Morningstar

Spotify Earnings: Listeners Keep Flocking to Spotify, Which May Spark Monetization Improvement

Even with the big rally in Spotify stock, we think further upside remains.

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Securities in This Article
Spotify Technology SA
(SPOT)

Spotify Stock at a Glance

  • Fair Value Estimate: $170.00
  • Star Rating: 4 stars
  • Uncertainty Rating: Very High
  • Economic Moat Rating: None

Spotify Earnings Update

While Spotify’s SPOT user monetization was affected mainly by macro headwinds to ad revenue, we were impressed with solid growth in both subscriber and ad-supported user counts. The improvement was especially remarkable since the firm began focusing on operating leaner, which included lower marketing spending. This could make user growth an early indicator of a network effect, but we await more consistency on that front before considering it as an economic moat source.

With a reduction in headcount and more centralization from a product development standpoint, which was announced in January, we expect the firm to further progress toward generating a full-year operating profit, likely next year. However, we think that with Spotify’s recent investment in artificial intelligence, margins will expand a bit slower than we initially assumed due to technology investments and costs associated with content copyright lawsuits and compliance which the labels may force Spotify to bear.

Spotify Stock Undervalued

Our adjustments did not affect our $170 fair value estimate. While the stock price has nearly doubled since its 52-week lows in November 2022, we think further upside remains as Spotify shares are trading at 0.8 times our fair value estimate.

Monthly active users in the first quarter expanded to 515 million, up 22% from last year and 5% from the prior quarter. Double-digit year-over-year revenue growth in both premium (up 14%) and ad-supported (17%) drove Spotify’s 14% total revenue improvement to EUR 3.04 billion. Revenue generated per subscriber declined 1% from last year as more of the new subscribers chose the multi-listener plans such as duo and premium family. Excluding the favorable impact of foreign exchange, the average revenue generated per subscriber was 2% lower than last year.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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