Spotify Earnings: Pace of Profitability Ramp Is Astounding as Revenue Growth Stays High

Spotify’s third-quarter results were fantastic, as the firm seems to have turned the corner to pair impressive profitability with a top line that continues to grow rapidly. We believe the firm’s industry-leading scale has led to a cost advantage that should allow the firm to now continue ramping profits and supports our narrow moat rating. With operating profit and free cash flow expanding more rapidly than we previously anticipated, we are raising our fair value estimate to $390 per share from $350. We think there’s currently a bit too much exuberance for the stock, but we see Spotify as a best-in-breed company that would be attractive on pullbacks.