The music streaming giant has quietly transformed its earnings power, but investors seem to be listening to an old, less profitable playlist.
After a year of the stock returning -31.9% while the S&P 500 climbed, a Spotify (SPOT) investor might ask what it will take to get the price moving again
The answer may be hiding in plain sight, in a profound change to the company’s profitability that the market has not yet priced in. The claim is simple: the market is valuing Spotify based on its old, less profitable business model, while the numbers show a far more efficient company has already emerged. This business now earns nearly four times as much on every dollar of sales.
For the last twelve months, Spotify’s operating margin was 13.7%. That figure is a world away from its 5-year average of just 3.5%. This is not a one-year spike; the trend has been building, with the 3-year average margin at 7.8%.