Spotify stock jumps on subscriber growth, strong guidance

Spotify (SPOT) stock is turning up the volume Tuesday morning, rising into the green after reporting premium subscribers of 236 million in fourth-quarter 2023. While the streaming platform missed earnings estimates on the top and bottom lines, it forecasted positive operating income in the first quarter of 2024.

Yahoo Finance Media Reporter Alexandra Canal explains the figures and Spotify CEO Daniel Ek's comments from the corporate earnings call.

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Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

- All right, let's take a look at shares of Spotify because their shares spiking just about 7.5%. The company reporting its quarterly results ahead of the bell. This morning, the stock is rising. On the latest numbers that we're getting out on subscriber growth gross margins and also stronger than expected guidance, Yahoo Finance's Alexandra Canal is here to give us the details on that. Ali.

ALEXANDRA CANAL: Yes, one of these earnings reports where you have a miss on both the top and bottom line, but that guidance, those subscriber figures, that profitability story really propping up the stock. Their earnings call just wrapped up. And we heard from CEO Daniel Ek.

He said that their hurdle is going to be much higher when it comes to investing in some of those growth initiatives. That doesn't mean that they're going to stop growing. But it does mean that they're going to be a lot more disciplined in that approach.

And you're seeing that discipline already play out in some of these numbers that we're getting for the fourth quarter. And it wasn't an easy journey. We had three rounds of layoffs in 2023. We had a realignment of the podcast division, really cutting down on costs across the board.

And that's playing out when you look at metrics like operating losses, as well. Operating losses for the fourth quarter coming in at 75 million euros. That translates to about $80.61 million. Now this is well ahead of company guidance.

And Spotify also forecasted that in Q1, those losses, it's going to turn to money, baby, with Spotify projecting operating income of 180 million euros or about $193 million. And then on a gross margin basis, this has been a big focus point for investors since margins over the past few quarters, they've really been stuck in that 21% to 25% range.

But here we have margins at 26.7%. They are guiding to a slight dip in Q1 to 26.4%. But this comes as, again, Spotify is really committed to changes to its podcast strategy improvements within its ad business.

And then finally, when you think about subscribers here, premium subscribers surpassing Wall Street expectations, hitting 236 million, and then total monthly active users also beating expectations to come in at 602 million in the quarter.

This is a company that's really struggled, especially throughout last year, even the year prior. But now, we're really seeing this growth story start to play out. And Wall Street's, overall, very bullish on it.

- They are. We're seeing that play out in the reaction. In the pre market here this morning, we're going to be speaking with an analyst from KeyBanc, Justin Patterson. He'll discuss these results a little bit further later on in the hour. All right, Ali, thank you.