Spotify Stock Price Rallied 10.4% on Impressive Q3 2023 Profits

The Spotify Technology SA (NYSE: SPOT) stock price rallied 10.4% after achieving an unexpected profit for the first time in over a year, reporting a net income of Є65 million ($69.1 million), equivalent to Є0.33 per share. 

The company’s performance exceeded analyst expectations, who had anticipated a loss of Є0.20 per share. It is a remarkable turnaround compared to the year-earlier period when the company lost Є166 million, or Є00.86 per share.

During the company's Q3 earnings call, Spotify's CFO, Paul Vogel, expressed confidence that the company is now on a path to consistent profitability, stating, “Our expectations are now that we will consistently be in the black moving forward.” 

“Obviously, you never know what can happen in any one quarter, but we feel good that we're on a different trajectory, and we've hit an inflection point with respect to the profitability of the business.”

Following this announcement, the company's stock surged, rising by as much as 11% in early trading, marking the most significant increase since January 31.

Spotify delivered gross margins of 26.4% for the quarter, slightly surpassing its projected 26%. This was achieved through recent price increases and lower-than-expected costs related to personnel and marketing expenditures.

In the previous quarter, Spotify raised the price of its ad-free premium subscription plan by $1 to $10.99 a month, a move aimed at improving profitability. Additionally, the Duo plan saw a $2 increase to $14.99, the family plan increased by $1 to $16.99, and the student plan went up by $1 to $5.99 per month.

In addition to raising prices, Spotify implemented various cost-cutting measures over the past year, which included staff layoffs and a restructuring of its podcast division. The company also made audiobooks available for free to paying subscribers, offering 15 hours of free listening per month.

CFO Paul Vogel indicated that they anticipate a continued improvement in gross margin trends and operating income trends in 2024, and he addressed concerns about audiobooks potentially impacting margin growth, reassuring that the launch of audiobooks will not derail progress in those areas.

The report also highlighted a significant increase in free cash flow on both a quarterly and yearly basis, reaching Є216 million compared to Є9 million in the previous quarter and Є35 million in the same period the previous year.

Spotify stock price. 

The Spotify stock price rallied 10.36% yesterday following the impressive profits generated in Q3.

Spotify's latest earnings release impressed Wall Street, with several analysts lifting their price targets for the stock. Citi, which raised the target price for Buy-rated SPOT shares to $190 from $175, said the risk/reward continues to look compelling at current levels.

Barclays lifted the price target for Spotify to $186 from $182, commenting that there continue to be several catalysts to keep Overweight-rated Spotify's growth and margin narrative intact.

Other firms that increased their price target for Spotify shares included Macquarie, Canaccord, UBS, Evercore ISI, Morgan Stanley, BofA, and Truist.