Dave Ramsey Would Be Proud… Spotify’s Beans-and-Rice Plan is Working

Looks like someone at Spotify has been binging the Dave Ramsey show, because this company just pulled off one of the craziest turnarounds I've ever seen. They’ve been cutting their budget (and possibly credit cards) so hard, it’s like the whole company’s been stuck on a beans and rice diet.

If you remember right, it was just about a year ago when Spotify seemed to be stuck in quicksand. The stock was in the dumps, subscriber growth was limping along, and the company just couldn't seem to turn a profit no matter how hard it tried. They were some dark days for the Swedish streaming giant (who for some reason can never work out their tech glitches).

But hold up, because Spotify just pulled off an earnings mic drop with its most profitable quarter ever, raking in a cool $454 million in operating profit. That's a long way from the constant losses investors had grown accustomed to. 

Oh, and get this - the company's gross margin surged to 31.1% (way above its usual 16%), crushing expectations and nearly doubling its historical average.

So how’d Spotify go from zero to hero? By doing what any gazelle-intense, debt-free business should: slashing costs and going all-in on profitability. The company trimmed the fat like Trump eyeing the Department of Education—cutting headcount (3 times in the last year), reining in marketing spend, and even having the audacity to hike prices on its premium plan. Brutal? Sure. But effective? Absolutely.

One of their secret weapons is actually AI (I know, shocking right). After cutting 17% of its workforce, Spotify handed many of those jobs over to algorithms, and so far, the transition has been seamless. Turns out, robots don’t ask for coffee breaks or complain about Slack messages.

The results speak for themselves. Spotify added 6 million new premium subscribers in the latest quarter, smashing forecasts. Its total user base has nearly doubled in just 4 years, now sitting at a staggering 640 million. In fact, they’re catching up to Netflix pretty darn quick.

Now, take a look at what this turnaround has done for Spotify's stock price. After getting pummeled in 2022, the shares have surged nearly 250% over the last 2 years. 

In fact, some analysts have set price targets as high as $520. However, with its current stock price already near $470, I would proceed with caution on this one.

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Stock.News has positions in Spotify and Netflix mentioned in article.