Spotify (SPOT 2.86%) is having a tough 2022 -- or at least its stock is. Share prices are down over 67% from 52-week highs and likely fell because of a combination of the broad dip in technology stocks, average earnings reports, and little-to-no operating leverage showing up in its financials.

However, the global audio streaming platform is still growing its users and revenue, as opposed to many consumer internet stocks at the moment. With shares trading at a steep discount, there are some who think now might be a time to buy. Here's one green flag and one red flag for Spotify stock for the rest of 2022.

Green flag: Growth across all fronts

Spotify has been one of the most consistent growers in the consumer internet/technology sector. In the first quarter of 2022, the company grew its monthly active users (MAUs) 19% year over year to 422 million. Premium subscribers, or those that pay a monthly subscription for ad-free music listening, grew 15% year over year to 182 million. Compared to a business like Netflix, which has hit a wall for subscriber growth, Spotify is showing no signs of slowing down as its service gets more popular around the globe.

Moving to financials, revenue grew 24% year over year in Q1 to $2.7 billion, driven mainly by growth in premium subscribers. Gross profit grew 22% year over year to $683 million. Over the last 12 months, Spotify's revenue was $11.8 billion, and gross profit was $3.15 billion. Both numbers have more than doubled since Spotify went public in 2018. 

SPOT Revenue (TTM) Chart

SPOT Revenue (TTM) data by YCharts

So why is the stock down so much over the past year? It all comes down to a lack of confidence in podcast initiatives and operating leverage.

Red flag: Slower-than-expected podcast growth

Over the last few years, Spotify has invested heavily into the emerging podcast medium. It has bought up various studios, licensed shows for exclusive deals like the Joe Rogan Experience, and acquired distribution platforms Anchor and Megaphone.

To make money on these investments, the company started up a new audio advertising marketplace called the Spotify Audience Network (SPAN). Similar to how YouTube (part of Alphabet) operates, SPAN automatically matches advertisers with shows, hopefully improving targeting and bringing in more revenue for the industry. Obviously, as the middleman, Spotify keeps a cut of all advertising dollars.

But so far, these investments haven't shown up financially for Spotify's advertising business. In Q1, Spotify's advertising gross margin was negative 1.5%, which is not a sustainable business model. It is still early days, and given the fixed nature of some of these investments, it is likely that SPAN will start generating positive gross margins over the next couple of years.

But right now, with the bear market breathing down investors' necks, people are likely getting impatient with a lack of material results. This has led to Spotify's consolidated gross margins not getting much higher than 25% since 2019, leaving little room for the company to generate positive net income or free cash flow.

SPOT Gross Profit Margin (Quarterly) Chart

SPOT Gross Profit Margin (Quarterly) data by YCharts

Even with the podcast and advertising business struggling to gain operating leverage, Spotify stock can still do well for shareholders over the next five years. At a market cap of $20 billion and with $11.8 billion in trailing-12-month revenue, the stock trades at a price-to-sales ratio (P/S) of only 1.7. Even if the company can only achieve a measly profit margin of 10%, the stock trades at a dirt cheap valuation, especially considering the company's track record of growth.