Spotify Technology S.A. SPOT has orchestrated a mesmerizing performance, with its stock soaring 80.6% year to date, outpacing the industry average and the Zacks S&P 500 composite significantly.
At the last trading session, the stock closed at $339.47, near its 52-week pinnacle of $359.38. SPOT is treading above its 50-day moving average, resonating a bullish tune among investors.
A Harmonious Year-to-Date Price Performance
Image Source: Zacks Investment Research
With the continuous strength in SPOT shares, investors might be humming a tune of potential investment. But is this the right moment to jump into the choir of SPOT investors? Let’s dissect.
SPOT’s Financial Performance Strikes a High Note
Spotify investors have ample reasons to whistle a happy tune about the company’s financial results. The premium subscriber revenues, commanding around 88% of total revenues, orchestrate a vital role in its financial symphony. The ad-supported revenues contribute the residual 12%.
Premium subscribers crescendoed by 12%, and ad-supported monthly active users (MAUs) crescendoed by 15% in the second quarter of 2024. The symphony of growth in total MAUs was also noteworthy, reaching a 14% year-over-year crescendo. Spotify surged its gross profit by 45% year over year, broadening its gross margin by 510 basis points. It also transformed an operating loss of $247 million into a $266 million profit over the year. The adjusted eps soared to $1.43, marking a substantial 184.6% leap year over year.
Spotify’s performance metrics have been uplifted by sustained price lifts, a loyal audience, and significant cost savings. The capacity to raise prices while retaining and expanding its subscriber base is particularly impressive. The recent increase in premium subscriber growth exceeding ad-supported MAU growth sequentially highlights the virtuosity of Spotify’s pricing strategy.
The recent price rises, alongside those by competitors such as Alphabet‘s GOOGL YouTube Premium, Apple’s AAPL Music/TV, and Amazon’s AMZN Music Unlimited, underscore the industry’s movement toward elevated pricing.
Stock Valuation Plays a Harmonious Tune
Despite the significant surge over the past year, Spotify’s stock remains relatively undervalued, hinting at potential for further appreciation. The stock is trading at a trailing 12-month price/sales ratio of 4.47X compared to the industry average of 8.61X.
Image Source: Zacks Investment Research
The trailing 12-month enterprise value/sales ratio stands at 3.95X compared to the industry average of 8.44X.
Image Source: Zacks Investment Research
Analysts’ Confidence Echoes in Rising Projections
In the past 60 days, six estimates for the third quarter of 2024 scaled north, with no southward descent. The Zacks Consensus Estimate for third-quarter 2024 earnings has surged 34.8% to $1.82. Earnings are slated to grow a resounding 405.6% year over year in the quarter. For 2024, seven estimates ascended in the same period, with the consensus estimate for 2024 earnings climbing 27.7% to $6.32. Earnings are forecasted to ascend 314.2% year over year in 2024.
The Zacks Consensus Estimate for SPOT’s third-quarter 2024 sales echoes at $4.38 billion, spinning a yarn of 19.8% year-over-year growth. Revenues for 2024 are predicted to crescendo by 19.4% compared to the previous year.
Spotify Strikes the Right Chord
Spotify’s robust financial stance, promising upward trajectories in revenue and profits, coupled with successful navigation of higher subscription costs with MAU growth, transform it into a compelling investment symphony. Management orchestrates an anticipation of 13 million additional total MAUs, a 5 million boost in total premium subscribers, a $193 million increment in revenue, a 100 basis point extension in gross margin, and a $139 million accrual in operating income for the third quarter.
For investors seeking harmony in the music-streaming sector, Spotify’s optimistic outlook and financial solvency present an enchanting melody post-earnings season. The company’s innate potential for growth and strategic ventures underscore that Spotify continues to shimmer as a valuable investment aria.
SPOT currently holds a Zacks Rank #1 (Strong Buy).