In the Baron Focused Growth Fund 2nd-Quarter Letter 2024 Q2, Spotify Technology S.A. (SPOT, Financial) was highlighted for its significant platform enhancements and pricing power. The fund, managed by Ronald Baron and David Baron, noted Spotify's strategic moves to improve its platform, which have resulted in increased subscribers and pricing power.
"Spotify increased 18.9% in the quarter and helped performance by 98 bps. The company continues to improve its platform adding new products and making it more beneficial for the consumer. This has resulted in an increase in subscribers along with significant pricing power. The company has started to institute more regular price increases, which is accelerating its revenue and margin growth. Further, the company has been able to increase prices without increasing its churn rate. We believe the business should be able to improve gross margins from 26% to between 30% and 35% over time while continuing to add subscribers and generate strong top- and bottom-line growth. This should result in an increase in cash flow. Given strong cash flow conversion rates, we believe the company could initiate a return of capital program in the near future. We believe Spotify’s valuation remains attractive despite its recent stock price increase." — Ronald Baron and David Baron, Baron Focused Growth Fund, Q2 2024 Fund Letter
Read full letter at gurufocus Ron Baron's Baron Focused Growth Fund 2nd-Quarter Letter 2024 Q2 page.
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