Zinger Key Points
- Spotify's Q4 revenue grew 16% to $4.53B, beating estimates, as premium subscribers and gross margins exceeded expectations.
- Analysts remain bullish on Spotify, citing strong profitability trends, rising pricing power, and stable user and subscriber growth.
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Wall Street analysts rerated Spotify Technology S.A. SPOT after it reported upbeat quarterly print Tuesday amid an exciting earnings season.
Spotify reported quarterly earnings of $1.88 per share, below the analyst estimate of $2.06. The company reported quarterly sales of $4.53 billion (4.24 billion euros), up by 16%, topping the consensus estimate of $4.15 billion.
The company reported monthly average user (MAU) net additions of 35 million quarter-over-quarter, surpassing guidance by ten million, and subscriber net additions of 11 million, also ahead by three million.
Premium subscribers grew 11% to 263 million, reflecting year-over-year and quarter-over-quarter growth across all regions, beating expectations by 3 million.
Goldman Sachs analyst Eric Sheridan reiterated a Buy on Spotify with a price target of $550.
JP Morgan analyst Doug Anmuth maintained an Overweight on Spotify.
Goldman Sachs: Sheridan would expect Spotify to have a positive market reaction to its fiscal fourth-quarter earnings report with a mixture of strong foreign-exchange neutral revenue growth (above guidance), positive momentum in premium subscriber count (also slightly ahead of guidance), and gross margins of 32.2% (above company guidance of 31.8%).
In terms of forward commentary, the company guided fiscal first-quarter 2025 MAUs roughly in line with Sheridan’s estimates, premium subscribers slightly ahead, total revenue in line, and operating profit to be ~23% higher compared to Sheridan’s estimate (including a better than expected gross margin).
The latter profitability trend into 2025 is likely the most favorable outcome, as investors had feared potential headwinds from a mixture of management commentary the previous quarter around forward investments & recent industry news, as well as how to analyze margin trajectory and forward pricing.
In total, Sheridan’s initial reading of this earnings report maintains a consistent set of themes from the company—solid, stable user and subscriber trends, rising pricing, and subscriber funnel conversion as tailwinds to revenue and inflecting the forward operating margin trajectory.
Regarding the upcoming earnings call, Sheridan will focus on the current state of the industry’s competitive dynamic, the evolution of the user and subscriber funnel, the relationship between Spotify and the music industry, and the continued conversion of gross profit dollar growth into operating profits.
JP Morgan: Spotify delivered greater progress across its medium-term financial targets of 30%-40% gross margins and 10%+ operating margin, with 2024 representing the first full year of operating and net income profit. Anmuth noted the first-quarter outlook is strong across all metrics and expects shares to respond favorably. Spotify remains one of Anmuth’s 4 Best Ideas in 2025.
On the call, Anmuth sought updates on the drivers of gross margin, operating income, and free cash flow in 2025, the trajectory of MAU and premium subscriber net adds for 2025, the UMG Recorded Music and Music Publishing agreement, the cadence of international price increases and pricing power, progress and investments across Audiobooks and video, Podcast growth and gross margins, and capital returns potential.
Price action: SPOT stock traded higher by 12% at $614.94 at the last check on Tuesday.
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