After taking a hit of more than 10% earlier this year, major stock market indexes are gaining momentum once again. Currently, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average are hovering 2% to 6% below their all-time highs.
Given this context, it’s worth looking into which breakout growth stocks might be attractive right now.
Spotify Technology
Spotify Technology (spot -1.50%) is one noteworthy option. As of now, Spotify’s stock has surged over 58% in a year, nearing its record levels. This strong performance qualifies it as a breakout growth stock, particularly due to a solid revenue surpassing expectations in its first-quarter earnings.
So, why consider Spotify? One key factor is that its performance metrics keep improving. In the first quarter, monthly active users (MAUs) jumped 10% year-on-year. Moreover, premium subscribers increased by 12%, reaching 268 million. It’s important to note that this growth follows a long-term trend; the company hasn’t seen a slowdown that would harm its revenue.
In fact, Spotify’s MAUs have risen nearly tenfold, going from 68 million to 678 million in the last decade.
While many users are aware of ad-supported memberships, Spotify is actively trying to convert them into paid subscribers. These paid users contribute about 90% of the company’s revenue, so boosting the total user base—especially paid subscribers—is vital for revenue growth.
Wall Street analysts are taking notice as Spotify’s user growth surpasses expectations. Investment bank Jefferies recently upped its price target for Spotify shares from $730 to $845. They’ve noted that unexpected user growth, especially from emerging markets, could boost stock performance. Additionally, potential price increases and cost-cutting measures may improve margins.
Spotify’s ventures into artificial intelligence (AI) also provide further appeal for potential investors. The company is developing features like AI DJs, natural language searches, and AI-generated playlists. These innovations enhance user experience and increase engagement.
For growth-focused investors, it might be a good moment to consider buying Spotify shares. However, employing a dollar-cost averaging strategy can reduce the stress of picking the “perfect” time to invest.
Roblox
Roblox (rblx 1.51%) is another stock at the forefront, showing a striking 78% increase this year.
What’s behind this surge in Roblox’s stock? The answer seems to lie in improvements to its fundamentals.
In its first quarter, Roblox exceeded analyst predictions with a reported loss of $0.33 per share, better than the consensus estimate of a $0.45 loss per share.
Sure, it’s still a loss, and the company has struggled to turn a profit since 2021. But, it’s less critical for a growth stock at this stage. More crucially, Roblox’s growth trajectory appears strong and its balance sheet is stable enough to support ongoing operations.
Roblox is doing fine financially, boasting $2.7 billion in cash against $1.8 billion in debt. Additionally, its free cash flow over the past year has reached around $1 billion, suggesting no immediate cash crunch.
As for growth, revenue climbed by 29% from the previous year, and bookings—spending on Robux, Roblox’s virtual currency—rose by 31%.
Notably, the company reported that it paid creators over $281 million during the quarter, positioning it to exceed $1 billion in total payments for the year. This incentivizes more game developers to create content on Roblox, knowing they can earn significant rewards.
So, is now the time to invest in Roblox? For those with a long-term growth perspective, now might be the right moment, particularly given the upward trends in revenue and free cash flow.
However, it’s worth mentioning that Roblox may not suit everyone’s investment strategy. Its ongoing lack of profitability might deter some investors. Still, for those eager for growth, Roblox is definitely worth taking a closer look at.
