What happened

Shares of streaming music monarch Spotify (SPOT 0.43%) got a big lift on Tuesday, rising 5.8% through noon ET even though the company reported a big net loss for the first quarter before the market opened -- and missed earnings estimates to boot.

Heading into Q1, Wall Street analysts had forecast that Spotify would lose $0.93 per share on sales of $3.4 billion. Although Sweden-based Spotify reports its results in euros, when its figures are converted into dollars at Tuesday's exchange rate, it lost $1.28 per share on sales of only $3.3 billion.  

So what

Now, the news wasn't all bad. Spotify's revenues rose 14% year over year to 3 billion euros. Total monthly active users of its streaming service grew 22%, and premium (i.e., paying) subscribers grew 15%. The company also returned to positive free cash flow after burning cash in Q4 2022. Management highlighted that it beat its own guidance for monthly active users, premium subscribers, and gross margins.

Still, some of the news was bad. In addition to missing analysts' consensus estimates for both sales and earnings, its operating losses for the quarter surpassed $171 million -- much worse than its year-ago $7 million operating loss, and equating to a negative operating profit margin of 5.1%. The company has now delivered four straight quarters of significantly heavy operating losses after coming close to breaking even on an operating basis in Q1 2022 (when its operating margin was only negative 0.2%).

Now what

So what's the bull case for investing in Spotify stock at this point? Well, technically, it's still a pretty strong growth stock -- so long as you define "growth" as "growing sales," and are willing to pay no attention to the losses.

On the other hand, given its consistent losses -- it has now racked up net losses of approximately $830 million over the past four fiscal quarters -- one cannot usefully assign a P/E ratio to Spotify. True, it's generating positive free cash flow, but trailing FCF still only totals $53 million over the past four reported quarters. That's really not a lot with which to support Spotify's $27 billion market capitalization.  

On balance, I'm afraid I have to disagree with the investors bidding up Spotify Tuesday -- not because of the earnings miss, necessarily, but rather because the stock just plain costs too much.