There’s no doubt about it: The music industry has shifted to the streaming model. The biggest winner has to be Spotify (SPOT 6.86%), with more than 675 million monthly active users (MAUs).
Yet, even though the stock is up more than 300% over the last three years, there’s still time to buy this industry leader. Here’s why.
Spotify has cleared the profitability hurdle
Growth stocks often soar to new heights thanks to skyrocketing revenue, optimistic guidance, or big increases in their customer base. However, consistent profitability is a hurdle that many growth stocks never achieve.
That’s why 2024 was such an important year for Spotify. The company’s full-year 2024 net income rose to $1.2 billion, its first full year of profitability. For context, the company lost nearly $600 million in 2023.
It’s all because CEO Daniel Ek shifted the company’s strategy roughly two years ago. He cut costs and raised prices, all while keeping Spotify’s growth momentum intact. Revenue has jumped 34% from two years ago, despite the push for profitability.
Long-term investors can use this correction as an opportunity
There’s a lesson here for investors: Hitch your wagon to stocks with strong leadership that is willing to make difficult decisions to improve the businesses they run.
Spotify is in a much stronger position to ride out the current market volatility now that it is profitable. What’s more, long-term investors who believe — like I do — that Spotify can continue to grow revenue while increasing its profits can use the recent weakness in the stock to accumulate shares.
Jake Lerch has positions in Spotify Technology. The Motley Fool has positions in and recommends Spotify Technology. The Motley Fool has a disclosure policy.
