Spotify - ★★★★ - Ranked #37 in our Q2 2024 Large Cap Equity Rankings
Spotify Technology's shares rallied over 14% on Tuesday after the audio streaming giant reported better-than-expected profits for the first quarter, even as recent layoffs weighed on user growth.
The company swung to earnings of €0.97 ($1.04) per share for the March quarter, easily topping analysts' consensus estimate of €0.62 EPS. This marked a sharp turnaround from the €1.16 per share loss in the prior year period.
Revenue jumped an impressive 20% year-over-year to €3.64 billion, edging out the €3.6 billion Wall Street had forecast on the top line.
The robust profit performance appeared to be a direct result of Spotify's dramatic cost-cutting measures late last year when it slashed 17% of its global workforce, or around 600 employees. CEO Daniel Ek admitted on the earnings call that the layoffs caused more "operational disruptions" than anticipated, contributing to a miss on Spotify's total monthly active user (MAU) guidance for Q1.
Spotify added just 15 million new MAUs in the quarter to reach 515 million total, undershooting its 518 million target by 3 million. Subscriber growth also decelerated sharply to 14% year-over-year, reaching 239 million premium users but falling narrowly short of estimates.
The Subscriptions segment makes up the bulk of Spotify's top line and has been the key focus of Ek's premium push and non-music expansion into podcasts and audiobooks.
Analysts remain bullish on the streaming service's long-term pricing power and ability to keep broadening its audio content verticals.
Despite the slower user growth this quarter likely tied to severance costs and restructuring headwinds, investors clearly applauded Spotify's profit leverage and aggressive margin management.
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After a 65% rally already this year amid the AI frenzy lifting tech stocks, today's 14% pop adds to the growing buzz around Spotify's cost discipline and long-term audio streaming prospects.
Our analysts currently have a ★★★★ (Positive Outlook) for Spotify over the next 12 months.
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