GICS Sector : Technology
Spotify 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.
Spotify's third-quarter 2025 earnings report highlighted a robust financial performance, with total revenue reaching EUR 4.3 billion, representing a 12% year-over-year growth on a constant currency basis. The company's gross margin came in at 31.6%, exceeding guidance by 50 basis points, while operating income was EUR 582 million, EUR 97 million above forecast. Earnings per share (EPS) was $3.28, significantly higher than the estimated $1.96. The strong financial performance was driven by a significant increase in monthly active users (MAU), which grew by 17 million to 713 million, surpassing guidance by 3 million.
Publication Date: Nov -11
Spotify's user growth and engagement continue to drive its financial performance. The company added 5 million net subscribers, finishing at 281 million, up 12% year-over-year. The multi-format strategy, including music, podcasts, and audiobooks, is driving user growth, with over 390 million users having streamed video podcasts on Spotify, a 54% increase year-over-year. The company's focus on giving listeners more control, more ways to discover, and more ways to connect is expected to continue driving user engagement.
Spotify's current valuation metrics indicate a premium price. The Price-to-Sales Ratio is 6.58, and the EV/EBITDA ratio is 75.05. With analysts estimating next year's revenue growth at 14.8%, the current valuation may be justified if the company continues to deliver strong growth. However, investors should be cautious about the high valuation multiples, which may be sensitive to any slowdown in growth.
Spotify's advertising business has seen softness in pricing over the past several quarters, and advertising revenue growth has decelerated. However, the company is making progress on the programmatic side, with new DSP partnerships with Amazon and Yahoo expected to add value. The move of Self-Service Product Pricing (SPP) to the premium side is also benefiting the advertising business. While the current ad environment is not a significant concern, Spotify expects to return to robust ad growth in the future.
Spotify's guidance for Q4 2025 indicates continued growth, with MAU expected to reach 745 million and total revenue expected to be EUR 4.5 billion, representing a 13% year-over-year growth rate. The company's focus on AI tools for creators and its partnership with Netflix for video podcasts are expected to drive future growth. With a strong financial performance and a clear path to revenue growth and profit expansion, Spotify is well-positioned for future success.
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Spotify’s premium music subscription growth driven by increasing adoption, improving user experience, and expanding global footprint, particularly in emerging markets.
Spotify's free version with ads will be driven by increasing adoption of music streaming services, growth in mobile internet penetration, and rising demand for entertainment content.
A free music streaming service that allows users to listen to music with occasional ads
A paid music streaming service that offers ad-free listening, offline playback, and improved audio quality
A paid music streaming service designed for two users, offering ad-free listening and offline playback
A paid music streaming service designed for families, offering ad-free listening and offline playback for up to six users
A platform that provides artists with tools to manage their music, track their performance, and connect with fans
A platform that provides podcasters with tools to host, distribute, and monetize their podcasts
A self-serve ad platform that allows advertisers to create and manage audio ads
A platform that provides insights and analytics for artists, labels, and industry professionals
Spotify has a low threat of substitutes due to its unique features, such as Discover Weekly and Release Radar, which provide users with personalized playlists and music recommendations. Additionally, Spotify's vast music library and user-friendly interface make it difficult for substitutes to compete.
Spotify's customers have some bargaining power due to the availability of alternative music streaming services, such as Apple Music and Tidal. However, Spotify's strong brand recognition and user loyalty mitigate this power to some extent.
Spotify's suppliers, such as music labels and artists, have limited bargaining power due to the company's dominant position in the music streaming market. Spotify's ability to negotiate favorable licensing agreements with suppliers further reduces their bargaining power.
The threat of new entrants in the music streaming market is moderate, as it requires significant investment in technology, content, and marketing. However, new entrants could potentially disrupt the market with innovative features or business models.
The intensity of rivalry in the music streaming market is high, with several established players, such as Apple Music and Amazon Music, competing for market share. The market is highly competitive, with companies constantly innovating and improving their services to attract and retain customers.
| Value | |
|---|---|
| Debt Weight | 32.50% |
| Debt Cost | 3.79% |
| Equity Weight | 67.50% |
| Equity Cost | 12.06% |
| WACC | 9.37% |
| Leverage | 48.16% |
Value: 1.8
Growth: 6.6
Quality: 6.8
Yield: 2.5
Momentum: 8.5
Volatility: 7.0
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Yield: 4.4
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Yield: 1.9
Momentum: 6.0
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Value: 0.5
Growth: 9.3
Quality: 6.6
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Momentum: 9.0
Volatility: 2.3
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Value: 2.0
Growth: 6.2
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Value: 3.4
Growth: 4.0
Quality: 5.6
Yield: 3.1
Momentum: 5.0
Volatility: 3.3
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