Spotify Technology (SPOT) stock shot higher out of the gate Wednesday after the audio streaming company issued a strong profit and user forecast for its fourth quarter. This forecast is offsetting a top- and bottom-line miss for its third-quarter results.
In the three months ended September 30, Spotify's revenue increased 18.8% year over year to 3.99 billion euros, primarily driven by subscriber gains and price increases. Its net profit more than quadrupled from the year-ago period to 1.45 euros per share.
"Q3 is another standout in what you've heard me refer to as 'the year of monetization,' and we are on track for our first full year of profitability," said Spotify CEO Daniel Ek in prepared remarks. "We outperformed on both subscribers and monthly active users (MAUs), revenues were in line, and we had significant beats on gross margin and operating income. We also had another sequential – and all-time record – quarter of free cash flow."
While Spotify met or exceeded the outlook it provided in its second-quarter report, the results fell short of analysts' expectations. Wall Street was anticipating revenue of 4.02 billion euros and earnings of 1.72 euros per share, according to CNBC.
Spotify also said its monthly active users came in at 640 million, representing an increase of 11.5% from the year-ago period and 2.2% from the prior quarter. Premium subscribers totaled 252 million, up 11.5% year over year and 2.4% quarter over quarter. Analysts had forecast MAUs of 639 million.
For the fourth quarter, Spotify said it expects to achieve total MAUs of 665 million, total premium subscribers of 260 million, total revenue of 4.1 billion euros and operating income of 481 million euros. Analysts were anticipating monthly active users of 659.3 million, revenue of 4.26 billion euros and operating income of 432.7 million euros.
Is Spotify stock a buy, sell or hold?
Spotify has been on a roll in 2024, rising over 140% for the year to date at the time of this writing. Unsurprisingly, Wall Street is bullish on the communication services stock. According to S&P Global Market Intelligence, the consensus recommendation among analysts it tracks is a Buy.
However, analysts' price targets have failed to keep up with the large-cap stock's ascent. The average price target of $437.89 represents a discount to its current price. Analysts may very well raise their price targets in the days and weeks ahead following the earnings release.
Indeed, financial services firm Jefferies maintained its Buy rating after earnings and raised their price target to $540 from $445.
"We believe SPOT has the runway via user growth and pricing to deliver sustainable 15%+ revenue growth through 2026," says Jefferies analyst James Heaney. "We believe price increases coming every other year and bundling can help drive the next leg of growth."
