Here’s why Spotify stock soared today.
Audio streaming platforms are setting records as subscribers pay for premium services.
Shares of Audio Streaming Platforms Spotify Technology (dot 14.55%) Shares soared on Tuesday after the Swedish company reported its first quarter 2024 financial results. As of 9:40 a.m. ET, Spotify stock was up 13%, hitting a new 52-week high.
Spotify’s growth leads to profits
Spotify ended the first quarter with 615 million monthly active users, slightly below analysts’ expectations and management’s guidance. That said, this still represents strong year-over-year growth of 19%. Additionally, the premium subscriber base grew 14% to 239 million users.
The majority of Spotify’s revenue comes from its small premium subscriber base. As a result, the company’s revenue increased 20% year-on-year, reaching 3.6 billion euros, or nearly $3.9 billion. And investors were encouraged by the improvement in gross margins. Gross profit margins were just 25% the previous year, but jumped to nearly 28% in the first quarter.
Top-line growth led to net profit along with improvement in gross profit margin. That’s why investors are sending Spotify stock higher today.
Will there be more record-breaking results?
Spotify’s guidance for the upcoming second quarter was also encouraging. The company expects to add approximately 6 million premium subscribers, supporting additional top-line growth and margin improvement. In fact, management believes it could earn $250 million in operating profit in the second quarter. This will be a company record.
When valuing the company based on its current operating income, we think Spotify stock is expensive, with a market capitalization of over $61 billion. That said, the company is still growing at an impressive pace, and as a result, profits could continue to grow to support its valuation.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has a position on Spotify Technology and recommends it. The Motley Fool has a disclosure policy.
