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Spotify Technology (SPOT - Free Report) is a Zacks Rank #1 (Strong Buy) that provides audio streaming services worldwide. The Company offers commercial-free music and ad-supported services to subscribers.
The stock had a big year for investors in 2023, up over 130% on the year. The gains came despite missing earnings in three out of the last four quarters.
The optimism recently gained momentum after an earnings beat that was followed by a cut to the workforce. This combination was applauded by both investors and analysts as the stock rallied to levels not seen since early 2022.
About the Company
Spotify was incorporated in 2006 and is headquartered in Stockholm, Sweden. The company employs over 9,000 people and has a market cap of $36 billion.
Spotify operates through two segments, Premium and Ad-Supported. The Premium segment offers unlimited online and offline streaming access to its catalog of music and podcasts without commercial breaks to its subscribers. The Ad-Supported segment provides on-demand online access to its catalog of music and unlimited online access to the catalog of podcasts to its subscribers on their computers, tablets, and compatible mobile devices.
The stock has a Zacks Style Score of “A” in Growth and “C” in Momentum. The company has a Forward PE of 77 and has a score of “C” in Value.
Q3 Earnings Beat and Job Cuts
In late October, SPOT reported Q3 EPS at €0.33 v -€0.20e, along with a revenue miss at €3.36B v €3.42Be. While the top line did not impress, the bottom line was a big surprise as lower marketing spend and personnel costs dropped.
The combination of raising subscription plan pricing and lower costs was a tailwind for the quarter. Premium subs were 226M v the 220M last year and Total Monthly Active Users (MAU) came in at 574M v the 566M expected.
Spotify guided Q4 revenues and Total MAU higher. They see premium subscribers coming in at 235M.
Investors responded positively to the quarter, taking the stock up by almost 10%.
About a month after the earnings report, the stock was trading at 2023 highs when the company announced another round of job cuts. This time the layoffs were very aggressive, with 17% of the workforce being cut.
The stock jumped another 10% as investors were pleased with the restructuring efforts to make the company more profitable. The stock moved over the $200 level, a mark it had not seen since January of 2022.
Analyst Estimates
After earnings, analysts started taking earnings estimates higher, and price targets were lifted as well. But as of late, we have seen a big shift in the short-term outlook due to the charges incurred by the workforce reductions.
Looking at the current quarter, estimates have gone from $0.35 to -0.08 over the last month. This accounts for the €130-145M in expected charges in Q4 due to the job cuts.
For next quarter, we get a better idea of how the numbers will move positively for Spotify. Over the last 30 days, estimates have gone from $0.23 to $0.52, a jump of 126%.
The current year’s estimates show a dip as well, but looking at the longer term, analysts are lifting estimates aggressively.
Over the last 90 days, analysts have taken next year's numbers from $0.64 to $2.42, or 278% higher.
While these numbers might be reflected in last year's move in Spotify stock price, analysts see room to go higher.
Since the job cut announcement, KeyBanc reiterated its Overweight and raised its price target to $255 from $210. Morgan Stanely has an Overweight as well, with targets being lifted to $230 from $200. Pivotal Research raised to a Buy and has a $265 target on the name.
The Technicals
SPOT is well off its all-time high at $387. The stock fell to a low of $69 back in late 2022, so the bulls have made some progress with the stock recently printing $200.
For those looking for an entry, the 50-day MA is $180 and the 200-day MA is $156. However, the stock might not retrace given Wall Street’s bullish tone. A move back over the $200 level likely brings an upside move near the $220 area.
Bottom Line
Spotify has taken investors on a roller coaster ride over the last couple of years. However, the fundamental story has finally taken shape and there is a vision for a more profitable company.
Investors should be looking for entry points on any dip lower and can expect 2024 to be a solid year with less volatility in the name.
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Bull of the Day: Spotify Technology (SPOT)
Spotify Technology (SPOT - Free Report) is a Zacks Rank #1 (Strong Buy) that provides audio streaming services worldwide. The Company offers commercial-free music and ad-supported services to subscribers.
The stock had a big year for investors in 2023, up over 130% on the year. The gains came despite missing earnings in three out of the last four quarters.
The optimism recently gained momentum after an earnings beat that was followed by a cut to the workforce. This combination was applauded by both investors and analysts as the stock rallied to levels not seen since early 2022.
About the Company
Spotify was incorporated in 2006 and is headquartered in Stockholm, Sweden. The company employs over 9,000 people and has a market cap of $36 billion.
Spotify operates through two segments, Premium and Ad-Supported. The Premium segment offers unlimited online and offline streaming access to its catalog of music and podcasts without commercial breaks to its subscribers. The Ad-Supported segment provides on-demand online access to its catalog of music and unlimited online access to the catalog of podcasts to its subscribers on their computers, tablets, and compatible mobile devices.
The stock has a Zacks Style Score of “A” in Growth and “C” in Momentum. The company has a Forward PE of 77 and has a score of “C” in Value.
Q3 Earnings Beat and Job Cuts
In late October, SPOT reported Q3 EPS at €0.33 v -€0.20e, along with a revenue miss at €3.36B v €3.42Be. While the top line did not impress, the bottom line was a big surprise as lower marketing spend and personnel costs dropped.
The combination of raising subscription plan pricing and lower costs was a tailwind for the quarter. Premium subs were 226M v the 220M last year and Total Monthly Active Users (MAU) came in at 574M v the 566M expected.
Spotify guided Q4 revenues and Total MAU higher. They see premium subscribers coming in at 235M.
Investors responded positively to the quarter, taking the stock up by almost 10%.
About a month after the earnings report, the stock was trading at 2023 highs when the company announced another round of job cuts. This time the layoffs were very aggressive, with 17% of the workforce being cut.
The stock jumped another 10% as investors were pleased with the restructuring efforts to make the company more profitable. The stock moved over the $200 level, a mark it had not seen since January of 2022.
Analyst Estimates
After earnings, analysts started taking earnings estimates higher, and price targets were lifted as well. But as of late, we have seen a big shift in the short-term outlook due to the charges incurred by the workforce reductions.
Looking at the current quarter, estimates have gone from $0.35 to -0.08 over the last month. This accounts for the €130-145M in expected charges in Q4 due to the job cuts.
For next quarter, we get a better idea of how the numbers will move positively for Spotify. Over the last 30 days, estimates have gone from $0.23 to $0.52, a jump of 126%.
The current year’s estimates show a dip as well, but looking at the longer term, analysts are lifting estimates aggressively.
Over the last 90 days, analysts have taken next year's numbers from $0.64 to $2.42, or 278% higher.
While these numbers might be reflected in last year's move in Spotify stock price, analysts see room to go higher.
Since the job cut announcement, KeyBanc reiterated its Overweight and raised its price target to $255 from $210. Morgan Stanely has an Overweight as well, with targets being lifted to $230 from $200. Pivotal Research raised to a Buy and has a $265 target on the name.
The Technicals
SPOT is well off its all-time high at $387. The stock fell to a low of $69 back in late 2022, so the bulls have made some progress with the stock recently printing $200.
For those looking for an entry, the 50-day MA is $180 and the 200-day MA is $156. However, the stock might not retrace given Wall Street’s bullish tone. A move back over the $200 level likely brings an upside move near the $220 area.
Bottom Line
Spotify has taken investors on a roller coaster ride over the last couple of years. However, the fundamental story has finally taken shape and there is a vision for a more profitable company.
Investors should be looking for entry points on any dip lower and can expect 2024 to be a solid year with less volatility in the name.