Spotify Technology is the IBD Stock Of The Day as the streaming music leader hovers near a buy point after its upbeat second-quarter earnings report.
On July 23, Spotify stock broke out of a fourth-stage flat base with a buy point of 331.08, according to IBD MarketSurge. It notched a three-year high of 346.23 the next day before pulling back slightly.
On the stock market today, Spotify stock rose 2% to close at 330.35.
Stockholm-based Spotify leads the streaming music market with 246 million total paying subscribers worldwide in the second quarter. It also had 626 million monthly active users in the second quarter, when including its free, advertising-supported service.
"Since Q1 '23, we believe that Spotify, YouTube Music, and Tencent Music Entertainment have been primary share takers of global subscription revenue while Apple and Amazon Music (along with several smaller platforms) have been primary share donors," Guggenheim analyst Michael Morris said in a client note Monday. He rates Spotify stock as buy with a price target of 420.
Spotify Stock Gets Earnings Boost
Spotify beat expectations for subscribers and earnings in the second quarter. It posted results before the market open on July 23.
The audio entertainment service earned the equivalent of $1.43 a share on sales of $4.1 billion in the June quarter. Spotify reports financial results in euros. Analysts polled by FactSet had predicted Spotify would earn $1.14 a share on sales of $4.16 billion. In the year-earlier period, Spotify lost $1.71 a share on sales of $3.56 billion.
Wall Street analysts were delighted by Spotify's improved profitability.
"Spotify's even more profitable than most appreciate," KeyBanc Capital Markets analyst Justin Patterson said in a client note Friday. He made the statement after reviewing the company's latest disclosures with the U.S. Securities and Exchange Commission.
"When stripping out incremental social charges, the operating income beat is more impressive," Patterson said. "Recall, social charges are payroll taxes associated with employee salaries and benefits in select countries where Spotify operates and are correlated with stock performance."
He added, "We believe one of the opportunities in Spotify comes from investors often not adjusting expenses for social charges."
Stock Ranks First In Group
Patterson rates Spotify stock as overweight, or buy, with a price target of 420.
For the current quarter, Spotify forecast adding 5 million subscribers for a total of 251 million. It also expects to reach 639 million monthly active users in the third quarter.
Spotify stock ranks first out of 21 stocks in IBD's Computer Software-Education and Media, according to IBD Stock Checkup. It has an IBD Composite Rating of 84 out of 99.
Follow Patrick Seitz on X, formerly Twitter, at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
