Is Spotify a Buy After its Latest Earnings Call?

By Mijuško Šibalić, Stock Market Writer and Stock Researcher

November 18, 2024 9:46 PM UTC

Is Spotify a Buy After its Latest Earnings Call?

Profitability has been a longstanding concern with streaming giant Spotify Technology (NYSE: SPOT). However, those worries seem to be fading away. On November 12th, the company had its Q3 2024 earnings call.

Surprisingly enough, although the results were mixed on the whole, investors reacted with renewed confidence. SPOT stock has surged by some 14.2% since then, and is currently trading at $464.06. Year-to-date (YTD) returns stand at 145.79%.

SPOT stock price chart, courtesy TradingView

And it’s not just investors, either. Some of Wall Street’s premier stock analysts have reacted positively to the news.

Let’s take a closer look at the results. Earnings per share (EPS) of $1.80 was the consensus estimate — and although EPS came in at $1.54, the company still had its second consecutive profitable quarter, and is well on track for its first full year of profitability.

Overall subscriber count rose to 252 million, representing a year-over-year (YoY) increase of 12%. Monthly active users increased by 11% in the same timeframe, while total revenue grew by 19% compared to Q3 2023. Most notably, gross margins stood above 30% for the first time ever.

The company isn’t highly leveraged at a debt-to-equity ratio (D/E) of 1.28 — in fact, five years ago the ratio was significantly higher at 1.59.

Forecasts are also looking quite appealing — earnings are expected to grow at 45.03% per year, far outpacing the industry average of 10.19% and the wider market average of 17.91%.

The same holds true for revenue — analysts expect to see yearly growth of 10.84% in SPOT’s case — whereas the figures for the internet content & information industry and the wider market are 6.11% and 9.21% respectively.

In the days following the earnings report, several top-rated equity researchers revised their price targets upward.

Maria Ripps of Canaccord Genuity noted that MAU and Premium Subscriber counts were broadly in line with consensus, total revenue continued to grow in the high-teens, and both gross margin and operating profit showed meaningful upside. She raised her previous price target of $475 to $525 and reiterated a “Strong Buy” rating.

Jessica Reif Ehrlich of Bank of America (NYSE: BAC) noted that gross margin, operating income, and free cash were all well above BofA’s estimates, and maintained a “Strong Buy” rating. The analyst set her new price target at $515, up from $430.

Finally, Steven Cahall of Wells Fargo focused on what he called “the all-important margin performance”, which continues to show a bullish paradigm shift. His previous “Strong Buy” rating was restated, while the price forecast was increased to $520 from $470.

That’s not to say that the picture is entirely rosy — at a pretty high price-to-earnings (P/E) ratio of 128.26x, Spotify already has a lot of future growth priced in — but if it manages to pull of its first profitable year, it’s likely that investors will turn much more bullish.

—> Click here to research SPOT. If you’re interested in other stocks that Wall Street analysts are bullish on, check out our Strong Buys According to Wall Street screener.

What to Do Next?