Spotify Technology swung to its first quarterly profit in more than a year after beating expectations for subscriber and revenue growth.
Spotify
(ticker: SPOT) reported a profit of 33 European cents (35 cents) a share for the September quarter. Sales came to €3.36 billion ($3.57 billion), up 17% from the same period a year earlier once adjusted for currency movements.
The company was expected to report a loss of 22 European cents a share on sales of €3.33 billion, according to a FactSet poll of analysts.
Spotify has never made an annual profit, so even one profitable quarter is a highlight, although it won’t do much more than partially offset the losses in earlier quarters this year. The streaming platform has raised prices for its premium subscriptions and laid off hundreds of employees in recent months.
The company’s major challenge is still to convince the market that it can achieve its long-term gross margin goal of between 30% and 35%. Spotify’s third-quarter gross margin stood at 26.4%, broadly in line with its guidance.
Truist Securities analyst Matthew Thornton wrote that Spotify’s results were “solid” across its key indicators, noting the beats on gross margin and operating profit.
Spotify’s U.S.-listed shares were up 6.5% in premarket trading at $164.64. In recent weeks some analysts have turned skeptical on the stock’s chances of continuing its stellar run. However, Truist’s Thornton kept a Buy rating and $176 target price on the stock.
Spotify said its monthly active users rose to 574 million for the quarter and premium subscribers came to 226 million, both narrowly ahead of its guidance and consensus expectations.
Average revenue per user from Spotify’s premium subscribers was down 1% from the same period a year earlier, adjusted for currency. The company said this was due to shifts in what products premium subscribers were paying for and which markets they were in.
Spotify said that for the fourth quarter it expects an operating profit of €37 million on revenue of €3.7 billion, with a gross margin of 26.6%, It expects monthly active users to rise to 601 million and premium subscribers to climb to 235 million.
Write to Adam Clark at adam.clark@barrons.com
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