Insights

Why Spotify Technology Stock Jumped Wednesday

What happened

Shares of Spotify Technology (NYSE: SPOT) were up by 11.8% as of 1:20 p.m. ET on Wednesday after the music streamer posted better than expected results for the second quarter.

Investors were pleased with the company’s growth in revenue and monthly active users, and its outlook for the current quarter. The stock is still down 49% year to date, but the best antidote to a falling stock price is long-term business growth.

So what

The company reported revenue growth of 23% year over year, and 8% growth over the previous quarter. Margins ticked down, but the market was more than pleased with the company’s gains in monthly active users and on the top line, especially amid inflation that is squeezing consumers’ buying power.

Spotify’s monthly active user growth held steady compared to the first quarter at 19% year over year. That was a slight acceleration over the fourth quarter’s 18% growth, but the company expects a slight deceleration in the third quarter.   

Now what

Given the challenging economic environment, management is optimistic about how the business is performing. Most importantly, it hasn’t seen any material impact on paid subscriptions from the economic headwinds. “In fact, we are seeing several markets trending ahead of our forecasts,” CEO Daniel Ek said on the earnings call. 

However, the economy is still a moving target. Spotify recently reduced its hiring by 25% to prepare in case the macro situation gets worse, but management’s third-quarter guidance is for more growth. Management expects to add another 17 million monthly active users for a year-over-year increase of 18%. That includes an increase of 16% in premium subscribers.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Spotify Technology. The Motley Fool has a disclosure policy.

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