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By exceeding monthly active user (MAU) and premium subscriber targets, Spotify's (SPOT +8%) Q3 report hit the spot today, sending its shares to new record highs. The impressive MAU and premium sub numbers also outshined the music, podcast, and audiobook streaming platform's earnings miss, snapping a streak of four consecutive beats. Likewise, SPOT's MAU and premium subscriber projections for Q4 were uplifting enough for investors to look past downbeat revenue guidance, which emanated primarily from ongoing foreign exchange fluctuations, a headwind that also partly led to Q3 revenue falling slightly short of estimates.

• While EPS of €1.45 missed the mark, SPOT remains on track for its first full year of profitability, a milestone that followed several quarters of adjusting from pure growth to cost efficiency. SPOT ran into troubling headwinds last year as challenging macroeconomic conditions carried over from 2022, prompting its decision to begin reining in certain investments, such as within its podcast division. Impressively, SPOT was able to change gears while still expanding into audiobooks in Europe, launching new subscription tiers, and enhancing its core platform.
• SPOT referred to 2024 as its year of monetization, which continues to bear fruit. Premium subscribers maintained double-digit gains yr/yr, expanding by 12% to 252 mln, 1 mln higher than its projection. This outperformance occurred despite SPOT implementing price hikes across its developed markets. As a result, premium average revenue per user (ARPU) growth accelerated by 146 bps compared to last quarter. Meanwhile, SPOT added 26 mln ad-supported subs yr/yr, a 12% improvement.
• Total MAUs jumped by 11% yr/yr and 2% sequentially to 640 mln, exceeding SPOT's 639 mln outlook. Most of these users take advantage of SPOT's ad-supported tier. Unfortunately for SPOT, the advertising market is softening, with ad revenue growing slower than MAUs. This softness, combined with FX headwinds, led to Q3 revs growing a hair lighter than analysts expected at 18.8% yr/yr to €3.99 bln
• . These obstacles are expected to linger, causing Q4 revenue guidance to fall short of expectations. SPOT estimates €4.1 bln next quarter, translating to +12% yr/yr growth. Currency fluctuations are expected to clip around 350 bps off yr/yr growth. Also, SPOT will be lapping last year's price hikes, leading to an approximately 400 bp moderation of yr/yr ARPU growth, also impacting total sales growth.
  • Still, on the bright side, SPOT anticipates upbeat MAU and premium subscriber growth in Q4, predicting 665 mln and 260 mln, respectively.

By consistently attracting premium and ad-supported users to its platform while boosting profitability, SPOT is making the right moves to maintain a strong connection with investors. While shares trade at record highs, giving SPOT a 51x forward earnings multiple, the company continues to demonstrate its competitive advantage over the numerous alternative streaming services, such as those from Apple (AAPL) and Amazon (AMZN), as well as Sirius XM (SIRI), which owns Pandora, giving it ample runway for further upside.