Is Spotify Stock a Melodious Investment Opportunity Right Now?

Spotify Technology S.A. (SPOT) dances at the forefront of the music streaming market, driven by its massive influence, growing user base, and cutting-edge innovations. With enhanced AI-powered music recommendations and groundbreaking podcast monetization systems, SPOT is reshaping how we consume audio content.

Recently, SPOT unveiled an exciting Beta launch of Music Videos in 85 new markets, expanding the feature to 97 markets worldwide. Premium subscribers can now immerse themselves in the visual worlds of their favorite artists, adding a new layer of engagement to the streaming experience.

Building on its AI edge, SPOT also introduced the AI Playlist Beta to the United States, Canada, Ireland, and New Zealand. The feature empowers Premium subscribers to craft custom playlists simply by typing prompts, showcasing the company's commitment to making personalization seamless and fun for its users.

Furthering its mission to connect creators and audiences, SPOT has rolled out comments for podcasts. The new feature enhances interactivity, giving podcast creators a direct way to engage with listeners and grow their communities. These innovations underscore SPOT’s determination to dominate the digital audio landscape with user-focused improvements.

The company’s fiscal 2024 third-quarter report highlights remarkable growth. Total monthly active users soared by 11.5% year-over-year to 640 million, with premium subscribers and ad-supported users climbing to 252 million and 402 million, respectively. The numbers tell a story of sustained user acquisition and deepening engagement.

Investors have plenty to celebrate. SPOT’s stock surged 54.2% in the last six months and an extraordinary 159.6% over the past year, closing at $475.24 in the latest trading session. The remarkable performance reflects the company's ability to capitalize on the booming streaming industry, cementing its position as a market leader.

So, let us take a closer look at the factors that could influence SPOT’s performance in the near future.

Recent Developments

SPOT’s audiobook catalog, with over 300,000 titles and counting, continues to expand its global reach. On November 26, the company launched Spotify for Authors, a platform designed to provide authors and publishers with better tools and data to maximize their success on Spotify.

The new initiative strengthens SPOT’s growth by empowering those behind the audiobook content listeners love. By supporting authors and publishers, SPOT could deepen its foothold in the audiobook market, contributing to its overall expansion and continued success in the streaming industry.

In addition, SPOT’s partnership with Emirates, announced on November 6, further accelerates the company’s global reach. With SPOT’s curated playlists and podcasts now available on Emirates’ award-winning ice system, passengers can enjoy premium audio content, expanding SPOT’s presence beyond typical streaming platforms.

These moves not only broaden the company’s content offerings but also demonstrate how strategic partnerships and innovations are driving the company’s continued growth and global expansion.

Sound Historical Growth

Over the past five years, SPOT’s revenue has grown at a CAGR of 18.7%. Meanwhile, its EBITDA rose at a CAGR of 47.7%. Plus, the company’s operation income (EBIT) and total assets increased at CAGRs of 62.8% and 16%, respectively.

Furthermore, during the same time frame, the company’s net income and EPS grew at respective CAGRs of 8.6% and 7.9%. The sustained performance highlights the company’s strong growth trajectory over the last few years.

Strong Financials

For the fiscal third quarter that ended September 30, 2024, SPOT's revenue increased 18.8% year-over-year to €3.99 billion ($4.21 billion). Its gross profit rose 40.1% from the year-ago value to €1.24 billion ($1.31 billion). Moreover, the company’s operating income increased significantly year-over-year to €454 million ($478.96 million).

In addition, SPOT’s net income and EPS attributable to owners of the parent rose 361.5% and 339.4% from the prior year’s quarter to €300 million ($316.49 million) and €1.45. As of September 30, 2024, the company’s total assets amounted to €10.55 billion ($11.13 billion), compared to €8.35 billion ($8.80 billion) on December 31, 2023.

Favorable Analyst Estimates

Analysts predict SPOT’s revenue for the fiscal year ending December 2024 to rise 14.6% year-over-year to $16.32 billion. In addition, its EPS for the ongoing fiscal year is expected to come in at $6.10.

Looking further ahead to the next fiscal year ending in December 2025, SPOT is projected to see additional growth, with revenue and EPS forecasted to rise by 14.8% and 56.8% from the prior year to reach $18.73 billion and $9.56, respectively.

High Profitability

SPOT’s trailing-12-month ROCE of 20.70% is 400.2% higher than the industry average of 4.09%. Its trailing-12-month asset turnover ratio stands at 1.66x, 236.6% higher than the industry average of 0.49x.

Additionally, SPOT’s trailing-12-month net income margin of 4.64% outperforms the industry average of 3.57% by 30%. Moreover, the company boasts a trailing-12-month ROTC of 13.57%, which is 249.9% above the sector average of 3.88%.

POWR Ratings Reflects Optimism

SPOT’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

SPOT boasts an A grade for Growth, highlighting its impressive track record of robust expansion. Moreover, it has a B grade for Quality, which is in sync with its impressive profitability metrics that surpass the industry average.

Within the Entertainment - Radio industry, SPOT is ranked #2 out of 4 stocks. Beyond what is stated above, we have also given SPOT grades for Momentum, Value, Sentiment, and Stability. Get all SPOT ratings here.

Bottom Line

SPOT has long led the charge in the free-to-use music streaming model, maintaining its top spot through fair monetization strategies, cutting-edge AI-powered music recommendations, and steady user growth across both paid and non-paid subscribers.

With recent breakthroughs in AI-driven music suggestions and podcast monetization, SPOT's influence continues to soar. Its impressive profitability and robust growth metrics make the company a compelling choice for investors looking to capitalize on its upward trajectory and the expanding potential of the streaming market.

How Does Spotify Technology S.A. (SPOT) Stack Up Against Its Peers?

Although SPOT’s near-term outlook appears sound, it may be worthwhile to explore its industry peers, who currently exhibit even stronger POWR Ratings. So, consider these A (Strong Buy) and B-rated (Buy) stocks from the Entertainment - Media Producers industry:

Sony Group Corporation (SONY)

Alliance Entertainment Holding Corporation (AENT)

AMC Networks Inc. (AMCX)

What To Do Next?

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SPOT shares were unchanged in premarket trading Friday. Year-to-date, SPOT has gained 152.91%, versus a 27.18% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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