Price AnalysisStocks

This Growth Stock Has Crushed Earnings: Should You Buy Now?

  • Spotify crashed earnings estimates but gained anyway.
  • The firm’s report deteriorated user growth expectations.
  • Growth stocks such as Spotify have guidance overshadowing possible worries over current profitability (or absence of it).

The stock space saw a challenging start this year. Growth stocks took a beating in the 2022 first half. Audio streaming platform Spotify was among the worst performers. The firm’s shares stood over 60% YDT lower by May.

Meanwhile, CEO Daniel Ek confirmed buying SPOT shares worth $50 million shortly after. That saw Spotify embarking on rallies, gaining over 20% in July, thanks to the company’s latest earnings report.

Analysts believe Spotify can maintain its latest momentum to be the leading company in the 2022 second half. Here is why.

Spotify Crushed Earnings, Wait, Not Per Share

Here is what might confuse investors: the firm reveals missing earnings-per-share estimates, and the stock reacts with an over 5% jump.

That was the case last week when Spotify reported an 85 euro cents-per-share loss versus the 63 euro cents estimate. Meanwhile, the report saw SPOT rallying. What now? Why didn’t it plunge?

Here’s where market priorities come in. The market prioritizes two facets in growth stocks such as Spotify:

  • Positive growth
  • Upbeat guidance

The market overlooks short-term operating losses if a firm can perform in these two things.

Business Growth

Here, the markets expect an increase in key metrics like revenue, monthly active users, and paid subscribers. Soaring numbers confirm a healthy underlying business and the management executing the business plan effectively. Spotify crushed these metrics.

Revenue gained 23% Y/Y, beating guidance. MAUs (Monthly active users) surged to 433 million, surpassing the 428 million estimate. Also, paid subscribers surged to 188 million, exceeding the company estimate by one million.

Positive Guidance

However, solid numbers aren’t enough. Positive guidance balances this equation. Positive guidance highlights the market’s future direction.

It helps investors and analysts know where a firm puts its assets and enables management to offer expectations based on industry-centric conditions. Spotify aced earnings stats by offering remarkable guidance alongside its impressive Q2 results.

The firm expects increased growth in paid subscribers and MAUs in Q3. Moreover, its anticipated revenue of above 3B euros in Q3 – the first time crossing that level.

Time to Buy Spotify

Sure: Everything seems up for the audio streamer. Despite the higher-than-anticipated operating loss, the firm reiterated its lucrative projections for user growth, subscriber, and revenue.

Also, its executive reiterated by purchasing SPOT shares worth $50 million. Investors interested in growth stocks with attractive long-term forecasts might check Spotify.

Editorial credit: Chubo – my masterpiece / shutterstock.com

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