zacks estimates call for SPOT to grow its revenue by 19% in 2024 and another 15% next year to climb from $14.33 billion in 2023 to $20 billion in FY25—doubling revenue between FY20 and FY25.
Spotify expects to end the third quarter with 639 million monthly active users, marking 11% YoY growth.
Breaking Down SPOT’s Performance, Technical Levels, and Valuation
Spotify stock has soared 350% off its 2022 lows (around the stock market’s 2022 bottom), including an 80% YTD climb. SPOT crushed Apple, Amazon, and Alphabet during both of those periods. Despite its impressive run, Spotify trades around 8% below its 2021 peaks and 9% under its average Zacks price target.
Spotify stock might be ready to finally break out to new all-time highs if it can build on its first-half momentum in terms of earnings expansion and beyond.
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SPOT’s 21-day moving average has provided rather bullish support since the start of 2023. Spotify stock is also far from overheated, with it sitting at neutral levels in terms of the Relative Strength Index (RSI) (bottom part of the nearby chart)—RSI is used to help determine if a stock or index is too expensive or too cheap based on its recent performance.
Spotify trades at a 75% discount to its 12-month highs at 42.9X forward 12-month earnings. SPOT’s PEG ratio, which factors in the company’s long-term earnings growth outlook, marks a 60% discount to the Tech sector. In terms of forward sales, Spotify stock trades at a 43% discount to the Zacks Tech sector and 41% vs. SPOT’s highs.
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Time to Buy Spotify Stock?
Spotify forever reshaped the music industry as much as Netflix permanently changed Hollywood. SPOT’s valuation is improving as its profits boom. Now appears to be a good time to think about buying Spotify stock as SPOT attempts to reach new heights.
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