Spotify Technology SA (SPOT) AI Stock Analysis

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Spotify Technology SA

(NYSE:SPOT)

75Outperform

Spotify's strong financial performance and positive earnings call sentiment are key strengths, highlighted by significant user growth, profitability, and strategic innovations. However, the high P/E ratio raises concerns about valuation, and technical indicators suggest mixed short-term momentum. The company faces challenges in advertising revenue, yet maintains a strong growth outlook.

Positive Factors

Market positioning and growth potential

Spotify is well positioned in the music streaming marketplace with several levers for future growth such as future pricing increases, new product launches, and programmatic advertising.

Profitability and cash flow

Spotify is at an inflection point in profitability and free cash flow driven by deeper subscriber penetration, price increases, new pricing tiers, advertising improvement, and new businesses.

User growth and engagement

Spotify's MAUs increased above guidance, with a significant addition of 35 million in the quarter, marking the most considerable Q4 change in company history.

Negative Factors

Advertising revenue concerns

Recent volatility could impact future advertising growth, with current uncertainty potentially putting downward pressure on ad budgets.

Revenue growth deceleration

Revenue growth is poised to decelerate in 2025.

Valuation concerns

The analyst downgraded SPOT to NEUTRAL from ACCUMULATE due to recent share price gains and full valuations, indicating limited upside potential.

Spotify Technology SA (SPOT) vs. S&P 500 (SPY)

Market Cap

$101.05B

Dividend YieldN/A

Average Volume (3M)2.75M

Price to Earnings (P/E)82.4

Beta (1Y)1.01

Revenue Growth18.36%

EPS GrowthN/A

CountryUS

Employees7,691

SectorCommunication Services

Sector Strength74

IndustryInternet Content & Information

Share Statistics

EPS (TTM)6.11

Shares Outstanding203,844,400

10 Day Avg. Volume2,428,708

30 Day Avg. Volume2,747,432

Financial Highlights & Ratios

PEG RatioN/A

Price to Book (P/B)N/A

Price to Sales (P/S)7.15

Price to Cash Flow (P/CF)N/A

P/FCF Ratio0.00

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$673.96

Price Target Upside33.91% Upside

Rating ConsensusModerate Buy

Number of Analyst Covering28

Spotify Technology SA Business Overview & Revenue Model

Company DescriptionSpotify Technology S.A., together with its subsidiaries, provides audio streaming services worldwide. It operates through Premium and Ad-Supported segments. The Premium segment offers unlimited online and offline streaming access to its catalog of music and podcasts without commercial breaks to its subscribers. The Ad-Supported segment provides on-demand online access to its catalog of music and unlimited online access to the catalog of podcasts to its subscribers on their computers, tablets, and compatible mobile devices. The company also offers sales, marketing, contract research and development, and customer support services. As of December 31, 2021, its platform included 406 million monthly active users and 180 million premium subscribers in 184 countries and territories. The company was incorporated in 2006 and is based in Luxembourg, Luxembourg.

How the Company Makes MoneySpotify generates revenue primarily through a freemium model, which includes both subscription fees and advertising revenue. The company's premium subscription service accounts for the majority of its income, offering users an ad-free experience, offline listening, and higher sound quality for a monthly fee. In addition to subscription revenue, Spotify earns money through its ad-supported free tier by selling advertising space to businesses looking to reach Spotify's extensive user base. Key partnerships with record labels, content creators, and technology companies also play a significant role in Spotify's revenue generation, enabling the company to expand its content offerings and improve user experience.

Spotify Technology SA Financial Statement Overview

Summary

Spotify's financial performance is strong, with a notable revenue growth rate of 18.3% and improved profitability margins. The balance sheet remains stable with a conservative debt strategy and robust return on equity. Cash flow management is efficient, as demonstrated by significant free cash flow growth.

Income Statement

Very Positive

Spotify has shown impressive revenue growth with a Revenue Growth Rate of 18.3% from 2023 to 2024. The Gross Profit Margin improved significantly to 30.1% in 2024, and the company turned profitable with a Net Profit Margin of 7.3%. The EBIT and EBITDA margins also improved remarkably, indicating enhanced operational efficiency.

Balance Sheet

Positive

The company maintains a stable balance sheet with a Debt-to-Equity Ratio of 0.36, reflecting a conservative leverage strategy. The Return on Equity is a robust 20.6% in 2024, indicating effective use of equity capital. However, the Equity Ratio is moderate at 46%, suggesting a balanced financing structure.

Cash Flow

Very Positive

Spotify has achieved strong Free Cash Flow Growth, with Free Cash Flow increasing by 238.9% from 2023 to 2024. The Operating Cash Flow to Net Income Ratio is 2.02, showing solid cash generation relative to net income. The Free Cash Flow to Net Income Ratio is an impressive 2.01, highlighting efficient cash management.

Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
15.67B	13.25B	11.73B	9.67B	7.88B
	Gross Profit
4.72B	3.40B	2.93B	2.59B	2.02B
	EBIT
1.36B	-446.00M	-659.00M	340.00M	-293.00M
	EBITDA
1.50B	-298.00M	-284.00M	467.00M	-293.00M
	Net Income Common Stockholders
1.14B	-532.00M	-430.00M	-34.00M	-581.00M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
7.45B	3.97B	3.35B	3.50B	1.75B
	Total Assets
12.01B	8.35B	7.64B	7.17B	6.33B
	Total Debt
2.00B	1.70B	1.68B	1.78B	577.00M
	Net Debt
-2.78B	-1.42B	-800.00M	-963.00M	-574.00M
	Total Liabilities
6.48B	5.82B	5.24B	5.05B	3.52B
	Stockholders Equity
5.53B	2.52B	2.40B	2.12B	2.81B
Cash Flow		Free Cash Flow
2.28B	674.00M	21.00M	276.00M	181.00M
	Operating Cash Flow
2.30B	680.00M	46.00M	361.00M	259.00M
	Investing Cash Flow
-1.49B	-217.00M	-423.00M	-187.00M	-372.00M
	Financing Cash Flow
729.00M	234.00M	-40.00M	1.25B	285.00M

Spotify Technology SA Technical Analysis

Technical Analysis Sentiment

Negative

Last Price503.30

Price Trends

50DMA

580.87

Negative

100DMA

525.06

Negative

200DMA

434.61

Positive

Market Momentum

MACD

-1.69

Positive

RSI

44.47

Neutral

STOCH

20.16

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For SPOT, the sentiment is Negative. The current price of 503.3 is below the 20-day moving average (MA) of 563.05, below the 50-day MA of 580.87, and above the 200-day MA of 434.61, indicating a neutral trend. The MACD of -1.69 indicates Positive momentum. The RSI at 44.47 is Neutral, neither overbought nor oversold. The STOCH value of 20.16 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for SPOT.

Spotify Technology SA Risk Analysis

Spotify Technology SA disclosed 56 risk factors in its most recent earnings report. Spotify Technology SA reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Spotify Technology SA Peers Comparison

Overall Rating

UnderperformOutperform

Sector (58)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
META	80 Outperform	$1.28T	21.16	37.14%	0.40%	21.94%	61.97%
TME	80 Outperform	$23.15B	21.65	10.75%	1.02%	0.63%	34.09%
GOOGL	78 Outperform	$1.79T	18.10	32.91%	0.55%	13.89%	38.99%
GOOG	76 Outperform	$1.79T	18.37	32.91%	0.54%	13.89%	38.99%
PINS	76 Outperform	$17.48B	9.53	47.49%	―	19.35%	―
SPOT	75 Outperform	$101.05B	82.37	28.91%	―	18.36%	―
Sector *	58 Neutral	$25.04B	3.12	-9.31%	4.26%	2.35%	-43.03%

* Communication Services Sector Average

Performance Comparison

SPOT

Spotify Technology SA

503.30

194.23

62.84%

Spotify Technology SA Earnings Call Summary

Earnings Call Date: Feb 4, 2025 | % Change Since: -8.34% | Next Earnings Date: Apr 29, 2025

Earnings Call Sentiment Positive

The earnings call reflected a strong overall performance in terms of user growth, financial metrics, and successful product innovations, notably in video and the Wrapped campaign. However, challenges remain in advertising revenue growth and seasonal expectations for Q1 2025. Despite these lowlights, the overarching sentiment is positive with continued confidence in future growth and profitability.

Highlights

Record-Breaking MAU and Subscriber Additions

Spotify achieved its highest Q4 ever for Monthly Active Users (MAU) additions and the second highest of all time, with MAU growing by 35 million to 675 million in total. The company also added 11 million net subscribers, marking a record tied with Q4 2019.

Strong Financial Performance and Profitability

Spotify set quarterly record highs for revenue, gross margin, operating income, and free cash flow, closing out its first full year of profitability. Total revenue was EUR4.2 billion, growing 17% year-on-year on a constant currency basis.

Successful Wrapped Campaign

The Wrapped campaign engaged over 245 million users, surpassing the previous year's record within the first seven days, and contributed significantly to the Q4 performance.

Video Podcast Expansion

Spotify launched a new video offering, growing its video podcast content to more than 330,000 globally, with over 270 million users streaming video podcasts.

Improvement in Gross Margin

Gross margin for Q4 came in at a record 32.2%, surpassing guidance by approximately 40 basis points, with the full year gross margin at 30.1%, representing a 450 basis point improvement over 2023.

Strong Cash Flow and Financial Position

Free cash flow was a record EUR877 million for the quarter, with Spotify ending the year with EUR7.5 billion in cash and short-term investments.

Lowlights

Advertising Revenue Growth Challenges

Spotify's advertising business saw a currency neutral growth of only 6%, reflecting challenges in market spending and brand-related campaigns.

Seasonal Weakness Expected in Q1 2025

Spotify forecasted a slower growth in Q1 2025 with only 3 million MAU and 2 million subscriber net additions expected, due to typical Q1 seasonality and a recent influx of lower engagement users.

High Operating Income Impact from Social Charges

Operating income was impacted by EUR96 million in social charges, which were EUR80 million higher than forecasted.

Delayed Programmatic Advertising Integration

Spotify recognized it was late in transitioning to programmatic advertising, impacting its overall advertising revenue growth.

Company Guidance

During Spotify's Fourth Quarter 2024 earnings call, the company highlighted several key metrics and guidance for the future. The quarter was marked by strong performance, with record highs in various areas including Monthly Active User (MAU) additions, subscriber additions, revenue, gross margin, operating income, and free cash flow. Spotify closed out the year with 675 million MAUs and 263 million subscribers, reflecting a significant increase of 35 million and 11 million respectively over the quarter. Revenue grew by 17% year-on-year to EUR4.2 billion, while gross margin reached a record 32.2%. Operating income and free cash flow were EUR477 million and EUR877 million, respectively. Looking ahead, Spotify anticipates continued growth in 2025, with a focus on accelerated execution, introducing new music experiences, and maintaining resource discipline. For the first quarter of 2025, the company forecasts 678 million MAUs, 265 million subscribers, and EUR4.2 billion in revenue, with a gross margin of 31.5% and operating income of EUR548 million.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.