Spotify (SPOT) shares rallied nearly 20% on Feb. 10, after the audio streaming giant posted market-beating financials for its Q4 and issued upbeat guidance for the current quarter. The post-earnings surge briefly pushed SPOT above its 20-day relative strength index (RSI), a technical breakout that often accelerates bullish momentum in the near term.
Despite the rally on Tuesday, Spotify stock remains down nearly 20% versus its year-to-date high.
Why Q4 Earnings Warrant Buying Spotify Stock
Beyond headline beat, SPOT saw its gross margin come in at a record 33.1%, indicating its focus on audiobooks and high-margin podcasts is proving lucrative.
Additionally, the NYSE-listed firm added 38 million new subscribers in Q4, the largest increase it has ever witnessed in a quarter, reinforcing two things:
- Its user growth hasn’t hit a ceiling yet.
- Its recent price hikes are being accepted by users.
Spotify shares are also worth buying today because a notable increase in operating income suggests headwinds related to Swedish payroll taxes that hurt them last year are now in the rearview mirror.
SPOT Shares Are Relatively Cheaper to Own
Spotify’s outlook for continued profitability and a further increase to 759 million subscribers in the current quarter signals it’s smoothly transitioning from Daniel Ek as chief executive to Gustav Soderstrom and Alex Norstrom as co-CEOs.
Long-term investors should consider owning SPOT stock, as it’s trading at a meaningful discount both to its historical average and peer Netflix (NFLX) at the time of writing. The price-to-sales (P/S) multiple on the audio streaming giant sits at 4.37x currently versus 7.68x on NFLX.
Wall Street Remains Positive on Spotify Technology
Despite a notable surge following Q4 print, Wall Street remains bullish as ever on SPOT shares.
According to Barchart, the consensus rating on Spotify stock remains at a “Strong Buy,” with the mean target of about $733 indicating potential upside of more than 45% from here.
On the date of publication, Wajeeh Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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