Audio streaming giant Spotify (NYSE: SPOT) appears to be on track for its best year yet. The company has consistently posted strong financial results throughout 2024, and the cost-cutting measures put in place starting with 2023 seem to be paying off.
At press time, SPOT shares were trading at $455.49 — the day prior, they had closed at $419.48. This sudden 8.58% surge bolstered weekly returns to 16.31%, bringing year-to-date (YTD) gains up to 140.39%.
So, what caused this surge? On November 12 after market close, the business released its Q3 2024 earnings report — and although results were mixed, the investors seem to be quite bullish.
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SPOT stock rises despite earnings miss
Profitability has long been a concern with Spotify — and the company’s Q3 report saw the second profitable quarter in a row.
Earnings per share (EPS) came in at $1.54 — while significantly below consensus estimates of $1.80, this figure still represents an impressive 339.39% increase year-over-year (YoY).
The subscriber count rose 12% YoY to 252 million, monthly active users increased by 11% YoY, and total revenue rose by 19% in the same timeframe. Gross margins exceeded 30% for the first time ever, coming in at 31.1%. All of these growth metrics exceeded analyst estimates.
Sure, the earnings miss was significant — but the main takeaway is that Spotify is on track for its first full year of profitability, which would mark a significant watershed moment for the company.
CEO Daniel Ek also noted that the company would be more disciplined about the way it spends money going forward — while also stating that Spotify would intensify its efforts in the AI sphere, mainly focused on small, incremental upgrades to the platform.
Will Spotify stock continue to rally?
This latest surge is quite the vote of confidence — however, it does limit further growth in the short and medium terms — at least until Spotify releases its next earnings report.
Not everything went according to plan for the tech giant this past quarter — advertising revenue growth lagged expectations and the performance of peers, and the company will have to navigate an increasingly competitive video podcasting landscape, particularly with YouTube’s forays into the space.
Analysts are generally bullish, as they have previously been, but cautiously so. Only one analyst — Benchmark’s Matthew Harrigan, revised his price target after the earnings call, at the time of publication. Harrigan reiterated a ‘Strong Buy’ rating, upping his price target to $440 from $430. This equates to a 3.6% downside compared to current prices.
In a note shared with investors, the equity researcher revealed that Benchmark lowered its average revenue per user (ARPU) projections for Q4 2024 and FY 2025 by 1% and 2%, respectively, primarily because Spotify is set to enter emerging markets.
For the time being, the audio streaming business is on a good track — it remains a solid opportunity for a long position, but it’s unlikely that this present surge will continue.
Featured image via Shutterstock
