Spotify Stock: Music Streamer Cranks Up Profits

Spotify Technology (SPOT) investors are singing a happy tune these days as the streaming music service looks unstoppable in the audio entertainment market and is now focused on improving its profitability. Spotify stock is near a three-year high.




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The Stockholm-based company is the world leader in music streaming by subscribers, with about 32% market share, according to Midia Research. Tencent Music (TME) is in second place with 14% share, followed by Apple‘s (AAPL) Apple Music with 13% and Amazon.com‘s (AMZN) Amazon Music with 11%, Midia said.

“They have an unequivocal competitive advantage to other music distributors,” CFRA Research analyst Kenneth Leon told Investor’s Business Daily. “Their ability to outrun other music streaming platforms is very significant. They are far ahead.”

The company is also bolstering its premium subscriber base, adding 3 million in the first quarter, and ending the period with 239 million total paying users worldwide.

In addition to its commercial-free subscription service, Spotify also offers a free, advertising-supported service. In the first quarter, it tallied 388 million users of its ad-supported service, up 9 million from the prior quarter.

Spotify Stock: Focused On Profitability

Spotify earned the equivalent of $1.05 a share on sales of $3.95 billion in the March quarter. The company reports financial results in euros. In the year-earlier period, Spotify lost $1.27 a share on sales of $3.34 billion.

After cutting costs through workforce reductions and other means last year, Spotify hopes to be sustainably profitable starting this year.

Analysts polled by FactSet predict Spotify will earn $5.06 a share this year and $7.32 in 2025. Last year, Spotify lost $2.93 a share.

Analysts also see Spotify ending the year with 260 million premium subscribers and 427 million ad-supported listeners.

Competitive Advantage

Spotify’s advantage stems from being both a technology company and a media company, CFRA’s Leon said.

Technology innovations include Spotify’s music recommendation engine. Its savvy media company moves include adding podcasts and audiobooks for its subscribers.

spotifyLeon sees parallels between Spotify and streaming video leader Netflix (NFLX). Netflix struggled with operating losses until it was able to reach a critical mass of subscribers.

Spotify’s rise to prominence should put the company in a better position to negotiate royalty rates with the major music labels, Leon said.

Spotify still has considerable room to grow in developed and developing markets, Leon said.

Europe accounts for 38% of Spotify’s subscriber base, followed by North America at 27% and Latin America at 22%. The rest of the world makes up 13% of Spotify’s subscriber base.

Leon rates Spotify stock as buy with a price target of 355.

Spotify Stock Breaks Out

On June 4, Spotify stock broke out of a flat base at a buy point of 319.30, according to IBD MarketSurge charts. It climbed as high as 331.08 the next day before pulling back and dropping out of the 5% buy zone.

However, in a show of strength, it found support above its 50-day moving average line and didn’t close in the 7%-to-8% stop-loss sell zone. Spotify ended regular session trading Tuesday at 309.90.

Spotify’s recent breakout was its second this year. On Jan. 12, Spotify stock hit a buy point of 202.88 out of a flat base, MarketSurge charts show.

Spotify stock reached its all-time high of 387.44 in February 2021.

Price Increases

A factor that has helped Spotify’s bottom line has been its ability to raise prices with minimal subscriber churn.

On June 3, Spotify announced plans to raise prices for its U.S. subscribers starting in July. The Individual plan will increase to $11.99 a month from $10.99. The Duo plan rises to $16.99 from $14.99. And the Family plan moves to $19.99 from $16.99. Spotify previously raised prices in July 2023.

On a conference call with Spotify stock analysts April 23, Chief Executive Daniel Ek reiterated that 2024 is a “year of monetization” for the company.

“Two years ago, we really concentrated on our user growth,” he said. “Then last year, we restructured our costs and now we’re focusing on accelerating revenue while improving our bottom line.”

He added, “We still continue to expect improving profitability over the course of this year and into the next.”

Spotify also will continue to innovate, Ek said. Last quarter, Spotify added music videos to its mix. And Spotify expects to use artificial intelligence to improve the music discovery process, he said.

“Bottom line, we are really good at pivoting our attention when it makes sense,” Ek said.

Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.

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