The S&P 500 index is trading at an all-time high with a 16.8% gain in 2024 so far, placing it firmly in bull market territory. A series of tailwinds could be aligning to drive further momentum, including falling inflation, potential interest rate cuts, and strong corporate earnings.
Therefore, there's no time like the present to buy stocks, especially for investors with a long-term time horizon. Spotify (NYSE: SPOT) will report its latest financial results in July, with Uber Technologies(NYSE: UBER) set to report in August. Both companies opened 2024 with strong results. Here's why that looks set to continue.
1. Spotify is charting a path to 1 billion users
Spotify is the world's largest music streaming platform. It has a 31.7% global market share (according to Statista), more than double the 14% share of Tencent, in second place. Music streaming is a competitive industry, and most of the top platforms offer near-identical content catalogs, which means they can only differentiate themselves through pricing, technology, and with other content outside of music.
Spotify has invested heavily in the latter two points. It developed an artificial intelligence (AI) algorithm to power its recommendation engine, which learns what each user likes so it can feed them similar content to boost engagement. The company also launched a feature called AI DJ last year, which autonomously crafts personalized playlists with software-generated voiceover commentary.
On the content side, Spotify has become a top destination for podcasts. It recently renewed its deal with The Joe Rogan Experience, which is the world's most popular show, for a rumored $250 million over several years. Plus, Spotify became the second-biggest audiobook platform last year behind Amazon's Audible. Spotify Premium subscribers get 15 hours of audiobook listening included in their plan per month, but they can also top up for an additional fee, which creates a new revenue stream for the company.
Spotify had a record 615 million monthly active users in the first quarter of 2024 (ended March 31), with 239 million of them Premium subscribers (paying users). Management expects those numbers to grow to new record highs of 631 million and 245 million, respectively, in the second quarter, which the company will report later this month. Longer term, CEO Daniel Ek says Spotify could reach 1 billion monthly users by 2030, so there is still plenty of growth left in the tank.
Spotify's Q1 revenue came in at $3.9 billion, which was a 20% increase from the year-ago period. That's a strong growth rate at face value, but it's even more impressive when you consider the company slashed its operating costs by 9.3%, which included cuts in marketing and research and development. It resulted in a net income of $212 million, which was a big positive swing from the $242 million net loss Spotify generated in Q1 last year.
In summary, despite Spotify carefully managing its costs to deliver profitability for investors, its platform continues to generate growth. Those trends appear likely to persist based on management's guidance for the short- and long term.
2. Uber could be transformed by autonomous vehicles
Uber Technologies operates the world's largest ride-hailing platform, but it also has a strong foothold in the food delivery and commercial freight segments. During the first quarter of 2024 (ended March 31), Uber had 149 million monthly active users who completed 2.6 billion trips, resulting in $37.6 billion in gross bookings across the platform. Bookings are an all-encompassing metric -- they include the driver's earnings and the value of a customer's food order, for example.
Speaking of which, Uber paid its 7 million drivers $16.6 billion during Q1, which was the company's largest expense by far. After stripping away other costs, Uber's gross bookings translated to $10.1 billion in Q1 revenue, which was a 14.8% increase from the year-ago period. Simply put, if the company could eliminate the cost of its drivers -- even partially -- it could lead to a surge in revenue.
Autonomous self-driving cars could be the solution, and Uber has a growing list of partnerships in the space. Uber customers can already hail an autonomous ride and order autonomous food delivery in Phoenix, which is serviced by Alphabet's Waymo. Uber also owns stakes in autonomous technology companies like Aurora and Joby Aviation, so its options in this emerging market are very diverse.
Cathie Wood's Ark Investment Management published a report last year that suggests autonomous ride-sharing services could generate $4 trillion in revenue by 2028. Tesla is Ark's favorite pick in the self-driving space, but Uber already has the network in place and a 25% global market share in the existing ride-hailing market, so it's in a great position to capture a sizable chunk of that value.
While that makes Uber stock an enticing long-term investment, the short term also looks bright. Management's guidance suggests gross bookings could come in as high as $40.2 billion in the second quarter, which will represent accelerated growth of 23% (compared to 20% in Q1). The company will report its results in August.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Spotify Technology, Tencent, Tesla, and Uber Technologies. The Motley Fool has a disclosure policy.
