Spotify Technology (SPOT) is one of the world’s most dominant music streaming platforms, but that has not guaranteed success, as recent financial results have disappointed. While the company enjoys strong user loyalty and impressive growth metrics, ongoing profitability challenges have recently weighed down investor sentiment.
Elevate Your Investing Strategy:
- Take advantage of TipRanks Premium at 50% off! Unlock powerful investing tools, advanced data, and expert analyst insights to help you invest with confidence.
Yet, the company has announced a price increase for premium subscribers across international markets beginning in September, which provides encouraging signals about its pricing power and has sparked a brief stock rally.
The stock is up over 54% year-to-date, driving the share price into richly valued territory. While I am bullish on the long-term potential of the company, given its recent financial hiccup and current valuation, I prefer to stay Neutral on the stock and look for execution on margin improvement to validate the healthy price tag.
Streaming at Impressive Scale
Spotify has built a streaming empire, with 696 million monthly active users and 276 million paying subscribers spanning 184 countries. It controls nearly one-third of the worldwide music streaming subscriber market, significantly outpacing major rivals like Tencent Music (TME), Apple Music (AAPL), and Amazon Music (AMZN).
The company offers a “freemium” model that has proven particularly effective. A free, advertising-supported tier provides users with full access to Spotify’s music catalog, while the premium subscription service offers an ad-free experience with additional features for a monthly fee.
Spotify has also expanded into podcasts and audiobooks, growing from a music platform into a comprehensive audio entertainment destination. This strategy has helped diversify revenue streams and reduce dependence on music licensing costs.
According to Grand View Research, the global music streaming market size was $46.66 billion in 2024, with on-demand streaming accounting for 70% of the market. It is expected to grow to $108.39 billion by 2030, a compound annual growth rate (CAGR) of 14.9%.
Mixed Financial Signals
Spotify released mixed financial results for Q2 2025. The company showed ongoing user acquisition momentum as it added subscribers at a 12% annual pace, yet financial performance fell short of expectations.
Revenue of €4.2 billion represented 10% year-over-year growth but missed analyst forecasts of €4.27 billion. Further, the company’s earnings per share loss of -€0.42 significantly underperformed consensus estimates of €2.05.
Management’s forward guidance also disappointed, with projections for third-quarter revenue of €4.20 billion coming in well below analysts’ expectations of €4.48 billion. This outlook suggests management expects ongoing uncertainties affecting consumer spending patterns and advertising market volatility.
However, Spotify’s post-earnings announcement that it will raise premium subscription costs across international markets by approximately €1 per month, bringing prices to €11.99 in many markets, has been greeted enthusiastically by investors and sparked a jump in the share price.
Balancing Pricing Power and Valuation
Spotify has implemented multiple price increases over recent years. The company raised U.S. subscription prices twice in 2024, reaching $11.99 monthly, and has consistently increased costs across various European markets without experiencing unusual subscriber churn. Yet its ability to expand its pricing power to other international markets without triggering significant customer departures remains to be seen.
Current valuation metrics suggest investor caution is warranted. The stock trades at approximately 166x earnings, a substantial premium compared to its competitors, which trade with PE ratios in the 25-35x range. This elevated valuation leaves little room for operational missteps or disappointing results.
Is Spotify a Buy, Hold, or Sell?
Analysts following the company have responded positively to its recent strategic moves, with several raising their price target on the shares following the international price increase announcement.
For instance, Citi’s Jason Bazinet has raised his price target on Spotify to $780 from $715 while maintaining a Neutral rating on the shares. Similarly, Vikram Kesavabhotla from Robert W. Baird has raised his price target to $750 (from $730) and reiterates a Buy rating on the shares.
However, some analysts remain cautious about near-term prospects. Phillip Securities issued a Neutral rating on the stock, citing lowered near-term expectations due to heightened investments and operating costs. Meanwhile, firms like UBS and Barclays have trimmed their price targets, expressing concerns about revenue growth and the company’s ability to achieve sustainable margin improvements.
Overall, SPOT is rated a Strong Buy based on 21 Buy and 7 Hold recommendations. The average 12-month price target of $763.11 represents a potential upside of ~10% from current levels.
Final Playlist for SPOT
Spotify’s market leadership, scale, and technology platform are all impressive. Yet, it remains to be seen if these will translate into the pricing power the company needs to generate sustainable profitability.
The stock currently trades at a significant relative premium, suggesting flawless execution on profitability improvements is already priced in. Yet, recent earnings misses and conservative forward guidance suggest it may take some time for management to navigate a challenging environment. Any further disappointment in financial results could result in swift downward pressure on the shares.
Given this risk/reward profile, I prefer to hold off and monitor the impact of price increases on margins.