Spotify (NYSE: SPOT) is the world's largest music-streaming platform. It holds a 31% market share, according to Statista, with Tencent sitting in a distant second place at 14%.

The stock peaked near $364 in 2021 before collapsing 80% to trade as low as $71 during the tech crash in 2022. It was a reality check for Spotify (and a number of other tech companies), and it prompted a sharp change in strategy. The streaming giant has since slashed costs and optimized its operations for efficiency with the goal of delivering profitability for investors.

Those moves appear to be paying off. Spotify just released its first-quarter financial results, and it delivered more revenue than expected, in addition to record-breaking profits. Spotify stock popped 11% to $303 following the news. Though shares have since retreated, the stock is still sitting on a year-to-date gain of 50%. Here's why it's not too late to buy shares of the streaming leader.

Spotify is out-innovating its competitors

The music streaming business is hypercompetitive, mainly because all of the top providers offer a very similar content catalog. Therefore, they can only compete based on price (which is typically negotiated with the labels), technology, and the breadth of any other content they can offer their users.

As a result, Spotify has invested heavily in becoming a top podcasting platform. The company just renewed its deal with the industry's most popular show, The Joe Rogan Experience, for a rumored $250 million over several years. Spotify also rose to second place in the audiobook arena during 2023, behind Amazon's Audible. This is a new segment for the company, but it already offers over 375,000 titles. Audiobooks unlock two new revenue streams: an audiobook subscription tier, which offers 15 hours of listening per month, and an additional top-up fee to grant the user more listening time.

Spotify is also separating itself from the competition using technology. It deploys artificial intelligence (AI) in a growing number of ways, including in its recommendation engine so it can feed users the most relevant content. Plus, it launched a new feature called AI DJ last year, which autonomously creates personalized playlists for each listener, complete with a software-generated voiceover.

Outside of AI, the company debuted a new capability this year called Song Psychic. Users can select questions from several different topics, and Song Psychic will answer them by selecting a suitable song. Yes, it's a total novelty, but engagement is important, and any feature that keeps users on the platform for longer periods of time is a win for the company.

Spotify just delivered yet another strong quarterly result

Spotify had 615 million monthly active users at the end of Q1 2024. Though its user count increased 19% year over year, the result was slightly below management's 618 million forecast. However, premium subscribers -- which account for 89% of the company's total revenue -- came in at 239 million as expected. The shortfall came from the free, ad-supported user base, likely in reaction to Spotify's recent strategy shift.

The company slashed its operating costs 9.3% year over year during the quarter, which included a 6.6% reduction in marketing spending. That reduction makes it harder for Spotify to attract new users. CEO Daniel Ek says Spotify will slowly increase its marketing spending going forward, but the additional money will be used to acquire high-value users who are most likely to engage with the platform and pay for a premium plan, which is a departure from its previous growth-at-all-costs strategy.

The in-line result on the premium side drove Spotify's first-quarter revenue 20% higher to $3.8 billion. And thanks to the cost cuts mentioned above, the company's GAAP net income came in at a record-high $210 million, which was a substantial swing from the $240 million net loss it generated a year ago.

Profitability has been a focus for Spotify and most other tech companies since 2022. Soaring interest rates led to an increase in the cost of capital, meaning it's much harder for companies to borrow money today compared to two years ago. Plus, since investors can earn a modest return on risk-free assets like bank deposits and government Treasury bonds, it's also harder for companies to raise money in the equity markets at a favorable valuation.

Spotify still has plenty of growth potential

Despite the 50% gain in Spotify stock so far this year, it's still trading 23% below its all-time high. That's an opportunity for investors.

Ek believes Spotify will have 1 billion users by 2030. That will drive its revenue much higher, but the company also increased its subscription prices last year and is set to raise them again in 2024 in most major markets. Simply put, as Spotify dives deeper into other content categories like podcasts and audiobooks, it will be able to command a higher price for its platform -- and Ek has told investors historical price increases result in a minimal impact on growth, so they could become more frequent going forward.

Assuming Spotify's costs continue to rise at a slower pace than its revenue (or shrink, which is even better), this company could build on its recent profitability to become a cash-generating machine. That will likely appeal to a wider investor base, pulling in those who might have deemed the stock too risky in the past due to its growth-focused strategies.

Overall, Spotify stock appears to be a great buy for the long term.

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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 Amazon, Spotify Technology, and Tencent. The Motley Fool has a disclosure policy.

1 Unstoppable Stock Up 50% in 2024 to Keep Buying Today was originally published by The Motley Fool