Last Update 01 Nov 25

Fair value Decreased 1.34%

Analysts have slightly lowered their fair value estimate for Spotify Technology by approximately $10 to $736. They cite a balanced outlook in light of evolving industry pricing opportunities and the company's recent financial performance trends.

Analyst Commentary

Recent street research presents a mix of optimism and caution regarding Spotify's growth trajectory, pricing power, and evolving monetization strategy. The following summarizes key themes from recent analyst perspectives.

Bullish Takeaways

Bullish analysts see pricing power as a source of future upside. Recent and upcoming price hikes are expected to directly support revenue growth and margins.
Upgrades and high price targets are driven by confidence in Spotify's long-term growth outlook, particularly as it navigates a shift in the music industry toward flexible value extraction, similar to rapid innovation in other sectors.
Product differentiation, especially through changes to the free and premium tiers and anticipated new offerings like a potential Superfan Tier, is expected to further engagement and expand monetization opportunities.
Integration of artificial intelligence and new product momentum are being highlighted as key drivers of accelerating engagement and operational leverage in the coming years.

Bearish Takeaways

Bearish analysts point out that recent share price gains may have already priced in much of the company's prospective forward growth. This could limit near-term valuation upside.
Cost pressures, particularly from anticipated increases in wholesale music costs, could temper profitability and are viewed as underestimated by consensus estimates.
Some expect a balanced risk/reward despite positive top-line trends, citing rising investments and operating expenses that could weigh on margins and temper expectations for near-term earnings outperformance.
Recent pullbacks in the share price have prompted some caution. There are concerns about the company's ability to absorb higher costs while maintaining strong subscriber and user growth in the face of industry competition.

What's in the News

Spotify has indicated it will raise prices for customers along with investments in new features. Executive leadership described price increases as "part of our toolbox" and noted they will be accompanied by added services. (Financial Times)
Apple will distribute its six curated radio stations on global home speakers and connected cars through a partnership with TuneIn. The company aims to convert radio listeners into paying Apple Music subscribers as it competes with Spotify's leading market position. (Wall Street Journal)
Spotify was upgraded to Neutral from Reduce at Phillip Securities. The firm cited a share price pullback and robust growth in users and subscribers, while also noting tempered near-term expectations due to increased investment and operating costs. (Phillip Securities)

Valuation Changes

Fair Value Estimate has dropped slightly from $746.42 to $736.43.
Discount Rate has decreased marginally, moving from 8.35% to 8.32%.
Revenue Growth Projection has increased slightly, shifting from 12.84% to 12.85%.
Net Profit Margin projection has risen a small amount from 14.36% to 14.38%.
Future Price/Earnings (P/E) ratio has decreased slightly from 51.42x to 51.34x.

Expanding into new content verticals and enhanced personalization are increasing user engagement, reducing churn, and supporting higher revenue per user and improved margins.
Investments in ad technology, generative AI, and diversified monetization models position Spotify for accelerated growth and expanded earnings across multiple channels.
High dependence on costly music licensing, slow ad revenue growth, uncertain podcast profitability, tough competition, and regulatory risks threaten margin expansion and long-term earnings.

Catalysts

About Spotify Technology

Provides audio streaming subscription services worldwide.What are the underlying business or industry changes driving this perspective?

Rapid global user and subscriber growth, supported by increasing internet connectivity and smartphone penetration, is expanding Spotify's total addressable market and lays the foundation for continued double-digit top-line revenue growth in coming years.
Major investments and advances in generative AI and personalization-including new interactive DJ features, conversational playlists, and improved engagement tracking-are driving longer user sessions and stickier product experiences, reducing churn and likely contributing to higher lifetime value and net margins over time.
Enhanced ad technology, automation, and a growing monthly active advertiser base (up 40% YoY) position the company for accelerated advertising revenue growth from both programmatic and direct channels in 2026 and beyond, with the potential for margin expansion as ad monetization increases.
Ongoing product innovation and diversification into fast-growing verticals-such as podcasts, video, and audiobooks-expands revenue per user, supports higher ARPU, and improves operating leverage, especially as these formats experience exponential engagement increases (e.g., video podcasts up 20x vs. audio).
Product and platform changes, including new a la carte transactional offerings and improved in-app payment flows (post-Apple/DMA changes), provide future optionality for additional high-margin revenue streams that could materially boost both gross margin and overall earnings growth.

Spotify Technology Earnings and Revenue Growth

Spotify Technology Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Spotify Technology's revenue will grow by 12.8% annually over the next 3 years.
Analysts assume that profit margins will increase from 4.9% today to 14.4% in 3 years time.
Analysts expect earnings to reach €3.4 billion (and earnings per share of €15.97) by about September 2028, up from €806.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €3.8 billion in earnings, and the most bearish expecting €2.1 billion.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 51.3x on those 2028 earnings, down from 152.7x today. This future PE is greater than the current PE for the US Entertainment industry at 38.2x.
Analysts expect the number of shares outstanding to grow by 1.83% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.45%, as per the Simply Wall St company report.

Spotify Technology Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Spotify's ongoing dependence on major record labels for music licensing maintains high content costs and limits gross margin expansion, risking long-term profitability and net margins.
Scaling the podcast and audiobook verticals into meaningfully profitable and diversified revenue streams remains an uncertainty, with current investment outpacing near-term returns, possibly compressing operating margins and earnings growth.
Advertising revenue growth remains slow, hindered by execution challenges and underperformance relative to competitors, which could limit future margin expansion and revenue diversification.
Intensifying competition from global tech giants offering bundled services (such as Apple, Amazon, and YouTube) may pressure user growth, market share, and pricing power, impacting revenues and long-term earnings potential.
Persistent regulatory, data privacy, and platform-related uncertainties (e.g., challenges with Apple/iOS, evolving global privacy laws) could constrain Spotify's ability to personalize user experience and monetize through advertising, risking both user engagement and ad revenue streams.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $739.835 for Spotify Technology based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $910.07, and the most bearish reporting a price target of just $485.37.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €23.8 billion, earnings will come to €3.4 billion, and it would be trading on a PE ratio of 51.3x, assuming you use a discount rate of 8.5%.
Given the current share price of $697.33, the analyst price target of $739.83 is 5.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.