Spotify’s shares Technology (SPOT 1.51%) have soared by about 140% over the last year and over 540% since January 2023. With more than 250 million subscribers, Spotify leads the global music streaming scene.
Now, investors are curious: will Spotify’s stock keep climbing or hit a plateau? Let’s dive in and see what might be next for Spotify.
Image source: Getty Images.
What’s fueling Spotify’s rise?
To get a clearer picture of Spotify’s future, we should first look back at its journey.
For over two years, Spotify’s stock struggled. It dropped over 80% in 2021 and 2022 as losses grew and investors moved away from growth stocks.
In early 2023, CEO Daniel Ek implemented cost-saving measures that helped turn things around. He cut about 17% of the workforce, allowing Spotify to focus on music streaming and manage costs better.
After reaching a low point in mid-2023, Spotify’s operating margin improved to 11.4%. As a result, shares surged to new highs.
What lies ahead for Spotify?
A turnaround in earnings is great, but it’s not the whole story. Growth, especially in revenue, is crucial for Spotify.
Looking ahead, the outlook for revenue growth remains strong.
In the past five years, Spotify averaged nearly 18% growth in quarterly revenue. Recent quarters have even outpaced that average.
SPOT Operating Revenue (Quarterly YoY Growth) data by YCharts.
This is impressive growth for a company of its size. Currently, Spotify has a market cap of $103 billion, making it one of Sweden’s largest companies.
Spotify’s revenue mainly comes from subscriptions, which make up about 88% of its earnings. Premium users pay between $6 and $20 every month.
The company also earns money through ads, but growing its subscriber base by converting free users to paid accounts is key.
In essence, more users mean more potential revenue. Growth in ad-supported users can lead to increased paying subscribers, boosting revenue in future quarters.
Recently, Spotify reported a 12% increase in premium subscribers and an 11% rise in ad-supported users for the quarter ending September 30, 2024.
Where might Spotify be in a year?
In summary, Spotify still has significant growth potential. Its business model supports strong revenue expansion, coupled with effective cost management.
Analysts anticipate a 15% sales growth in 2025 and a nearly 60% rise in earnings, according to Yahoo! Finance.
These estimates seem attainable, and I expect Spotify’s stock to continue to thrive over the coming year.
Jake Lerch has positions in Spotify Technology. The Motley Fool has positions in and recommends Spotify Technology. The Motley Fool has a disclosure policy.
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