Spotify Earnings: Network Effect Becoming Clearer as Consistent Profitability Is in Sight

We are increasing our Spotify fair value estimate to $215 from $183. The firm reported impressive fourth-quarter 2023 results with double-digit top-line growth in the premium and ad-supported segments driven by higher prices, more listeners and engagement, and margin expansion. With further development and strengthening of a network effect in the subscriber and ad-supported segments, Spotify has turned the corner and likely will be profitable in 2024 and beyond, as we have been expecting. We believe the progression of the network effect, which will further lower listener and advertiser acquisition costs, plus the additional operating leverage generated by Spotify’s revenue growth will drive margins higher through the next five years more than we had previously assumed.