Spotify's Q2 Margin Gains, Record Free Cash Flow And Strong Subscriber Growth Highlight Successful Execution In Music And Podcasts: JP Morgan Analyst

JP Morgan analyst Doug Anmuth maintained an Overweight rating on Spotify Technology SPOT.

Spotify reported fiscal second-quarter 2024 revenue growth of 20% year-on-year to $4.099 billion, missing the analyst consensus of $4.170 billion. EPS of $1.43 beat the consensus estimate of $1.15.

Spotify continues to execute well and drive meaningful profit improvements across music, podcasts, and other revenue costs, the analyst said, citing the gross and operating margin guide for the third quarter hitting the low end of the company’s medium-term financial targets.

Spotify guided third-quarter gross margin of 30.2%, well above JP Morgan’s estimate and consensus at 28.6%, Anmuth said.

The third-quarter operating income guide of 405 million euros was significantly above JP Morgan’s estimate and consensus of 281 million euros and 298 million euros.

Anmuth expects the strength in the margins to drive near-term strength in shares.

Anmuth said Spotify’s second-quarter free cash flow of 490 million euros was above JP Morgan’s estimate and consensus of 215 million euros and 336 million euros and was its highest quarterly free cash flow ever.

The analyst noted that MAUs grew across all geographies, led by the Rest of the World and Europe, and Spotify continues to recalibrate marketing activities.

Premium subscribers grew across all regions, led by North America and Europe, along with strong promo campaign intake.

On the earnings call, Anmuth will seek updates on drivers of gross margin, operating income, and free cash flow in 2024, second-half MAU and premium subscriber net adds, early impact of U.S. price increase and cadence of international price increases, plan tiering and podcast growth and gross margins.

Price action: SPOT shares closed higher by 12% at $330.79 on Tuesday.

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