We feel now is a pretty good time to analyse Spotify Technology S.A.'s (NYSE:SPOT) business as it appears the company may be on the cusp of a considerable accomplishment. Spotify Technology S.A., together with its subsidiaries, provides audio streaming services worldwide. With the latest financial year loss of €581m and a trailing-twelve-month loss of €223m, the US$41b market-cap company alleviated its loss by moving closer towards its target of breakeven. Many investors are wondering about the rate at which Spotify Technology will turn a profit, with the big question being “when will the company breakeven?” In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.
Consensus from 25 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 2021, before turning a profit of €6.5m in 2022. The company is therefore projected to breakeven just over a year from today. What rate will the company have to grow year-on-year in order to breakeven on this date? Using a line of best fit, we calculated an average annual growth rate of 65%, which signals high confidence from analysts. Should the business grow at a slower rate, it will become profitable at a later date than expected.
We're not going to go through company-specific developments for Spotify Technology given that this is a high-level summary, though, bear in mind that generally a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.
Before we wrap up, there’s one issue worth mentioning. Spotify Technology currently has a relatively high level of debt. Typically, debt shouldn’t exceed 40% of your equity, which in Spotify Technology's case is 44%. Note that a higher debt obligation increases the risk in investing in the loss-making company.
There are key fundamentals of Spotify Technology which are not covered in this article, but we must stress again that this is merely a basic overview. For a more comprehensive look at Spotify Technology, take a look at Spotify Technology's company page on Simply Wall St. We've also compiled a list of pertinent aspects you should further examine:
- 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.
- 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.
- 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. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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