AN EK-CELLENT WEEK

Strong Q3 results and upgrades from Morgan Stanley and Bernstein provided a lift to Spotify stock the first week of November. Shares closed at a six-month high of $300.95 on 11/1, and the company’s market valuation rose to a stunning $57 billion. Spot stock had risen $80 a share since the end of September.

The big surprise in the most recent quarterly report was that the Daniel Ek-led company was in the black, turning a $2.3m profit on $2.9b in revenue. These positives bely the fact that COVID-19 put the Spot on a financial roller-coaster from early 2020 into the summer of 2021, and it may continue to have an impact on the company.

The question for investors now is, when will the streaming giant consistently turn a profit? Simply Wall Street reported that the 23 industry analysts covering Spotify are predicting a loss this year but a profit of more than $110m in 2022.

Some of the optimism comes from Spotify being free-cash-flow-positive for a while, which leads Simply Wall Street to declare the stock undervalued and forecast an earnings growth of 60%-plus in the coming year.

Monthly active users and premium subscribers were up 19%, ad revenue was up 75% and the company expects to have more than 400m monthly users by the end of 2021.

Europe, with 34% of the total MAUs, and North America, with 24%, are Spotify’s biggest regions and the two areas led the growth in global consumption hours between 7/1 and 9/30. Also encouraging were higher retention rates from the duo and family plans, which are reducing the churn rate.

Adding to the revenue sheet is the Spotify Audience Network, which nearly tripled the monetizable podcast inventory following its U.S. launch in April. As much as Ek and his team like to tout stats such as the records set by Olivia Rodrigo’s SOUR, BTS’s “Butter” and Doja Cat, it’s the higher profit margins of podcasts making the difference on the ledgers.

Spotify had 2.9m podcasts at the end of September, while the podcast share of overall consumption hours on our platform also reached an all-time high. The streamery continues to add exclusive licensing deals beyond The Joe Rogan Experience, increasing the number of O&E (Originals & Exclusives) podcasts across multiple markets.