Spotify(SPOT) The Motley Fool·2024-11-28 10:00Core Viewpoint - Spotify has experienced significant stock price appreciation, rising over 500% since the beginning of 2023, and is approaching stock-split territory as it nears 15 billion in annual revenue [4] - In Q3 2023, Spotify's gross margin was 26.4% and operating margin was 1.0%, but by Q3 2024, gross profit margin improved to 31.1% and operating margin surged to 11.4% [5] - The company achieved this by reducing full-time employees by over 20% without impacting revenue growth, increasing revenue from its high-margin promotional marketplace, and raising subscription prices [6] Group 2: User Growth and Market Potential - Despite concerns about user saturation, Spotify has significant growth potential in emerging markets like India, Indonesia, and Latin America, where internet penetration is expected to rise [7] - The "Rest of World" segment accounted for 33% of overall users last quarter, equating to over 200 million MAUs, indicating vast potential customer bases in these regions [8] - Premium subscribers grew at 12% year over year last quarter, outpacing MAU growth, suggesting a willingness to pay for ad-free listening [9] Group 3: Pricing Strategy and Future Outlook - Spotify has successfully raised prices in mature markets like the U.S. with minimal churn, indicating room for further price increases in the future [10] - The company’s free cash flow has reached around 95 billion, resulting in a valuation of 48 times trailing free cash flow [13] - Despite solid growth prospects, the stock is considered expensive following its recent rally, suggesting it should be monitored rather than purchased immediately [14]