KEY POINTS

  • On July 27, Spotify released its Q2 financial results.
  • The stock climbed after it outpaced earnings and user growth.
  • The stock is still reasonably priced.

What happened

Shares of Spotify stock jumped in July by 20.5%, according to S&P Global Market Intelligence. Spotify, the world’s largest music streaming and podcasts company, reported strong second-quarter financial results, making Spotify stock jump in July. In July, the S&P 500 (^GSPC) rose 9.1%, which also helped to propel the stock.

So what

On July 27, Spotify (NASDAQ:SPOT) announced its financial results for the quarter ending June 2022. Revenue was 2.886 billion euros, surpassing analyst expectations by 20 million euros, with a loss per share of 85 cents (in Euros), compared to a 63-cent loss estimate. Even with these mixed results, investors were encouraged by the report and are not concerned about Spotify losing money at this moment. Investors will be good if revenue continues to rise at least 20% each year (as it did in the most recent quarter).

So, what was the reason for this revenue jump? First, exceptional growth in both premium subscribers and total monthly active users (MAUs) during the quarter drove the stock higher. Spotify has 433 million MAUs and 188 million premium subscribers in Q2. That’s in comparison to its previous guidance of 428 million MAUs and 187 million premium subs. The company’s music and podcast content segments are also developing significantly, with ad-supported revenues increasing 31% year over year in the first quarter.

With the worldwide expansion of podcast platforms and expenditures in digital advertising and content production, Spotify’s ad-supported income should rise rapidly for many years to come.

Investors should not overlook how a stock’s price might be affected by broad market advances. For example, the S&P 500 increased 9.1% in July, while the Nasdaq 100 Index (^IXIC) climbed 13.5%. This undoubtedly influenced Spotify’s share price in July.

Now what

Spotify’s stock price has fallen 50% this year and trades at a market capitalization of $22 billion. The firm reported $11.2 billion in revenue over the previous 12 months. Over the long term, management believes it can achieve a 10% operating margin. At its current revenue level, achieving a 10% operating margin would equate to $1.12 billion in operating income or a P/OI of 19.6.

Given how fast Spotify is expanding and the potential for music streaming and podcasts to spread worldwide, its current market value appears extremely low, even though Spotify stock jumped in July.

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