Spotify (SPOT) is set to report its fiscal second quarter earnings on Tuesday before the bell. Wall Street expects the music streamer to once again post a profit on an adjusted basis as the company's recent "efficiency" strategy takes hold.

"Spotify is at an inflection point with recent price changes highlighting its commitment to expanding gross margin and profit," Bloomberg Intelligence senior media analyst Geetha Ranganathan wrote ahead of the results.

In June, Spotify announced it would hike the prices of its premium US subscription plans, with increases set to take effect this month. Spotify previously raised prices last summer.

On top of price adjustments, the company has committed to multiple rounds of layoffs and initiatives to boost top-line growth and improve margins, like a music-only streaming tier and audiobooks-only plan. It also introduced a higher-priced audio bundle that includes music, podcasts, and audiobooks.

Here's what Wall Street expects from the upcoming report, according to Bloomberg consensus estimates:

• Revenue: 3.81 billion euros versus 3.18 billion euros in Q2 2023

• Adjusted earnings per share: 1.04 euros versus adjusted loss of 1.55 euros in Q2 2023

• Total monthly active users (MAUs): 631 million versus 551 million in Q2 2023

• Premium subscribers: 245 million versus 220 million in Q2 2023

Spotify spent $1 billion pushing into the podcast market over the past four years with splashy A-list deals and $400 million-plus studio acquisitions.

That spending took a significant bite out of gross margins and weighed heavily on profitability.

After its stock plunged, the audio giant pledged to improve its profitability beginning in 2023 on a gross margin and operating income basis.

The company also said earlier this year it plans to be more intentional about future investments. It has since adjusted its podcast strategy to focus more on distribution rather than exclusivity.

Spotify also changed up its royalty structure, made audiobooks free to paying subscribers, and locked in new deals with popular podcasters like Joe Rogan and Alexandra Cooper of "Call Her Daddy."

The stock has surged as a result, with shares gaining more than 50% since the start of the year and up about 70% on a yearly basis.

"We continue to see a long runway for growth in music streaming," Morgan Stanley analyst Ben Swinburne said in a note published earlier this month. "This view is supported by paid subscription streaming penetration of global smartphones of just ~15% at year-end 2023 and service offerings that remain in our view underpriced when compared to historical consumer spending on music."

"For Spotify, we see that growth opportunity augmented by product superiority, which is evidenced by revenue share gains and leading levels of engagement," he said, reiterating his Overweight rating on shares and $370 price target.

Bank of America analyst Jessica Reif Ehrlich added that Spotify "continues to execute on initiatives that put the company on a positive revenue, gross margin, operating income, and FCF trajectory."

"The company clearly is at an inflection point, which has been driving share price performance over the past year and a half," she said.

The analyst reiterated her Buy rating and raised her price target to $380, up from the prior $370.

"We are confident in the sustainability of this momentum highlighted by recent price increases that should partially flow through to gross margin," she said.

Spotify guided to gross margins of 28.1% in Q2 after the metric came in at 27.6% in the first quarter. Over the long term, Spotify expects gross margins between 30% and 35% amid plans to further scale its podcasting and ads business.

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at [email protected].

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