Building on an explosive turnaround in earnings growth, Spotify Technology is expected to deliver a 126% spike to $2.52 per share when the music streamer reports its first-quarter performance before Tuesday's market open. As Spotify stock fine-tunes a potential breakout, it earns a spot on the IBD Leaderboard watchlist.
Hailing from the same Computer Software-Education/Media group as Duolingo, Spotify sports the highest-possible 99 Composite Rating. The group ranks a strong No. 14 out of the 197 industries Investor's Business Daily tracks. But as Spotify stock teases a breakout, investors should note that it's risky to buy any stock just ahead of earnings. It's best to see how a stock reports — and how Wall Street reacts — before jumping in.
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Spotify Powers Impressive Turnaround
Launched in 2008, Spotify now has 675 million users, including 263 million paid subscribers across 184 markets. Users have access to 100 million tracks, more than 6.5 million podcasts titles, and 350,000 audiobooks on the platform.
Last week, Spotify announced the expansion of its AI Playlist in beta, which launched last year. While playlists have always been at the heart of the audio streaming service, this latest upgrade shows how Spotify continues to enhance the user experience through artificial intelligence.
After seven quarters of solid double-digit sales growth, revenue growth slowed to just under $4.4 billion in the fourth quarter, marking an 8% increase. But bottom-line growth remains explosive.
Showing a strong turnaround, gains for four of the last six quarters have been based on comparisons to prior-year quarters that showed a loss. But those gains have been impressive. In the third quarter, Spotify posted a 363% spike in earnings to $1.61 per share. While fourth-quarter earnings were based on a loss in the prior-year quarter, the company generated a 559% gain to $1.82 per share.
Including the estimated 126% spike in earnings for the first quarter, analysts project a 101% jump to $11.43 per share for the full year.
Spotify Stock Looks For Breakout Hit
With earnings due before the open Tuesday, Spotify stock teased a breakout early Monday.
Spotify has crafted a double bottom, a common pattern in volatile markets. Shares briefly cleared the 621.20 buy point before easing back. The stock stands solidly above the 50-day moving average ahead of a potential breakout, a positive technical sign.
On Monday, while the Nasdaq managed to erase most of the day's initial losses, Spotify fell nearly 4%, closing at the bottom of the day's price range.
Yet, showing market leadership, Spotify's relative strength line remains within striking distance of its 52-week high. The music streamer also sports a B Accumulation/Distribution Rating and eight quarters of rising fund ownership.
As Spotify stock tests a breakout with earnings on tap, keep in mind that the new base is fifth stage. Such later-stage patterns entail more risk than first- or second-stage bases.
Follow Matthew Galgani on X (formerly Twitter) at @IBD_MGalgani.
