Spotify Know-how (SPOT) posted fiscal fourth quarter earnings on Tuesday that beat income expectations and reported its first full-year revenue.
The audio big additionally posted one other robust quarter of subscriber features, as churn ranges stay low regardless of current value will increase. Spotify’s inventory rose in pre-market buying and selling after the report, up over 8%. Over the previous 12 months, its shares have surged to all-time highs, up roughly 150% as of Monday’s shut.
“Spotify’s execution continues to enhance and the corporate enters 2025 with accelerating month-to-month lively person development, product enhancements in audiobooks & video podcasts, and talent to proceed to drive larger gross margins and working margins,” JPMorgan analyst Doug Anmuth wrote in response to the report.
Month-to-month lively customers (MUAs) rose by 35 million to hit a complete of 675 million, topping the 665 million anticipated by analysts polled by Bloomberg. It was the biggest fourth quarter improve in Spotify’s historical past. The corporate guided to first quarter MAUs of 678 million, additionally forward of estimates.
In the meantime, Spotify reported a fourth-quarter revenue of 367 million euros, or 1.76 euros a share ($1.82). That is up from the prior-year interval’s lack of 70 million euros, or 36 euro cents a share. Analysts had anticipated earnings to come back in at 1.89 euros a share, in line with Bloomberg.
Much like earnings, gross margins jumped to a file 32.2% as the corporate closed out a robust 2024 highlighted by its “effectivity” technique. Total, the corporate set quarterly file highs for income, gross margin, working revenue, and free money circulation.
“I count on 2025 to ship wholesome development alongside improved profitability,” Spotify CEO Daniel Ek mentioned on the earnings name, categorizing 2025 as “the 12 months of of accelerated execution.”
“What that ought to imply for buyers is we predict we will decide up the tempo dramatically with regards to our product velocity,” he mentioned. “We will double down on music, and we’ll be very disciplined whereas doing it. And due to all of the developments in AI, due to the place our org is, we really feel actually good about having the ability to do that.”
The corporate’s colossal run-up in shares follows an intense enterprise overhaul, which has included every little thing from mass layoffs and C-suite shakeups to a serious strategic shift away from podcasts, an space it had aggressively pursued. These efforts allowed the inventory to stage a comeback from the file lows it confronted in 2022.
On the firm’s 2022 Investor Day, Spotify set seemingly lofty targets that included long-term gross margin targets between 30% and 35%. On the time, the corporate had been struggling to show a revenue, with its gross margin caught at round 25%.
Spotify mentioned it expects first quarter gross margins to hit 31.5%, a slowdown from This autumn however nonetheless forward of Wall Road’s 31.2% projection. Administration cited “seasonality” as a cause for the anticipated slowdown with advert gross sales “sometimes weaker” in Q1.
Analysts have warned that the tempo of margin enlargement might sluggish in 2025 after the metric jumped by over 500 foundation factors in 2024.
“Even so, there are a number of catalysts on the horizon, together with value hikes and the launch of latest tiers for superfans,” Bloomberg Intelligence senior media analyst Geetha Ranganathan wrote forward of the outcomes.
Spotify capped off a robust 2024 with its first full 12 months of profitability. (Picture by Beata Zawrzel/NurPhoto by way of Getty Photographs) ·NurPhoto by way of Getty Photographs
Final 12 months, the corporate launched a higher-priced audio “bundle” that features music, podcasts, and audiobooks. It additionally rolled out an audiobooks-only plan and a music-only streaming tier in an effort to cater to a wide range of shoppers.
The adjustments allowed the corporate to extend costs for the second time in lower than a 12 months. Administration mentioned value hikes will proceed to stay “a part of our toolkit” and that the corporate will alter costs “when it is sensible.”
Extra not too long ago, the corporate signed a brand new multiyear distribution settlement with file label Common Music Group (UMG.AS). The deal, introduced final week, contains compensation to artists for recorded songs and publishing rights. In alternate, Spotify may have entry to sure upcoming releases and specialised merchandise like video.
The monetary phrases of the deal weren’t totally clear. Some experiences recommended the brand new phrases might have eradicated Spotify’s bundle low cost associated to US mechanical royalties. Citi estimated the low cost lowered Spotify’s prices by roughly $200 million per 12 months.
On the earnings name, Spotify CEO Daniel Ek didn’t immediately tackle the monetary implications of the settlement however did say the corporate will profit from larger scale and “very robust development” because of this.
“One of the crucial frequent misconceptions that I very often hear from analysts is that they imagine there is a ‘win, lose’ dynamic between us and the labels ever since beginning this firm 18 years in the past,” Ek mentioned. “That is not how we have checked out this. We at all times take a look at this as a ‘win, win’ dynamic.”
Alexandra Canal is a Senior Reporter at Yahoo Finance. Comply with her on X @allie_canal, LinkedIn, and e mail her at alexandra.canal@yahoofinance.com.
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