Spotify Demonstrates Robust Financial Health With Impressive Q1 Revenue, Margin Improvements: Analyst

Goldman Sachs analyst Eric Sheridan had a Neutral rating on Spotify Technology SA SPOT with a price target of $277.

Spotify reported fiscal first-quarter 2024 revenue growth of 20% year-on-year to $3.95 billion, beating the consensus of $3.85 billion. EPS of $1.05 beat the consensus of $0.70.

The stock price jumped Tuesday after the print.

The analyst expects Spotify to have a positive market reaction to its first-quarter 2024 earnings report (including its forward second-quarter 2024 commentary) as the company reported roughly in-line subscriber and revenue performance across its businesses with some headwinds to forward revenue and subscriber momentum in the forward forecast. 

In addition (and likely the more significant component of the stock reaction to this earnings report), he would focus on the positive operating momentum in both gross margins and operating margins on a mix of improved music and podcast trends with some headwind from audiobook costs operating margins benefiting from lower personnel and marketing spend. 

In many ways, the continued momentum around the margin trajectory will likely remain supportive of the shares on the back of the potential for forward positive estimate revisions, as per the analyst. 

Ahead of the earnings call, Sheridan expected investors to focus on SPOT management commentary on reasons for subscriber volatility (both in the reported quarter and forward commentary), any management comments about recent press reports discussing future pricing actions, additional color on forward profit margin trajectory, an update on a new permanent CFO and elements of the broader media consumption landscape.

SPOT price action: Spotify shares traded higher by 14.74% at $312.31 at the last check Tuesday.

Read Next: JetBlue Airways Shares Witness Over 10% Drop On Disappointing Annual Outlook

Photo: Esthermm on Shutterstock