Spotify (SPOT – Free Report) reported strong fourth-quarter net income and results, as well as its first-ever operating profit, net income and free cash flow, which were still positive. Despite the positivity, streaming music group shares fell after the publication of its results on Wednesday.

Spotify now looks set to expand its reach into the era of streaming with two new acquisitions. So let's see if the SPOT stock is worth buying down, as it is expected to grow in the era of increasingly decentralized entertainment, such as Netflix (NFLX – Free Report) and Amazon (AMZN – Free Report).

Q4 Overview

Spotify has announced a profit of 442 million euros for a turnover of 1.495 billion euros. Comparisons with our consensus estimates of Zacks are not as important as conversion rates make things a bit confusing. What is important is that Spotify has gone from a quarterly loss of 596 million euros in the same period last year and saw its turnover climb by 30% and 11% sequentially.

Perhaps more importantly, Spotify closed the quarter with 207 million active users per month, which allowed it to reach the high end of its MAU 199-206 million forecast. This also increased by 16 million UM from the third quarter and 29% over the same period of the previous year. In addition, the number of Spotify Premium subscribers increased 36% year-over-year and 11% sequentially to 96 million.

Spotify is the most popular paid music streaming service in the world. The company currently has users in nearly 80 countries, about a decade after its launch. The 96 million paying SPOT subscribers almost double Apple's 50 million (AAPL – Free Report). But the streaming music offer from the iPhone giant was not launched until 2015.

As we mentioned earlier, Spotify's shares fell after the company released its fourth quarter financial results. The SPOT share appeared at around 1% until Friday at $ 132.75 per share. This represents a 33% drop from its peak of $ 198.99 per share in 52 weeks, and could be a solid buying opportunity for investors in the streaming business.


Spotify said it would focus on growth rather than profitability and announced the acquisition of two private podcast companies, Gimlet Media and Anchor. Spotify, which has fallen in video content, has increased its investment and has announced plans to spend more than $ 500 million on podcast acquisitions in 2019 alone.

Spotify said the podcasts created an impressive public commitment and said people listening to them spent twice as long using the platform. "Today, audio is only one-tenth the size of the video market, so there's a huge opportunity for audio to evolve into a more personalized and immersive experience. little like the evolution of the video industry, "said general manager, Daniel Ek, on call the company's results.

"We believe that over time, more than 20% of Spotify users will listen to non-music content, we firmly believe that this opportunity in audio begins with podcasts."

In the future, Spotify offered cautious advice. From the outset, it expects a loss of 200 to 360 million euros in 2019. In addition, the company expects sales growth of 21% to 29% for the whole year. The high-end would be in line with the growth of 2018, which was already a major slowdown compared to the 39% rise in 2017 and the 52% growth in 2016.

Spotify expects to reach between 117 and 127 million premium subscribers by the end of 2019, which is comparable to the average forecast of 121 million analysts. At the same time, the company's gross profit margin should rise from 26.7% in the fourth quarter to between 22% and 25% in 2019. "We said we could become profitable and we are now returning to investment ", said the CEO of Spotify. I said.

Bottom line

Spotify has been called the Netflix of Music, and the company clearly intends to extend its audio content well beyond. But unlike Netflix, Amazon and early Disney (DIS-Free Report), Apple and AT & T (T-Free Report), Spotify offers nothing particularly unique. It offers, for the most part, exactly the same music library as Apple Music and other high quality streaming platforms. And most podcast producers place their podcasts in as many places as possible, including YouTube (GOOGL – Free Report).

The fact is that Spotify will have almost the time to become its own record company, while the originals of Netflix and Amazon Prime have become major forces in Hollywood. In addition, it seems that the growth of Spotify's revenue is already slowing down, which makes it less attractive. That said, SPOT's actions are well below their peak of 52 weeks and are worth watching.

Top 10 stocks of Zacks for 2019

In addition to the actions mentioned above, would not you like to know about our top 10 futures purchases of the year?

Of the 4,000 companies covered by the Zacks ranking, these 10 companies were selected according to a process that regularly beats the market. Even in 2018, when the market had dropped -5.2%, our Top 10 had already exceeded 10%. And during the bullish period 2012 – 2017, they far exceeded the 126.3% of the market, reaching 181.9%.

This year's portfolio includes a volatile player, an expert in artificial intelligence and a dynamic technology company that helps physicians achieve better results for patients at a reduced cost.

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