Why Spotify Stock Surged Today

What happened

Shares of Spotify (NYSE: SPOT) popped on Tuesday after the audio platform delivered strong subscriber-growth metrics. As of 2:35 p.m. ET, Spotify’s stock price was up more than 11%.

So what

Spotify added a record 33 million monthly active users (MAUs) in the fourth quarter. That brought its total MAUs to 489 million, representing growth of 20% from the prior-year period.

The audio-streaming leader continues to successfully convert free users to paying customers. Premium subscribers, from which Spotify generates the bulk of its revenue, grew by 14% to 205 million. That bested Wall Street’s estimates, which had called for MAUs of roughly 202 million.

Notably, Spotify’s advertising business experienced solid growth, despite a challenging macroeconomic environment. The company’s ad-supported revenue increased by 14% to 449 million euros ($488 million), driven by a 25% rise in ad-supported MAUs to 295 million.

All told, the company’s total revenue climbed 18% to 3.2 billion euros ($3.4 billion). Still, Spotify reported an operating loss of 231 million euros ($251 million), as growth investments weighed on its profit margins.

Now what

In a note to employees, CEO Daniel Ek promised to prioritize efficiency to help the company achieve sustained profitability. Spotify will restructure its operations and reduce its workforce to cut costs. Ek also pledged to moderate spending on content.

Customer growth will also remain a key focus. Spotify expects its total MAUs and premium subscribers to reach 500 million and 207 million, respectively, in the first quarter of 2023.

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Spotify Technology. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.