Spotify stock jumps after reporting its first full year of profitability, strong user metrics

Spotify Technology (SPOT) posted fiscal fourth quarter earnings on Tuesday that beat revenue expectations and reported its first full-year profit.

The audio giant also posted another strong quarter of subscriber gains, as churn levels remain low despite recent price increases. Spotify’s stock rose in pre-market trading after the report, up over 8%. Over the past year, its shares have surged to all-time highs, up roughly 150% as of Monday’s close.

“Spotify’s execution continues to improve and the company enters 2025 with accelerating monthly active user growth, product enhancements in audiobooks & video podcasts, and ability to continue to drive higher gross margins and operating margins,” JPMorgan analyst Doug Anmuth wrote in reaction to the report.

Monthly active users (MUAs) rose by 35 million to hit a total of 675 million, topping the 665 million expected by analysts polled by Bloomberg. It was the largest fourth quarter increase in Spotify’s history. The company guided to first quarter MAUs of 678 million, also ahead of estimates.

Meanwhile, Spotify reported a fourth-quarter profit of 367 million euros, or 1.76 euros a share ($1.82). That’s up from the prior-year period’s loss of 70 million euros, or 36 euro cents a share. Analysts had expected profits to come in at 1.89 euros a share, according to Bloomberg.

Similar to earnings, gross margins jumped to a record 32.2% as the company closed out a strong 2024 highlighted by its “efficiency” strategy. Overall, the company set quarterly record highs for revenue, gross margin, operating income, and free cash flow.

“I expect 2025 to deliver healthy growth alongside improved profitability,” Spotify CEO Daniel Ek said on the earnings call, categorizing 2025 as “the year of of accelerated execution.”

“What that should mean for investors is we think we can pick up the pace dramatically when it comes to our product velocity,” he said. “We’re going to double down on music, and we’re going to be very disciplined while doing it. And because of all the advancements in AI, because of where our org is, we feel really good about being able to do this.”

The company’s colossal run-up in shares follows an intense business overhaul, which has included everything from mass layoffs and C-suite shakeups to a major strategic shift away from podcasts, an area it had aggressively pursued. Those efforts allowed the stock to stage a comeback from the record lows it faced in 2022.

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At the company’s 2022 Investor Day, Spotify set seemingly lofty objectives that included long-term gross margin targets between 30% and 35%. At the time, the company had been struggling to turn a profit, with its gross margin stuck at around 25%.

Spotify said it expects first quarter gross margins to hit 31.5%, a slowdown from Q4 but still ahead of Wall Street’s 31.2% projection. Management cited “seasonality” as a reason for the expected slowdown with ad sales “typically weaker” in Q1.

Analysts have warned that the pace of margin expansion may slow in 2025 after the metric jumped by over 500 basis points in 2024.

“Even so, there are multiple catalysts on the horizon, including price hikes and the launch of new tiers for superfans,” Bloomberg Intelligence senior media analyst Geetha Ranganathan wrote ahead of the results.

Last year, the company introduced

a higher-priced audio “bundle” that includes music, podcasts, and audiobooks. It also rolled out an audiobooks-only plan and a music-only streaming tier in an effort to cater to a variety of consumers.

The changes allowed the company to increase prices for the second time in less than a year. Management said price hikes will continue to remain “part of our toolkit” and that the company will adjust prices “when it makes sense.”

More recently, the company signed a new multiyear distribution agreement with record label Universal Music Group (UMG.AS). The deal, announced last week, includes compensation to artists for recorded songs and publishing rights. In exchange, Spotify will have access to certain upcoming releases and specialized products like video.

The financial terms of the deal were not entirely clear. Some reports suggested the new terms may have eliminated Spotify’s bundle discount related to US mechanical royalties. Citi estimated the discount lowered Spotify’s costs by roughly $200 million per year.

On the earnings call, Spotify CEO Daniel Ek did not directly address the financial implications of the agreement but did say the company will benefit from greater scale and “very strong growth” as a result.

“One of the most common misconceptions that I quite often hear from analysts is that they believe there’s a ‘win, lose’ dynamic between us and the labels ever since starting this company 18 years ago,” Ek said. “That’s not how we’ve looked at this. We always look at this as a ‘win, win’ dynamic.”

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at [email protected].

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