Morgan Stanley’s Best Overweight & Quality Stocks: Top 25 Stocks

19. Spotify Technology S.A. (NYSE:SPOT)

Number of Hedge Fund Holders In Q2 2024: 88

Average Analyst EPS % Revision: -0.5%

Spotify Technology S.A. (NYSE:SPOT) is a market leader in the global audio streaming industry which has grown in popularity through the internet. It grew its net users by 113 million in 2023, and more importantly, premium users by 31 million in 2023. The growth, coupled with the fact that higher discretionary spending boosts spending, has translated into positive catalysts for Spotify Technology S.A. (NYSE:SPOT)’s share price. Its stock is up 95% year to date and has gained 7% since the Fed announced its 50 basis point interest rate cut. The keys to Spotify Technology S.A. (NYSE:SPOT)’s hypothesis are its user growth, revenue per user, and its artist portfolio. The firm’s commanding position in the streaming industry, as evidenced by its 626 million user base, means that Spotify Technology S.A. (NYSE:SPOT) can easily attract musicians to its platform. It has been executing well on the revenue generation front, with the second quarter marking a 21% annual growth in premium revenue and a 15% growth in ad supported monthly active users driven by features such as longer videos that also run ads.

Baron Funds mentioned Spotify Technology S.A. (NYSE:SPOT) in its Q2 2024 investor letter. Here is what the firm said:

“Spotify Technology S.A. (NYSE:SPOT) is a leading global digital music service, offering on-demand audio streaming through paid premium subscriptions and an ad-supported model. Shares of Spotify were up, largely attributable to impressive beats in gross margin and operating margin as well as the announcement of subscription price hikes. Given the strong value proposition of the product, Spotify is beginning to exercise its pricing power following last year’s initial price increases that saw minimal churn. Users continue to grow at a healthy pace despite the pricing impact. Spotify also continues to innovate on the product side, with early trials of generative AI features and the addition of new verticals like audiobooks, which have seen solid early adoption. On the cost side, Spotify is on a path to structurally increase gross margins, aided by its high-margin artist promotions marketplace, increasing contribution by its podcast division, and growth of the margin-accretive advertising business. We still view Spotify as a long term winner in music streaming with potential to reach more than one billion monthly active users.”