Is Spotify about to make a comeback in the tech world? The surprise market winner
Technology: Spotify Technology has quietly made a remarkable resurgence in the tech stock market, outperforming expectations and keeping some investors unaware of its impressive turnaround. Since its public debut in 2018, Spotify has achieved a 19% annualized total return, outpacing the S&P 500 index’s 14% return. However, its journey has been filled with challenges, especially in 2021 and 2022 when concerns about profitability led to a dramatic 80% drop in stock price.
In late 2022, the streaming giant faced significant headwinds with its operating margin hitting negative numbers, largely due to costly expansions in podcasts and advertising. Despite these challenges, Spotify has achieved remarkable improvement by taking a disciplined approach to spending. By reducing operating expenses through strategic layoffs and limiting costly content licensing deals, the company pushed its gross margin to a record high of 31.1% in the most recent quarter. As a result, its operating margin reached 11.4%, exceeding earlier management targets.
The company’s success is attributed not only to better cost control but also to the expansion of its revenue sources. Price increases for premium subscriptions, coupled with rapid growth in emerging markets, have fueled 19% revenue growth. Spotify’s ventures into new audio segments such as audiobooks have boosted growth prospects and user engagement with 640 million monthly active users globally.
Although the stock has risen fivefold in less than two years, questions remain about its future value. With its current market cap near $100 billion, some experts suggest caution, advising investors to keep an eye on continued growth and improving margins before making new investments in Spotify.
