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Spotify's (SPOT) improving profitability and healthy subscriber growth is music to investors' ears. While the company missed 4Q24 earnings expectations, its EPS swung from €(0.36) in the year-earlier period to €1.76 this quarter, driven by last year's price increases and an accompanying increase in ARPU, as well as a 16% drop in operating expense. Those price increases aren't driving users away, either, as illustrated by the 11% jump in Premium Subscribers to 263 mln, beating SPOT's guidance by approximately 3.0 mln users.

Moving forward, the company will consider implementing additional price hikes, although no price increases appear to be on the immediate horizon. Still, the possibility of SPOT pulling that earnings lever down the road, combined with healthy user growth and engagement trends, has the market feeling bullish about the company's ability to generate even stronger profits in the future.

• In 2023, SPOT changed course, prioritizing profitability instead of growth, and that decision has been an absolute gamechanger for the company and its shareholders. Including today's sizable gains, the stock has soared by 220% since the end of 2023 and is currently trading at all-time highs. A major component of that strategy has been to raise prices, but cutting back on personnel and marketing expenses, while launching new products such as an audiobooks-only subscription, are also parts of the equation.
• In Q4, gross margin expanded by 555 bps yr/yr to 32.2%, beating SPOT's guidance, fueled by gains in both the premium and ad-supported businesses. The company is expecting the margin expansion to cool off, especially as it anniversaries the price hikes from July 2024. For Q1, SPOT is forecasting gross margin of 31.5%.
• SPOT may have deemphasized user growth, but it's MAUs are still growing at a healthy clip, up 12% yr/yr to 675.0 mln. In fact, the 35.0 mln subscriber addition marked the largest Q4 MAU increase in SPOT's history, bolstered by strong growth in Latin America and a successful "Wrapped" marketing campaign. Wrapped, which is offered at the end of November through early December, allows users to view a compilation of data regarding their activity on the platform, while enabling them to share a presentation of that data on social media.

Looking ahead, SPOT is forecasting Q1 revenue of €4.2 bln, which is slightly ahead of expectations, MAUs of 678 mln, and Premium Subscribers of 265 mln. CEO Daniel Ek commented that the company plans to double-down on music, buoyed by its investments in AI and the strong cash flow that its generating. With momentum on its side, 2025 is shaping up to be another strong year for SPOT.