Spotify Posts Record Growth in Q3 2024 – New High Looms After PreMarket Gains

Spotify's stock (NYSE: SPOT) is a notable gainer in the pre-market session, adding 8.73% after the firm reported massive strides in user growth and financial strength for the third quarter of 2024. With an indicative opening price of $456, SPOT is on track for further all time highs.

The digital music service provider saw a significant uptake in both Monthly Active Users (MAUs) and subscribers, accompanied by substantial increases in revenue across the board.

Starting with user metrics, Spotify achieved an impressive growth, adding 14 million MAUs, taking the total to a record high of 640 million. The platform also cited a considerable rise in its user base, with net subscriber numbers swelling by 6 million, reaching a grand total of 252 million subscribers.

On the financial front, the total revenue for the company saw an uplift of 21% compared to the previous year, amounting to EUR 4 billion. Drilling down into revenue categories, the premium segment reported a notable 24% year-over-year increase. This uptrend, however, was contrasted by a modest 7% growth in advertising revenue – a figure that mirrored more challenging market conditions. Nonetheless, Spotify's gross margin reached a new peak of 31.1%, a testimony to the firm's continued focus on efficient operations.

The significant financial milestones continued with operating income hitting a record EUR 454 million. Moreover, free cash flow stood at a robust EUR 711 million for the quarter, further indicating Spotify's solid fiscal health.

Looking forward, Spotify remains optimistic, forecasting its fourth-quarter numbers to include 665 million MAUs and 260 million subscribers. With projected revenue of EUR 4.1 billion and an anticipated gross margin of 31.8%, confidence remains high. The company also highlighted it is on track for its first full year of profitability.

Innovation remains a key strategy for Spotify, with ongoing development in its offerings such as audiobooks and video content. Despite encountering slower-than-expected growth in advertising revenue and facing headwinds like foreign exchange rate fluctuations, Spotify continues to chart a path of expansion and resilience. Acknowledging the macroeconomic challenges that have impacted brand-related ad spending, the platform endures competitive pressures, particularly from giants like YouTube in the blossoming video podcasting arena.

Spotify's CFO underlined the importance of maintaining a strong balance sheet while prioritising long-term investments, such as those in audiobooks, which speaks to the company's foresight and commitment to growth. Cost efficiencies and a robust marketplace program were credited for the improved gross margins.