Spotify Technology S.A. SPOT has seen its stock skyrocket 98.2% year to date, significantly outperforming the 33.5% rally of the industry.

 

Image Source: Zacks Investment Research

As of the last trading session, the stock closed at $372.5, close to its 52-week high of $389.23. SPOT is trading above its 50-day moving average, indicating a bullish sentiment among investors.

SPOT Stock Trades Above 50-Day Average

 

Image Source: Zacks Investment Research

Given the continuous strength in SPOT shares, investors may wonder if there is still an opportunity to invest in the stock. Let’s take a closer look.

SPOT's Strong Growth Driven by Price Hikes, Podcast Gains

Spotify investors have many reasons to be optimistic when it comes to the company’s financial results. Premium subscribers grew 12%, and ad-supported monthly active users (MAUs) increased 15% in the second quarter of 2024. The growth in total MAU was 14% year over year. Spotify increased its gross profit by 45% year over year, expanding its gross margin by 510 basis points. It also turned an operating loss of $247 million into a profit of $266 million over the year. The adjusted EPS of $1.43 marked a substantial 184.6% year-over-year jump.

Spotify's performance has been bolstered by sustained price hikes, a loyal consumer base, and significant cost reductions. The ability to raise prices while retaining and expanding its subscriber base is particularly noteworthy. This was the first quarter where premium subscriber growth outpaced ad-supported MAU growth sequentially, highlighting the effectiveness of Spotify’s pricing strategy.

The recent price hikes, alongside those by competitors such as Alphabet's GOOGL YouTube Premium, Apple’s AAPL Music/TV, and Amazon’s AMZN Music Unlimited, underscore the industry's trend toward higher pricing.

Spotify is further expanding its content portfolio, aiming for a larger portion of its revenues to come from its podcasts and audiobooks. By boosting revenues from these high-margin content initiatives, Spotify could enhance its profitability, even if record labels take a tougher stance in negotiations. The profitability of podcasts is also on the rise, as the company shifts its strategy from using content investments primarily for subscriber growth to focusing on monetization.

By the second quarter of 2024, Spotify hosts over 250,000 video podcast shows, with more than 170 million users having watched a video podcast on the platform.

Following a crucial EU legal victory, Spotify gained relief as Apple scaled back its competitive pressure against the platform, enabling Spotify to expand its market share. Additionally, Spotify stands to benefit from the recent shutdown of TikTok Music.