Spotify (SPOT, Financial) is delighting investors with improved profitability and robust subscriber growth. Although the company missed 4Q24 earnings expectations, its EPS soared from €(0.36) in the previous year to €1.76 this quarter. This improvement was driven by last year's price increases, which boosted ARPU, and a 16% reduction in operating expenses. The price hikes haven't deterred users, as evidenced by an 11% increase in Premium Subscribers to 263 million, surpassing SPOT's guidance by about 3 million users.

Looking ahead, Spotify is contemplating further price increases, although none are imminent. The potential for future price hikes, coupled with strong user growth and engagement trends, has investors optimistic about the company's ability to enhance profitability.

• In 2023, Spotify shifted its focus to profitability over growth, a move that has significantly benefited the company and its shareholders. Including recent gains, the stock has surged 220% since the end of 2023, reaching all-time highs. Key strategies included raising prices, reducing personnel and marketing expenses, and launching new products like an audiobooks-only subscription.
• In Q4, Spotify's gross margin expanded by 555 basis points year-over-year to 32.2%, exceeding its guidance. This was driven by gains in both premium and ad-supported businesses. However, margin expansion is expected to slow as the company anniversaries the July 2024 price hikes. For Q1, Spotify forecasts a gross margin of 31.5%.
• Despite a reduced emphasis on user growth, Spotify's MAUs continue to rise, up 12% year-over-year to 675 million. The 35 million subscriber increase was the largest Q4 MAU gain in the company's history, fueled by strong growth in Latin America and the popular "Wrapped" marketing campaign. Wrapped, available from late November to early December, lets users review and share their platform activity data on social media.

Looking forward, Spotify forecasts Q1 revenue of €4.2 billion, slightly above expectations, with MAUs of 678 million and Premium Subscribers of 265 million. CEO Daniel Ek stated that the company plans to intensify its focus on music, supported by investments in AI and strong cash flow. With positive momentum, 2025 is expected to be another successful year for Spotify.