Spotify Technology S.A.'s (NYSE:SPOT) Shift From Loss To Profit

By
Simply Wall St
Published
October 16, 2020
NYSE:SPOT

Spotify Technology S.A. (NYSE:SPOT) is possibly approaching a major achievement in its business, so we would like to shine some light on the company. Spotify Technology S.A., together with its subsidiaries, provides audio streaming services in the United States, the United Kingdom, Luxembourg, and internationally. With the latest financial year loss of €186m and a trailing-twelve-month loss of €323m, the US$49b market-cap company amplified its loss by moving further away from its breakeven target. The most pressing concern for investors is Spotify Technology's path to profitability – when will it breakeven? We've put together a brief outline of industry analyst expectations for the company, its year of breakeven and its implied growth rate.

View our latest analysis for Spotify Technology

Consensus from 27 of the American Entertainment analysts is that Spotify Technology is on the verge of breakeven. They expect the company to post a final loss in 2022, before turning a profit of €329m in 2023. So, the company is predicted to breakeven approximately 3 years from now. In order to meet this breakeven date, we calculated the rate at which the company must grow year-on-year. It turns out an average annual growth rate of 78% is expected, which is rather optimistic! If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

earnings-per-share-growth
NYSE:SPOT Earnings Per Share Growth October 16th 2020

Underlying developments driving Spotify Technology's growth isn’t the focus of this broad overview, but, take into account that generally a high forecast growth rate is not unusual for a company that is currently undergoing an investment period.

Before we wrap up, there’s one aspect worth mentioning. Spotify Technology currently has no debt on its balance sheet, which is quite unusual for a cash-burning loss-making, growth company, which usually has a high level of debt relative to its equity. This means that the company has been operating purely on its equity investment and has no debt burden. This aspect reduces the risk around investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on Spotify Technology, so if you are interested in understanding the company at a deeper level, take a look at Spotify Technology's company page on Simply Wall St. We've also put together a list of pertinent factors you should further research:

  1. Valuation: What is Spotify Technology worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Spotify Technology is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Spotify Technology’s board and the CEO’s background.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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