Up 82% this year, should investors still buy this hot growth stock?

What a year it has been for the scholarship so far. The S&P 500, Nasdaq Compositeand Dow Jones Industrial Index increased by 18%, 18% and 10% respectively.

However, there are many stocks that outperform benchmarks. Let’s take a look at one such stock: Spotify Technology (PLACE 0.63%).

Image source: Getty Images.

Spotify stock was on one BREAKING

When it comes to Spotify stock, one fact is undeniable: It has been a great name to own since the start of 2023. Indeed, after the stock bottomed around New Year’s Day 2023, Spotify stock they have it climbed over 330% over the next 20 months.

Of course, on a longer time scale, it’s more of a mixed story for Spotify. After debuting through an initial public offering (IPO) in 2018, the company’s stock has been more or less flat for the first two years. of existence. Then, the COVID-19 pandemic happened. Spotify’s stock soared as lockdowns forced everyone into their homes — and into streaming services. The stock peaked at $387 per share in early 2021. Then came the crash.

SPOT data by YCharts

Spotify shares have fallen 76% since their peak as pandemic restrictions eased and tech stocks fell out of favor in late 2021 and into 2022. By early 2023, investors could resume actions of Spotify for under $100 per share.

What’s driving Spotify’s turnaround?

So, clear, something has changed for Spotify, but what is it?

There are several factors at play, but one of the most important The reasons why Spotify stock has bounced back is that its management has embarked on a cost-cutting path.

First, let’s understand where most of the company’s costs come from. Spotify, as a streaming service, it must pay royalties to artists and music companies whose music appears on its platform. This allows the service to stream famous songs from countless artists, from Taylor Swift to The Beatles.

Only in 2023 did Spotify pay more than $9 billion in music royalties. For context, the company generated $14.3 billion in revenue. So, about 62% of the company’s revenue was used only to pay royalties. That left $5.3 billion for everything else — employee wages, marketing, technology, etc. So it is not surprising that The company’s trailing 12-month net loss hit a low of more than $1 billion in 2023.

SPOT Data on Net Income (TTM) by YCharts

However, what has Wall Street so excited is that Spotify is cutting back where it can. Obvious, they still have to pay royalties, so those cuts come from other areas within the company. Back inside In 2023, the company cut about 1,500 employees, or 17% of its total workforce, in an effort TO to streamline its operations and reduce some non-core business areas, such as its podcast unit.

MoreSpotify has another plan to increase its profits: raising prices. In June 2024, the company announced that its monthly cost individual plan increased by $1 to about $12/month, while the duo and family plans increased by $2 and $3, respectively. This should further boost Spotify’s bottom line by increasing its total revenue.

Is Spotify still a buy now?

In short, yes, Spotify remains a solid stock for those investors who are willing to hold it for the long term. That’s because Spotify, as the video streaming giant Netflixhas built a massive subscriber base that appears to be sustainable. This allowed the company to raise prices and increase profits. And that’s why Spotify makes its shareholders very happy.