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Spotify Stock Soars 81% Year to Date: Should You Invest or Avoid?
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Spotify Technology S.A. (SPOT - Free Report) has seen its stock skyrocket 80.6% year to date. This impressive performance has significantly outpaced the 20.1% rally of the industry it belongs to and the 17.8% growth of the Zacks S&P 500 composite.
As of the last trading session, the stock closed at $339.47, close to its 52-week high of $359.38. SPOT is trading above its 50-day moving average, indicating a bullish sentiment among investors.
Year-to-Date Price Performance
Image Source: Zacks Investment Research
Given the continuous strength in SPOT shares, investors might be tempted to buy the stock. But is this the right time to buy SPOT? Let’s find out.
SPOT’s Financial Performance is Watch Worthy
Spotify investors have many reasons to be optimistic when it comes to the company’s financial results. The company's premium subscriber revenues, which account for approximately 88% of total revenues, play a crucial role in its financial performance. Ad-supported revenues contribute the remaining 12%.
Premium subscribers grew 12%, and ad-supported monthly active users (MAUs) increased 15% in the second quarter of 2024. The growth in total MAU was also noteworthy, with a 14% year-over-year increase. Spotify increased its gross profit by 45% year over year, expanding its gross margin by 510 basis points. It also turned an operating loss of $247 million into a profit of $266 million over the year. The adjusted eps of $1.43 marked a substantial 184.6% year-over-year jump.
Spotify's performance metrics have been bolstered by sustained price hikes, a loyal consumer base and significant cost reductions. The ability to raise prices while retaining and expanding its subscriber base is particularly noteworthy. This was the first quarter where premium subscriber growth outpaced ad-supported MAU growth sequentially, highlighting the effectiveness of Spotify’s pricing strategy.
The recent price hikes, alongside those by competitors such as Alphabet's (GOOGL - Free Report) YouTube Premium, Apple’s (AAPL - Free Report) Music/TV, and Amazon’s (AMZN - Free Report) Music Unlimited, underscore the industry's trend toward higher pricing.
Stock Valuation Suggests a Bargain
Despite the significant rally over the past year, Spotify's stock remains relatively undervalued, suggesting 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 Reflected in Rising Estimates
Six estimates for the third quarter of 2024 moved north over the past 60 days versus no southward revision. Over the same period, the Zacks Consensus Estimate for third-quarter 2024 earnings has increased 34.8% to $1.82. Earnings are expected to grow 405.6% year over year in the quarter. Seven estimates for 2024 moved north over the past 60 days versus no southward revision. Over the same period, the consensus estimate for 2024 earnings has increased 27.7% to $6.32. Earnings are expected to grow 314.2% year over year in 2024.
The Zacks Consensus Estimate for SPOT’s third-quarter 2024 sales stands at $4.38 billion, suggesting year-over-year growth of 19.8%. Revenues for 2024 are expected to increase 19.4% year over year.
Spotify is a Must-Buy
Spotify's strong financial position, promising top and bottom-line growth potential, and successful balance of higher subscription pricing with MAU growth make it an appealing investment. Management anticipates a sequential increase of 13 million in total MAUs, a 5 million rise in total premium subscribers, a $193 million revenue boost, a 100 basis point expansion in gross margin, and a $139 million increase in operating income for the third quarter.
For investors looking to gain exposure to the music-streaming sector, Spotify’s positive outlook and financial stability present a compelling opportunity following the earnings season. The company's inherent growth potential and strategic initiatives indicate that Spotify continues to be a valuable investment choice.
Image: Bigstock
Spotify Stock Soars 81% Year to Date: Should You Invest or Avoid?
Spotify Technology S.A. (SPOT - Free Report) has seen its stock skyrocket 80.6% year to date. This impressive performance has significantly outpaced the 20.1% rally of the industry it belongs to and the 17.8% growth of the Zacks S&P 500 composite.
As of the last trading session, the stock closed at $339.47, close to its 52-week high of $359.38. SPOT is trading above its 50-day moving average, indicating a bullish sentiment among investors.
Year-to-Date Price Performance
Given the continuous strength in SPOT shares, investors might be tempted to buy the stock. But is this the right time to buy SPOT? Let’s find out.
SPOT’s Financial Performance is Watch Worthy
Spotify investors have many reasons to be optimistic when it comes to the company’s financial results. The company's premium subscriber revenues, which account for approximately 88% of total revenues, play a crucial role in its financial performance. Ad-supported revenues contribute the remaining 12%.
Premium subscribers grew 12%, and ad-supported monthly active users (MAUs) increased 15% in the second quarter of 2024. The growth in total MAU was also noteworthy, with a 14% year-over-year increase. Spotify increased its gross profit by 45% year over year, expanding its gross margin by 510 basis points. It also turned an operating loss of $247 million into a profit of $266 million over the year. The adjusted eps of $1.43 marked a substantial 184.6% year-over-year jump.
Spotify's performance metrics have been bolstered by sustained price hikes, a loyal consumer base and significant cost reductions. The ability to raise prices while retaining and expanding its subscriber base is particularly noteworthy. This was the first quarter where premium subscriber growth outpaced ad-supported MAU growth sequentially, highlighting the effectiveness of Spotify’s pricing strategy.
The recent price hikes, alongside those by competitors such as Alphabet's (GOOGL - Free Report) YouTube Premium, Apple’s (AAPL - Free Report) Music/TV, and Amazon’s (AMZN - Free Report) Music Unlimited, underscore the industry's trend toward higher pricing.
Stock Valuation Suggests a Bargain
Despite the significant rally over the past year, Spotify's stock remains relatively undervalued, suggesting 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.
The trailing 12-month enterprise value/sales ratio stands at 3.95X compared to the industry average of 8.44X.
Analysts' Confidence Reflected in Rising Estimates
Six estimates for the third quarter of 2024 moved north over the past 60 days versus no southward revision. Over the same period, the Zacks Consensus Estimate for third-quarter 2024 earnings has increased 34.8% to $1.82. Earnings are expected to grow 405.6% year over year in the quarter. Seven estimates for 2024 moved north over the past 60 days versus no southward revision. Over the same period, the consensus estimate for 2024 earnings has increased 27.7% to $6.32. Earnings are expected to grow 314.2% year over year in 2024.
The Zacks Consensus Estimate for SPOT’s third-quarter 2024 sales stands at $4.38 billion, suggesting year-over-year growth of 19.8%. Revenues for 2024 are expected to increase 19.4% year over year.
Spotify is a Must-Buy
Spotify's strong financial position, promising top and bottom-line growth potential, and successful balance of higher subscription pricing with MAU growth make it an appealing investment. Management anticipates a sequential increase of 13 million in total MAUs, a 5 million rise in total premium subscribers, a $193 million revenue boost, a 100 basis point expansion in gross margin, and a $139 million increase in operating income for the third quarter.
For investors looking to gain exposure to the music-streaming sector, Spotify’s positive outlook and financial stability present a compelling opportunity following the earnings season. The company's inherent growth potential and strategic initiatives indicate that Spotify continues to be a valuable investment choice.
SPOT currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.