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Spotify (SPOT) isn’t just another tech company — it’s the world's largest music streaming platform, boasting over 675 million monthly active users. Unlike Apple Music, which is deeply integrated into Apple’s (AAPL) ecosystem, or YouTube Music, which benefits from Google’s (GOOGL) reach, Spotify works seamlessly across devices, from smartphones and laptops to smart speakers and cars.
The company makes money in two ways:
- Premium Subscriptions: Users subscribe for a monthly fee to enjoy an ad-free experience along with extra features.
- Ad-Supported Model: Free-tier users hear ads between songs, allowing Spotify to monetize non-paying listeners.
The company’s revenue has grown significantly, rising from $7.5 billion in 2019 to $15.7 billion in 2024. Notably, Spotify has increased premium subscription prices in multiple markets without losing customers, demonstrating strong pricing power — a key factor in long-term revenue growth. Meanwhile, ad-supported revenue has been expanding at a faster pace than subscriptions, driven by AI-powered ad targeting that enhances monetization. In the most recent fourth quarter, premium subscription revenue climbed 17% year-over-year, while ad-supported revenue grew 7%. Overall, total revenue increased 16% to $4.2 billion.
A Strong Business Model — With a Catch
It sounds like a solid business model, right? Well, yes and no.
One of the biggest criticisms of Spotify over the years has been its lack of profitability. Unlike tech giants such as Apple, Amazon (AMZN), or Netflix (NFLX), Spotify has struggled to consistently turn a profit. The reason? Music licensing costs. Every streamed song incurs royalty payments to record labels, artists, and publishers — expenses that can consume up to 70% of Spotify’s revenue, leaving little room for significant profits. However, things have been improving. Over the past two years, Spotify has taken steps to improve its financials by raising premium prices, cutting costs (including layoffs and reduced podcast spending), and shifting its focus from user growth to profitability. The result? Spotify is now profitable. This milestone signals a potential turning point for investors.
In the fourth quarter, adjusted net income per share came in at $1.76, a significant turnaround from the $0.36 per share loss in the same quarter last year. After years of heavy investment, Spotify is refining its podcast strategy to boost margins. Its expansion into audiobooks presents a new revenue stream, positioning it as a competitor to Amazon’s Audible. Currently, Spotify offers 350,000 audiobooks across 10 markets and hosts 67 million video podcasts. The company is also expanding in emerging markets, where music streaming adoption is rising. In the fourth quarter, subscriber net additions in these regions showed positive momentum, supporting long-term growth as these markets mature.
Spotify expects to add 3 million monthly active users (MAUs) in the first quarter of 2025, bringing the total to 678 million. Management projects 16.6% revenue growth, reaching $4.2 billion, slightly below analysts’ consensus estimate of $4.35 billion. Analysts also forecast earnings of $2.23 per share for Q1. Looking ahead, management anticipates healthy growth with improved profitability throughout 2025.
Wall Street analysts predict Spotify’s revenue and earnings will grow 15.2% and 84.5% in 2025, with further increases of 14.2% and 24.8% in 2026, respectively. However, Spotify trades at 47 times its projected 2026 earnings, a steep valuation compared to Apple’s forward P/E of around 30x. This high valuation suggests investors expect significant future growth. While the company has delivered impressive revenue increases, it must sustain high growth rates to justify this premium valuation.
What Do Analysts Say About Spotify Stock?
Wall Street analysts currently have a “Moderate Buy” rating on Spotify stock. Out of 29 analysts covering the stock, 17 rate it as a “Strong Buy,” while two suggest a “Moderate Buy.” Nine analysts recommend holding the stock, and one has a “Strong Sell” rating. Spotify’s share price has already exceeded its average 12-month target of $612.22. The highest price estimate of $730 indicates potential 17.1% upside from current levels. If Spotify can keep profits rolling in, the stock has room to grow.
The Verdict: Is Spotify Stock a Buy in 2025?
Spotify has successfully shifted from a high-growth but unprofitable company to one that prioritizes sustainable profitability. Its strategic efforts, including price increases, expansion of ad revenue, and content optimization, have strengthened its long-term outlook.
While the company’s growth potential remains attractive, investing in a growth stock comes with risks. The rise of artificial intelligence (AI) could intensify competition in the music streaming industry, with major players like Apple, Amazon, and Google leveraging their vast resources to enhance their own services. If these tech giants create a better product, users could switch. Additionally, Spotify lacks the seamless hardware integration that Apple’s ecosystem provides, making competition even tougher. Given the stock’s high valuation, investors may want to monitor its earnings growth and market conditions closely before deciding when to invest.
