Spotify Beats Expectations with Record Profit and Margin Growth
Spotify Technology (SPOT) has reported fiscal second-quarter earnings that surpassed expectations, with the audio giant posting record profit, gross margin, and free cash flow. The company’s recent “efficiency” strategy seems to be paying off, as investors cheered the news, sending the stock surging more than 10% in early trading.
While revenue met estimates, monthly active user metrics fell short of expectations. However, investors seemed unfazed by this as they focused on the positive aspects of the report.
In June, Spotify announced plans to increase the prices of its premium US subscription plans, with the changes set to take effect this month. This follows a previous price hike last summer. The company has also implemented cost-cutting measures, including multiple rounds of layoffs and initiatives to boost top-line growth and improve margins, such as introducing music-only and audiobooks-only plans, as well as a higher-priced audio bundle.
Spotify reported an operating income of 266 million euros ($289 million), a significant improvement from the loss of 247 million euros in the same period last year. The company also provided strong guidance for Q3, with operating income expected to reach 405 million euros ($440 million), well above Wall Street expectations.
Net income for the quarter was 274 million euros ($298 million), or earnings of 1.33 euros per share, beating analyst estimates. Gross margins also exceeded expectations at 29.2%, with the company forecasting further improvement to 30.2% in the third quarter.
Revenue for the quarter came in at 3.81 billion euros ($4.14 billion), a 20% increase compared to the same period last year. Spotify expects revenue to reach 4 billion euros in Q3.
Wall Street analysts praised Spotify’s strong performance, citing the gross margin beat and better-than-expected guidance for Q3 as key factors driving the positive stock reaction.
Overall, Spotify’s solid financial results and strategic initiatives have positioned the company for continued growth and success in the competitive audio streaming market.
