Why Spotify Stock Is Soaring After Q1 Earnings

Spotify (SPOT) stock jumped more than 14% out of the gate Tuesday after the audio streaming and media company beat analysts' top- and bottom-line estimates for its first quarter.

In the three months ended March 31, SPOT reported year-over-year revenue growth of 19.5% to 3.6 billion euros thanks in part to recent price increases. The company also swung to a net profit of 97 euro cents per share vs a per-share loss of 1.16 euros in the year-ago period.

These results exceeded the consensus analyst estimate of 3.61 billion euros in revenue and earnings of 65 euro cents per share, according to CNBC.

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Spotify also reported monthly active users (MAUs) of 615 million, representing an increase of 19.4% from the year-ago period and 2.2% from the prior quarter. Premium subscribers of 239 million were up 13.8% from the year-ago period and 1.3% from the prior quarter.

Spotify's premium subscribers result met its guidance for the quarter, but its MAUs result fell just shy of its guidance of 618 million.

"The business performed well in Q1, led by healthy subscriber gains, improved monetization and record strength in profitability," Spotify said in its earnings release. "Overall, we are encouraged by the strong start to the year and view the business as well positioned to deliver on the goals outlined at our 2022 Investor Day." 

UBS sees more upside for Spotify

UBS Global Research analyst Batya Levi is bullish on the communication services stock, as evidenced by a Buy rating and a $375 price target, representing implied upside of nearly 19% to current levels.

"We expect SPOT to generate mid-teens revenue growth as subscriber momentum continues and price increases flow through," Levi wrote in an April 4 report. "We believe the company is on pace to show roughly 90 basis points of annual gross margin expansion, driven by stronger ad-supported margins and improvement in non-royalty expenses."

According to S&P Global Market Intelligence, the consensus analyst target price for Spotify stock is $270.04, which is about 12% below its current trading price. However, these estimates could be updated in the days and weeks ahead following the strong earnings results. Additionally, the consensus recommendation is Buy.

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