Shares of audio-streaming platform Spotify Technologies (SPOT +2.67%) jumped on Tuesday after the Swedish company reported financial results for the first quarter of 2024. As of 9:40 a.m. ET, Spotify stock was up 13% and hitting new 52-week highs.
Spotify's growth leads to a profit
Spotify ended Q1 with 615 million monthly active users, which was slightly below analysts' expectations and management's guidance. That said, this still represented strong 19% year-over-year growth. Moreover, its premium subscriber base grew a healthy 14% to 239 million users.
NYSE: SPOT
Key Data Points
Most of Spotify's revenue comes from its smaller base of premium subscribers. The company's revenue consequently rose 20% year over year to 3.6 billion euros, or almost $3.9 billion. And investors are also encouraged by its gross margin improvement. Its gross margin was just 25% in the prior-year period but jumped to almost 28% in Q1.
The top-line growth coupled with gross margin improvement led to a net profit. And that's why investors were sending Spotify stock higher today.
More record results coming up?
Spotify's guidance for the upcoming second quarter was encouraging as well. The company expects to add roughly six million premium subscribers, which will support further top-line growth and margin improvement. In fact, management believes it can earn $250 million in Q2 operating income -- that would be a company record.
Valuing the company based on its operating income today, I believe Spotify stock is expensive with its market cap above $61 billion. That said, the company is clearly still growing at an impressive pace, and its profits can keep climbing to support its valuation as a result.
