Spotify Could Be a No-Brainer Buy Right Now

This year has been a rollercoaster on Wall Street. The major stock market indexes have given back all of their early-year gains -- and then some. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average have retreated 6%, 10%, and 5%, respectively, year-to-date.

However, one doesn't have to look far to find stocks that have bucked the trend. Today, let's have a look at one such stock, Spotify Technology (NYSE: SPOT) and see what could make this name a no-brainer buy right now.

Image source: Getty Images.

Spotify stock has performed well dating back to 2022

Spotify stock is no flash in the pan. It was founded in 2006, years before digital media streaming turned mainstream. It has remained a leader in the streaming media space over all these years, unlocking great benefits for patient shareholders.

Since late 2022, the company's stock is up 670%. That results in a compound annual growth rate (CAGR) of 128%. That's one of the highest stock price CAGRs one can find over this period. It's far better than fellow streamer Netflix (NASDAQ: NFLX), which boasts an excellent CAGR of 71%. Meta Platform's (NASDAQ: META) 104% CAGR is fantastic but still falls short of Spotify's pace. Nvidia (NASDAQ: NVDA), the king of AI, is one of the few names to best Spotify's recent performance, with an eye-popping CAGR of 134%.

Clearly, Spotify's stock has made savvy investors very happy since 2022, but what is the secret formula that is powering this stock higher -- and will it continue delivering in the future? Here's what I think.

Spotify is sticky

Now, don't get me wrong: I mean this in a positive sense. In economics, the term "sticky" refers to a variable that is resistant to change.

In the case of Spotify, I'm talking about subscribers happily staying around for a long time. One can see the evidence of stickiness in the company's low churn rate, intense engagement, and high levels of loyalty. This final point is key, as Spotify has raised prices twice over the last few years. Despite these price hikes, Spotify's subscriber base has increased by more than 60 million, advancing from 206 million in late 2022 to about 265 million as of its most recent quarter (the three months ending on Dec. 31, 2024). Only a truly sticky subscriber base will absorb price increases without complaint.

Image source: Statista.

Does Spotify's "Stickiness" make it a buy now?

In a nutshell, I think Spotify's "stickiness" is one of the company's greatest assets. Clearly, its customers enjoy the Spotify platform, and, for millions of people, its catalog of music, podcasts, and audiobooks provides the soundtrack to their daily routine.

What's more, this consumer loyalty is more than a theoretical business advantage. It is now making itself clear in Spotify's financial statements. The company had struggled for years to turn a profit, but that's no longer an issue.

Along with the aforementioned price hikes, Spotify has also cut its internal costs of doing business since 2022. As a result, the company's profitability has soared. In fiscal year 2022, the company posted a net loss of more than $1 billion. In 2024, that figure flipped to a net profit of $1.2 billion. Free cash flow, another critical measure of cash-based profits and financial health, has increased to $2.5 billion.

Over time, these profits should allow Spotify to return value to its shareholders via stock buybacks, dividend payments, or strategic acquisitions.

At any rate, savvy investors may want to consider adding shares of this streaming giant now. You don't see this combination of rapid growth and relatively modest valuation artios too often.

Should you invest $1,000 in Spotify Technology right now?

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Jake Lerch has positions in Nvidia and Spotify Technology. The Motley Fool has positions in and recommends Meta Platforms, Netflix, Nvidia, and Spotify Technology. The Motley Fool has a disclosure policy.