Momentum is firmly behind Spotify Technology (SPOT), the world’s leading music streaming platform. The stock has surged nearly 115% over the past year, including a gain of over 50% in the first half of 2025 alone. It’s a dramatic reversal from the lows of 2022, when questions around profitability and weak gross margins cast serious doubt on the company’s long-term prospects. Market data shows that since September last year, Spotify has left the S&P 500 (SPY) in the rearview mirror.
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Spotify’s renewed focus on profitability has clearly resonated with investors, and its strong execution has led to a meaningful re-rating of the stock. With Q2 earnings set for release next week, expectations have come down slightly compared to the start of last quarter, in line with more cautious guidance. That lower bar could work in Spotify’s favor—if it delivers even modest beats across key metrics, the current momentum could easily continue.
Valuation-wise, the stock isn’t cheap. But for a high-growth business with expanding margins and a clear path to improved earnings, I believe there’s still meaningful upside. That’s why I continue to rate Spotify as a Buy.
How Spotify Reinvented Its Story
Not so long ago, back in 2022, Spotify’s stock had crashed about 75% from its 2021 highs. At the time, investors were losing patience with the company’s persistent losses, despite massive revenue growth. Costs were ballooning due to big bets on podcasts, and gross margins were stagnant as expensive music licensing consumed a large portion of revenue.
But over the last two years, there’s been a massive re-rating in SPOT’s stock. Spotify posted its first quarterly profit in 2023 and its first annual profit in 2024. Gross margins, for example, have climbed from around 25% at the end of 2023 to over 31% today.
With a shift in narrative from pure growth to “profit matters,” Spotify cut staff costs, trimmed back costly podcast shows that weren’t paying off, and focused on higher-margin content and more selective investments.
Additionally, gross margins received a boost as podcast and advertising monetization began to mature. The macro backdrop also helped, as optimism returned to markets in 2024, and more precise margin targets gave investors more confidence that Spotify could finally deliver on its long-promised goal of achieving 30–35% gross margins. All of this has made SPOT stand out compared to many of its still-unprofitable peers.
What to Watch for in Spotify’s Earnings Call Next Week
That said, Spotify is set to report its Q2 earnings under a particularly low bar over the last three months, after analysts revised their EPS estimates down from $2.46 to $2.34—although revenue expectations have actually risen, from $4.85 billion to $4.97 billion.
This is mainly because Spotify’s own guidance for Q2 calls for slower MAU growth of 11 million, compared to 13 million in the last quarter. At the same time, margins are expected to remain flat at 31.5%, and there could be up to $100 million in negative currency impacts. So on one hand, this looks like a more cautious move by the company—although Spotify’s track record is mixed here, as it tends to be more aggressive when setting long-term margin and profit targets.
In my view, the slowdown in MAU growth reflects the sheer scale of Spotify’s existing user base—now at 689 million. At this size, acquiring new users becomes increasingly expensive, as the most accessible markets are already saturated. Growth from here means reaching harder-to-penetrate regions, which typically requires more aggressive and costly marketing.
Rather than chasing user growth at all costs, Spotify’s decision to accept a slower pace signals a strategic shift toward margin preservation. I see this as a smart move, especially as the company matures and the focus naturally shifts from pure expansion to sustainable profitability.
Going forward, the real lever for growth isn’t user count—it’s revenue per user (ARPU). That’s likely to be a central theme in the upcoming earnings report. If Spotify demonstrates a clear focus on boosting ARPU—through upsells, cross-sells like audiobooks and ads, price increases, or premium tier bundles—it should reinforce investor confidence and support the bullish case.
A Reality Check on Spotify’s Premium Multiple
Perhaps the most significant challenge to this thesis is that Spotify currently trades at an EV/Sales ratio of approximately 7.8x and an EV/EBITDA ratio of around 70x—that’s more than 300% and 500% higher than the industry averages, respectively. These multiples are what the market would have expected for a high-growth stock, but this is for a business that’s already showing signs of slower growth.
But digging deeper, it’s worth stress-testing how realistic (or not) these multiples are. Spotify has explicitly guided for a long-term consolidated gross margin target of 30–35%—for context, its current gross margin is about 31.5%.
Consensus revenue estimates for Spotify in five years from now are about $32.9 billion—that’s roughly 60% growth from 2025 projections. If we assume today’s OpEx of $3.5 billion stays flat (just for simplicity), EBIT would land around $8 billion five years from now, assuming margins reach 35% in year five. Using the sector’s average EV/EBIT multiple of 18x, or a premium 20x for Spotify, the implied valuation would come in around $160 billion—versus today’s $142.6 billion market cap. That’s only about 13% upside from here.
The point of this exercise is to demonstrate that the market is already pricing in moderate success on margin expansion and cost discipline—but not a significant upside beyond that. Hitting these targets consistently won’t be easy for Spotify, but it’s also not out of reach.
Is Spotify a Buy, Hold, or Sell?
The consensus for SPOT is moderately bullish. Of the 25 analysts covering the stock, 17 are bullish, seven are neutral and only one analyst is bearish, according to TipRanks data. SPOT’s average stock price target is $762.25, implying almost 14% upside over the coming year.
Spotify Rated as a Buy Ahead of Earnings Announcement
Heading into earnings, I’d say the odds are firmly tilted in Spotify’s favor. Despite the stock’s impressive rally, there’s still a reasonable margin of safety built into the long-term investment case—based on assumptions that are relatively grounded, which is rare for a growth name like this.
In my view, the recent downward revisions to Q2 expectations actually reinforce the idea that Spotify is making the right strategic pivot toward margin expansion. That shift could be a key driver of long-term profitability. All things considered, I continue to view SPOT as an attractive Buy at current levels.