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

Number of Hedge Fund Holders In Q3 2024: 98

Spotify Technology S.A. (NYSE:SPOT) is the largest audio streaming company in the world. The firm is synonymous with the concept of podcasts and it also commands a 32% market share of the global music streaming market. Spotify Technology S.A. (NYSE:SPOT) enjoys a wide moat in the industry courtesy of its 600 million users. The sizable user base has come on the back of rapid growth as the firm managed to add 113 million net and 31 million paid users in 2023. Spotify Technology S.A. (NYSE:SPOT)’s narrative depends on several factors such as its ability to add paying premium users and growing its ad-supported users to monetize its massive user base. Additionally, since the firm relies primarily on a software platform to generate revenue, margins are another key part of Spotify Technology S.A. (NYSE:SPOT)’s puzzle. Its ability to monetize its user base plays a key role in bolstering margins since it allows the firm to eke out additional revenue without adding to costs. Delivering on these fronts can create tailwinds for Spotify Technology S.A. (NYSE:SPOT)’s shares and vice versa.

Spotify Technology S.A. (NYSE:SPOT)’s management commented on its margins during the Q3 2024 earnings call. Here is what they said:

“We also anticipate gross margin of 31.8% and operating income of EUR481 million, pointing to our first full year of positive operating income of EUR1.4 billion. With respect to subscriber net additions, the very low levels of churn that we expect in the six markets where we’ve recently announced price increases is also incorporated into our quarter four outlook. This is consistent with what we had seen historically. We have also incorporated our ongoing actions to drive better subscriber monetization. Although new pricing will contribute towards ARPU growth in quarter four overall, we expect the lapping of 2023 year’s price increases that we had in 63 markets that they will lead to an approximately 400 basis point moderation of a year-on-year ARPU growth on a constant currency basis in our revenue outlook.

In terms of our recent gross margin improvement, as Daniel mentioned, we are very pleased with the strides we made this year. The significant rate of improvement in our gross margin in 2024, which exceeded even our own plans has been exceptional and should be viewed as such. Looking ahead, we see substantial runway to grow margins and income over the long run, which will be driven by continuing focus on improving our product and business via targeted investments, disciplined management and improving monetization.”