Spotify Technology S.A. (SPOT) has embarked on a financial odyssey in 2024, witnessing a staggering 98.2% surge in its stock value year to date, vastly overshadowing the industry’s more modest 33.5% uptick.
As the closing bell tolled on the last trading day, the stocks stood tall at $372.5, only a whisper away from its 52-week zenith at $389.23. SPOT’s current perch above its 50-day moving average unfurls a grand bullish tapestry among eager investors.
The Tale of SPOT Stock Soaring Beyond the 50-Day Average
Illuminated by this upward trajectory, intrigued onlookers may ponder the prospects of an investment voyage aboard the SPOT vessel. Let us unfurl the sails and peer closer into this resounding success story.
Resilient Growth in SPOT Fueled by Price Surges and Podcast Prestige
Spotify stakeholders bask in a radiant glow of optimism, buoyed by the company’s financial triumphs. Premium subscribers have swelled by 12%, while ad-supported monthly active users (MAUs) have ascended by 15% in the second quarter of 2024. Total MAU growth has surged by 14% year over year. A muscular 45% spike in gross profit has amplified its gross margin by an impressive 510 basis points. Not stopping there, Spotify has deftly transmuted an operating loss of $247 million into a resplendent profit of $266 million over the annum. The adjusted EPS scales a bounteous peak at $1.43, marking a stupendous 184.6% annual surge.
Spotify’s harmonious performance thrives on sustained price escalations, a devoted consumer base, and sweeping cost efficiencies. The audacious ability to heighten prices while embracing and expanding its subscriber flock sings a melodious tune. In a momentous quarter, premium subscriber growth has outpaced ad-supported MAU growth sequentially, casting a spotlight on Spotify’s pricing acumen.
The recent symphony of price hikes, dancing in harmony with counterparts such as Alphabet’s GOOGL YouTube Premium, Apple’s AAPL Music/TV, and Amazon’s AMZN Music Unlimited, traces a melody of higher pricing resonating throughout the industry.
Moreover, Spotify orchestrates a grandiose expansion of its content repertoire, setting sail for a vision where a sizable chunk of its revenues flows from podcasts and audiobooks. By amplifying profits from these fertile content ventures, Spotify could weave a richer profitability tapestry, even in the face of stiffer negotiations with record labels. The lush profitability of podcasts burgeons as the company pivots from utilizing content investments primarily for subscriber growth towards a focused pursuit of monetization.
By the second quarter of 2024, Spotify’s stage hosts over 250,000 video podcast shows, where more than 170 million spectators have partaken in the visual splendor. A sweet legal victory in the EU lends Spotify solace, as Apple eases its competitive pounce on the platform, opening doors wide for Spotify’s market stride. Furthermore, Spotify eyes a windfall from the recent TikTok Music shutdown.
The Lofty YTD Surge of SPOT Leads to Inflated Valuations
The robust 2024 performance and market conquests of Spotify have catapulted its stocks to celestial heights, inflating its valuation to lofty realms. Currently, Spotify adorns a trailing 12-month P/E ratio at 45.53X, eclipsing the industry’s average of 38.03X. Its enterprise value/EBITDA ratio stands tall at 121.19X, more than doubling the industry yardstick of 54.58X, illuminating the premium acolytes dole out. While hope in growth has undergirded these valuations, sustaining such stratospheric multiples could gather storm clouds, elevating the specter of a course correction should growth veer off-piste from expectations.
Winds of Change in Estimates
A solitary downward voyage in the third quarter of 2024 estimate unfurled over the past 60 days, averse to any upward lift. Over this epoch, the Zacks Consensus Estimate for third-quarter 2024 earnings has ascended by 2% to $1.79. In parallel pirouettes, a solitary estimate for 2024 navigated southward in the same time frame, contrary to any northern trajectory. Over this duration, the consensus estimate for 2024 earnings magnified by 2% to $6.24.
Guidance: Sell
The stock’s meteoric ascent has hoisted its valuations to altitudinous terrains. Upholding these lofty multiples could metamorphose into a Herculean task, hiking the peril of a correction if growth falters beneath anticipated horizons. For loyal shareholders entrenched in the SPOT terrain, countenancing profits at this juncture might bear fruit, given the company’s murky earnings forecast. For prospective entrants seeking uncharted waters, a prudent course may be to chart a course far from SPOT’s shores, for now.
SPOT unfurls a Zacks Rank #4 (Sell). For a glimpse into the zenith, explore today’s Zacks #1 Rank (Strong Buy) stocks here.