Spotify stock swings higher on Q1 earnings, profit beats

Spotify (SPOT) shares are bumping in Tuesday pre-market trading after the music streamer topped first-quarter earnings estimates. On top of boasting gains of 0.97 euros per share and 3.64 billion euros in revenue (roughly $1.04 per share and $3.89 billion when converted to USD), Spotify reported a profitable first quarter.

Yahoo Finance Media Reporter Alexandra Canal details Spotify's first-quarter figures, focusing on what leadership attributes to monthly active users (MAU) falling behind estimates.

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This post was written by Luke Carberry Mogan.

Video transcript

SEANA SMITH: All right, let's take a look at another stock that we are watching here moving in the opposite direction, and that's Spotify. You're looking at shares jumping after swinging to a profit in the first quarter, despite reporting monthly active users that fell below what the Street was looking for. Despite that, though, you're still looking at a gain of just over 10%. Alexandra Canal has that breakdown for us. Ali.

ALEXANDRA CANAL: Hey, Seana. Yes, I'm here at Yahoo Finance's coffee bar, and we did have a very solid quarter for Spotify. It beat across most of those key metrics, along with some strong guidance for the second quarter, all of that driving shares by double digits in pre-market trading. As you mentioned, the company did miss on monthly active users. I did initially think that could potentially spook investors, but that wasn't the case as profitability continues to improve for the audio giant.

Now, on the earnings call, CEO Daniel Ek did address why there was a miss on MAUs, one reason being that 2023 was a banner year for adding those users and subscribers, and that shouldn't be the base case expectation. He also said that the impact of December's workforce reduction also played a factor. He said that there's no question that was the right strategic move for the company at that time, but it did disrupt Spotify's day to day operations more than anticipated. He said at this point, they seem to have a handle on that. And then finally, he did admit that they might have pulled back, too, significantly on marketing spend as they were focusing on those profits. He said potentially in the second quarter and throughout the rest of the year, they could boost those marketing numbers.

That being said, though, MAUs did rise 19% year over year. And outside of those user metrics, we really saw Spotify emphasize its efficiency strategy as it focuses on boosting some of that top line revenue growth. That's helped increase different metrics like operating margins, income that previously really struggled for the company. That was something that investors consistently looked at across the board. Now it seems like the company has its balance sheet in a really solid position.

Another thing I want to bring up on the earnings call is that Daniel Ek did hint at more price hikes to potentially come for Spotify. But along with that, there's also going to be increased flexibility. When you think about different tiers and different subscription plans, that could potentially include a music-only streaming tier or a tier that also has audiobooks included. So all of that is something to watch moving forward. He didn't give an exact timeline, but it seems like that's a big focus, flexibility on those plans to attract as many customers as possible.