Spotify (SPOT 2.85%) reported better than expected fourth-quarter financial results before the market opened on Tuesday, and shares promptly jumped by 11.4%. But as the day wore on, the enthusiasm faded, and as of 1:30 p.m. ET, the stock was up by just 3.2%.
Spotify reported a 10 million subscriber increase in premium members in the quarter, beating the 8.9 million that analysts expected. Total monthly active users hit 602 million, topping estimates by 1 million.
Revenue was up 16% year over year to $3.95 billion, slightly lower than the $4.01 billion that analysts expected. But its loss was just $0.39 per share on an adjusted basis, a penny per share better than the consensus estimate.
The most impressive number in the release was $396 million in free cash flow, a sharp improvement from its free-cash-flow loss of $73 million a year earlier. Both a growing user base and lower operating expenses are helping the bottom line.
Becoming a great business
Back in October, on the third-quarter conference call, CEO Daniel Ek said Spotify needed to “become a great business,” and I think it’s now on the way to doing that. Costs are now being contained, and the company is still growing nicely on the top line.
The next step will be growing the advertising business, which is where Spotify monetizes most of the users on its platform. That business’s growth hasn’t kept up with the growth of the premium segment, so there are still opportunities.
I don’t see Spotify slowing down, and any weakness in shares would be a great opportunity for long-term investors to buy in.
Travis Hoium has positions in Spotify Technology. The Motley Fool has positions in and recommends Spotify Technology. The Motley Fool has a disclosure policy.