Spotify Technology SA’s (NYSE) Q2 earnings for 2024 will be released on the 23rd of July. Several key indicators indicate a strong performance.
Investors and analysts are closely watching the results of streaming giant, as they are expecting to see a significant increase in revenue and profitability.
Spotify’s projected earnings per share are EUR1.02, which is a dramatic contrast from the EUR1.55 per share loss reported in the same time period of 2023. Spotify will be able to show significant financial gains.
The analysis examines Spotify’s expected strong performance as well as the strategic initiatives which have helped it grow.
Strategic initiatives for revenue growth
Spotify will report revenues of EUR3.8 billion in the second quarter 2024. This represents a 20 percent increase over Q2 2023’s EUR3.18billion.
The company’s impressive growth in 2024 can be attributed by several strategic initiatives that were implemented during the first half.
The introduction of new price tiers, and the expansion audiobook services have both contributed to increased revenue streams as well as user engagement.
Spotify has been able to reach a wider audience with its new subscription options.
The strategy is not just to attract new customers, but also help retain the ones that are already there by offering plans tailored for different needs.
Spotify has also been able to diversify its revenue streams by expanding audiobook services.
Users growth and Premium Subscribers
Spotify continues to grow at an incredible rate. The company anticipates adding approximately 15 million new net monthly active users during the third quarter. This will bring the total number of MAUs up to 631 millions.
Spotify has been successful in its efforts to attract new users with innovative products and a global reach.
Spotify expects to reach 245 millions premium subscribers in the next six months, a net increase of 6,000,000 subscribers.
The increase in Spotify premium subscriptions is a testament to the success of Spotify’s bundling and pricing strategies. These have helped make premium plans more attractive for users.
Bundling music, audiobooks and podcasts together creates a rich audio experience, increasing user satisfaction.
Profitability and Cost Management
Spotify has experienced a dramatic turnaround in its profitability. The company is now forecasting a Q2 operating income of EUR250million.
The social costs are EUR13m, as opposed to a loss in operating income of EUR247m in the same period last year.
Higher revenue and cost-effective management are the main drivers of improved profitability.
The gross margin will be 28,1% in Q2 2020, up from 25,2%. The increase in revenue is due to the improvements made by music, podcasting and other sources of revenue.
Spotify’s margins have been improved by optimizing the cost structure of its service and negotiating more favorable deals with its content providers.
Foreign exchange rate impact
Spotify has seen a significant increase in revenue, but it’s important to remember that foreign exchange rates have impacted growth by 140 basis points.
The impact of this is a reminder that operating on a global marketplace with currency fluctuations can be challenging.
Spotify is able to mitigate the negative effects of these changes due to its diverse revenue streams, and solid performance in certain key markets.
Bundling and price increases are strategies that can be used to increase prices.
Spotify’s decision to increase prices in several markets is one of its notable strategic decisions for 2024.
Spotify has announced that it will be adjusting its prices in the US on June 3, following the successful increases of the UK and Australia.
The price increases range between $1 and $3 per subscription per month, which are expected to significantly impact the financial performance of the company.
Analysts at Deutsche Bank estimate that just the US price hike could add approximately EUR70,000,000 to the Q3 revenue in 2024, assumant the new prices take effect by mid-July.
The revenue impact on an annualized basis is expected to surpass EUR300 millions by 2025.
Spotify raised its prices for the second consecutive time in a single year, demonstrating its confidence in the market and its perceived value.
Spotify also offers a more expensive audio package that contains music, audiobooks, and podcasts.
The bundling strategy is now in place for markets that represent approximately half of Spotify users. It is intended to increase user engagement, and take advantage of the growing consumption of audio content.
What do analyst forecasts show?
Analysts are confident about Spotify’s future financial prospects. Analysts expect the company’s Q3 guidance to be a reflection of continued success, driven by recent price increases and bundles.
Analysts predict revenue for the second quarter of EUR3.79billion, which is slightly lower than Spotify’s guidance of EUR3.8billion.
Spotify also expects an operating profit of EUR250m, as opposed to the consensus estimate by analysts, EUR220m.
Analysts expect Spotify to announce 15-17 MAUs net added for Q2 and 5-6 millions net premium subscribers. The growth is around 11% and 15% respectively.
Spotify has been able to retain and attract customers in an increasingly competitive market, as evidenced by the steady growth of users and subscribers.
Value and Target Price
Analysts have increased their price target for Spotify, the stock that has gained 56.7% so far this year, based on its positive outlook and new strategic initiatives.
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Spotify has increased its aggressive efforts to monetize. An updated assumption of average revenue per customer (ARPU), which is expected in 2030, will be $44. This represents a 10% increase over previous estimates.
A lower assumption of the cost of equity by 50 basis point to 8.5% was also factored into the model, due to the reduced risk premiums across all equity assets.
The target price of Spotify’s stock is now $453. This represents a near 50% increase compared with the trading price at the beginning of July 2024.
The market is confident in Spotify’s ability to grow and generate shareholder value over the long term.
Spotify’s earnings report for Q2 of 2024 is expected to show substantial revenue and profitability growth, thanks to strategic initiatives and cost-effective management.
Its strong position in the market and perceived value are highlighted by its ability to raise prices and offer new bundles of services without experiencing significant turnover.
Spotify’s user base continues to grow and its efforts at monetization are improving. The outlook for this year, and the next few years is positive.
Investors will likely view Spotify’s upcoming quarterly report as confirmation of its strategic direction. Announcements such as an announcement about a stock buyback program could further boost confidence.
Spotify’s strategic initiatives and strong performance position the company well to continue its growth in an industry that is highly competitive.
This is the Spotify Q2 earnings forecast: The SPOT stock has gained more than 55% in the last 12 months, could a turnaround be on its way? This post may change as new information becomes available
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