Spotify (SPOT  ) surged 5% higher following it beating consensus expectations on the top-line, although it missed on the bottom-line. The company also posted strong results in terms of nearly all its major metrics. Analysts are forecasting that the company should turn profitable in 2022 due to growth in premium subscribers and increased ad revenue from podcasts.

Overall, Spotify shares are down about 27% from its 52-week high in February 2021. From mid-August, the stock is about 40% higher. The company has continued to demonstrate revenue growth and business momentum while its stock price has been underperforming, leading to a more attractive valuation. Buying Spotify is an implicit bet that its management team will continue to be able to grow in terms of time spent and users while increasing monetization. So far, this has been correct.

Inside the Numbers

In Q3, Spotify reported a loss of $0.48 per share, while analysts were looking for $0.25. It was a modest improvement from last year's loss of $0.68 per share. The company did top revenue expectations at $2.95 billion vs expectations of $2.9 billion. It was a 26% improvement from last year's $2.3 billion revenue in Q3.

The company had 19% growth in monthly active users, going from 320 million to 381 million. This is more impressive given that growth is continuing in the post-pandemic environment while many tech stocks which saw a surge in revenue and use during the pandemic are failing to maintain growth, leading to plunging stock prices.

Spotify has made a major investment in podcasts given that there are less costs and more ad potential. This is working as currently there are 3 million podcasts available and users who are choosing to listen to podcasts on the platform are growing by about 20% with high levels of retention.

Music streaming is low-margin due to the costs of licenses, while podcasts are a high-margin business given the fixed cost of the content. This is evident in the company's average revenue per user, increasing by 4% compared to last year. This metric in addition to strong user growth is a combination that should lead to sustained earnings growth in the future.

Stock Price Outlook

Another positive for Spotify is that its gross margin improved by 200 basis points. Spotify remains a high-multiple stock with the typical risks but its business continues to accelerate and successfully pulling off a difficult pivot from music streaming to more podcast-centric. Therefore, investors with a tolerance for risk and belief in the company's execution abilities, should consider adding to the stock on weakness.