Spotify (NYSE: SPOT) – Growth Catalysts Set to Boost Margins
Spotify has had an impressive run in 2024, with shares surging nearly 117% this year and almost 20% in the past three months alone. Despite this strong performance, we believe there’s still plenty of upside ahead.
One of the key reasons for this bullish outlook is Spotify’s evolving product mix and improving relationships with record labels. Goldman Sachs analyst Steven Cahall sees incremental margins driven by price increases, its growing audiobook and bundle offerings, and new monetization strategies with labels. In fact, Cahall notes that about a third of record companies’ revenue comes from Spotify, a figure that’s expected to grow as both parties explore new avenues for revenue, including super fan engagement and potentially charging subscription fees to ad-supported users in mature markets.
Spotify’s focus on improving efficiency and managing overhead costs also positions the company as a premium growth stock. As the product mix shifts and Spotify’s partnership with labels deepens, we expect the company’s gross and operating margins to expand significantly over the next few years. Cahall is projecting operating margins to reach over 14% by Q2 of 2026, and climb to about 18% by the end of the decade.
With strong momentum and a clear path to margin expansion, SPOT is worth considering as a long-term growth play in the streaming space.
