Spotify Technology S.A. SPOT has orchestrated a symphony of success in the financial markets, witnessing an impressive 83% surge in its stock year to date, overshadowing the industry’s humble 23.4% climb.
As the latest trading session drew to a close, the stock gracefully landed at $343.97, echoing the crescendo of its 52-week high at $359.38. SPOT’s trading above its 50-day moving average conducts a soothing melody, resonating a harmonious bullish sentiment among investors.
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With SPOT’s stock serenading investors with a consistent melody of growth, one may wonder if there is still an opportunity to dance to this financial symphony. Let us delve deeper into this enchanting composition.
Harmony in SPOT’s Strong Growth: Orchestrated by Price Hikes and Podcast Gains
Spotify’s investors are embracing a melodious outlook on the company’s financial performance. The crescendo of its premium subscriber revenues, harmonizing at approximately 88% of total revenues, orchestrates a pivotal role in its financial opus. Ad-supported revenues humbly contribute the remaining 12%.
Premium subscribers crescendoed by 12%, and ad-supported monthly active users (MAUs) joined the chorus with a 15% increase in the second quarter of 2024. The overall MAU symphony was notable, with a 14% year-over-year crescendo. Spotify unrolled a 45% increase in its gross profit, expanding its gross margin by 510 basis points. It transformed an operating loss of $247 million into a profit of $266 million over the year, hitting a high note with an adjusted eps of $1.43 — marking a substantial 184.6% year-over-year leap.
Spotify’s virtuosic performance has been fueled by sustained price hikes, a loyal consumer base, and significant cost reductions, conducting a harmonious crescendo. The ability to elevate prices while retaining and expanding its subscriber ensemble emerges as a noteworthy crescendo. This quarter witnessed premium subscriber growth melodiously outpacing ad-supported MAU growth sequentially, spotlighting the efficacy of Spotify’s pricing sonata.
The recent price crescendos by competitors like Alphabet‘s GOOGL YouTube Premium, Apple’s AAPL Music/TV, and Amazon’s AMZN Music Unlimited strike a chord in the industry’s march towards elevated pricing.
Spotify is further harmonizing its content portfolio, aiming to infuse a larger melody of revenues from podcasts and audiobooks. By elevating revenue from these high-margin artistic endeavors, Spotify could fine-tune its profitability, even amidst a tougher stance taken by record labels in negotiations. The profitability of podcasts is also experiencing a crescendo, as Spotify scales its strategy from content investments primarily for subscriber growth towards a focus on harmonious monetization.
As of the second quarter of 2024, over 250,000 video podcast shows have enraptured Spotify’s stage, captivating more than 170 million viewers who have witnessed this melodic fusion on the platform.
SPOT Stock Sings a Sweet Serenade of Value
Despite the grand crescendo over the past year, Spotify’s stock remains modestly undervalued, hinting at the potential for further appreciation. The stock is currently playing at a trailing 12-month price/sales ratio of 4.53X, harmonizing with the industry average of 8.76X. The trailing 12-month enterprise value/sales ratio holding at 3.95X dances gently against the industry average of 8.44X.
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Furthermore, the Relative Strength Index orchestrates no significant signs of overbought conditions, suggesting the stock is elegantly positioned without overextension.
The Sonata of Spotify’s Strong Liquidity Position
SPOT’s melody adorned with a robust liquidity position, boasting a current ratio of 1.56 at the close of the second quarter of 2024 compared to the industry’s 1.02. This robust liquidity symphony reflects SPOT’s mastery in covering its immediate liabilities with grace, hinting at financial stability and operational flexibility.
The Crescendo of Analysts’ Confidence Reflected in Rising Estimates
The symphony of seven estimates for the third quarter of 2024 moving upward over the past 60 days without a single downward shift sets the stage for a melodious performance. The Zacks Consensus Estimate for third-quarter 2024 earnings has gracefully increased 32.6% to $1.83 over this period, anticipating a harmonious 408.3% year-over-year growth in the quarter.
Eight estimates dancing upwards for 2024 over the past 60 days while none waltz downward sow a melodious seed of optimism. The consensus estimate for 2024 earnings reaching a melodious crescendo of 26.2% to $6.31 over this sonata, projecting a harmonious 313.9% year-over-year growth in 2024.
The Zacks Consensus Estimate for SPOT’s third-quarter 2024 sales serenades at $4.38 billion, akin to a 19.8% year-over-year harmonious growth. The melodious revenues for 2024 give promise of a 19.4% year-over-year crescendo.
An Ode to Investing in Spotify’s Melodic Journey
With its sturdy fundamentals, undervalued position, and melody of bullish momentum, Spotify orchestrates a harmonic refrain for investors looking to waltz in the growth of the music streaming and podcasting scenes. Management’s anticipatory dance foretelling a rhythmic increase of 13 million in total MAUs, a rise of 5 million in total premium subscribers, a $193 million revenue crescendo, a 100 basis point expansion in gross margin, and a $139 million increase in operating income for the third quarter compose a harmonious score. Hence, the current moment unveils itself as a sonorous juncture to partake in this melodious journey before further reverberations cement SPOT’s position as a market virtuoso.
SPOT proudly wears the Zacks Rank #1 (Strong Buy). So, dust off those dancing shoes and sway to the rhythm of this melodic investment saga.
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The opinions and sentiments expressed herein function as the melody and tune of the author and do not necessarily mirror those of Nasdaq, Inc.
