Buy, Sell, or Hold Spotify Stock? Key Tips Ahead of Q3 Earnings

Spotify Technology S.A. SPOT will report its third-quarter 2024 results on Nov. 12, after the bell.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

The Zacks Consensus Estimate for earnings in the to-be-reported quarter stands at $1.73 per share, indicating 380.6% year-over-year growth. The consensus mark for revenues is pegged at $4.4 billion, indicating year-over-year growth of 19.5%.

Three estimates for the to-be-reported quarter moved down over the past 30 days versus no upward revisions. Over the same period, the Zacks Consensus Estimate for 2024 earnings has decreased 3.4%.

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SPOT’s earnings surprise history has not been impressive. Earnings lagged the Zacks Consensus Estimate in one of the four trailing quarters and surpassed thrice, the average negative surprise being 4.3%.

Earnings Whispers

Our proven model doesn’t conclusively predict an earnings beat for Spotify this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Spotify has an Earnings ESP of -11.43% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Shaping Upcoming Results

The growth of subscribers and monthly active users (MAU) is likely to have benefited the top line in the to-be-reported quarter, directly benefiting the bottom line as well.

The consensus estimate for total MAUs is pegged at 639.2 million, indicating year-over-year growth of 11.4%. The consensus estimate for total ad-supported MAUs stands at 402.1 million, indicating year-over-year growth of 11.4%. The consensus mark for premium subscribers stands at 250.97 billion, indicating year-over-year growth of 11%.

Price Dynamics

SPOT has rallied a massive 118% year to date, 38.3% over the past six months, and 7.5% in the past month. These price dynamics suggest that the stock is in a rally phase.

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Investment Considerations

Spotify has been demonstrating strong performance metrics, attributed to sustained price hikes, a loyal consumer base and significant cost reductions. The price hikes have bolstered SPOT's top and bottom-line growth, supported by the platform's highly loyal user base and its ability to increase adoption, as evidenced by the growing MAUs and premium subscribers.

Therefore, we believe that SPOT is likely to report another robust quarterly performance driven by subscriber gains and increases in ARPU, which will positively impact the bottom line and strengthen the company’s balance sheet.

We have seen multiple price increases among its music streaming competitors, including Alphabet's GOOGL YouTube Premium, Apple’s AAPL Music/TV, and Amazon’s AMZN Music Unlimited.

Conclusion

While SPOT’s current growth prospects appear robust, potential investors should consider waiting as the stock may undergo a further correction, especially when it does not seem poised for an earnings beat. SPOT's long-term growth potential remains strong, making it a compelling stock to watch for the right investment opportunity.

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