Spotify (SPOT, Financial) shares surged to new record highs after its Q3 report exceeded expectations for monthly active users (MAU) and premium subscribers. Despite missing earnings, the impressive growth in users overshadowed this, breaking a streak of four consecutive beats. Investors remained optimistic due to promising MAU and premium subscriber forecasts for Q4, even though revenue guidance was impacted by foreign exchange fluctuations, causing Q3 revenue to slightly miss estimates.
- EPS of €1.45 fell short, but Spotify is still on track for its first full year of profitability. This follows a strategic shift from pure growth to cost efficiency amid challenging macroeconomic conditions last year, including scaling back investments in its podcast division. Meanwhile, Spotify expanded into audiobooks in Europe, introduced new subscription tiers, and enhanced its core platform.
- Spotify has dubbed 2024 as its "year of monetization," with premium subscribers growing by 12% year-over-year to 252 million, surpassing projections by 1 million. This growth continued despite price increases in developed markets, leading to a 146 basis point acceleration in premium average revenue per user (ARPU) from the previous quarter. Additionally, ad-supported subscribers increased by 26 million year-over-year, a 12% rise.
- Total MAUs rose by 11% year-over-year and 2% sequentially to 640 million, beating the 639 million forecast. Most users are on Spotify's ad-supported tier. However, a softening advertising market led to slower ad revenue growth compared to MAUs. Combined with FX headwinds, Q3 revenue grew slightly less than anticipated, at 18.8% year-over-year to €3.99 billion.
- These challenges are expected to persist, with Q4 revenue guidance below expectations at €4.1 billion, reflecting 12% year-over-year growth. Currency fluctuations are anticipated to reduce growth by around 350 basis points, while last year's price hikes will moderate ARPU growth by approximately 400 basis points, impacting total sales growth.
- Despite these obstacles, Spotify expects strong MAU and premium subscriber growth in Q4, projecting 665 million and 260 million, respectively.
By consistently attracting premium and ad-supported users and enhancing profitability, Spotify maintains a strong investor connection. Trading at record highs with a 51x forward earnings multiple, Spotify continues to showcase its competitive edge over other streaming services like Apple (AAPL, Financial), Amazon (AMZN, Financial), and Sirius XM (SIRI, Financial), which owns Pandora, providing further growth potential.
