Spotify Analyst Draws Comparison To Apple On Scale, Pricing

More Wall Street analysts rerated Spotify Technology SPOT and raised their price targets after the company reported an upbeat quarterly print Tuesday.

Spotify reported an EPS of $1.88, below the analyst estimate of $2.06. The company reported sales of $4.53 billion (4.24 billion euros), up by 16%, topping the consensus estimate of $4.15 billion.

Rosenblatt analyst Barton Crockett downgraded Spotify from Buy to Neutral and raised the price target from $473 to $658.
Morgan Stanley analyst Benjamin Swinburne maintained Spotify with an Overweight and raised the price target from $550 to $670.
Goldman Sachs analyst Eric Sheridan reiterated a Buy on Spotify with a price target of $695, up from $550.

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Rosenblatt: Spotify is executing very well, but revenue growth after an impressive step up in 2024 will likely decelerate in 2025. Explosive operating margin expansion is driven by headcount reductions and leverage on copyright royalties as a percentage of revenues normalizes to more regular levels. In this environment, there’s less scope for multiple expansion and earnings upside.

Crockett estimates that Spotify’s 2025 constant currency revenue growth can be 15.5%, 14.5% in 2026E, and 13% in 2027E, driven by normalized mid-single-digit effective ARPU growth, ~ 10% average subscriber growth trending towards 8%, and ad growth accelerating into the double digits.

The analyst expects gross margin improvements to slow to 130 bps in 2025E and stick near that level of improvement Y/Y in subsequent periods. After 480 bps of operating margin improvement in 2025E versus 2024, he expects +260 bps in 2026E and +170 bps in 2027E. This drives a +20% FCF per share CAGR from 2025E to 2027E. Crockett noted the market would pay a premium price for the durability and visibility of Spotify’s subscriber model, its vast scale and market leadership, and successful execution, as the market does for Apple Inc.

Morgan Stanley: Spotify’s strong 2024 results were the most apparent manifestation, financially speaking, of nearly two decades of work. The combination of unique scale, technology leadership, and high levels of engagement suggest it will be challenging for the competition to keep up.

Swinburne raised 2025 revenues by ~2%, which, along with lower expected operating expenses, more than offsets lower expected gross margins and leads the analyst to increase fiscal 2025 EBIT by 1%-2% to €2.4 billion. This higher revenue reflects subscriber outperformance in the fourth quarter and slightly raised net adds expectations for fiscal 2025.

Lower-than-expected ARPU trends in the first half of 2025 are also more than offset by marginally higher assumed ARPU growth in the second half of 2025 to 4%-5%. The lower gross margins reflect incremental investments in video podcasts, music videos, and other innovations as Spotify “doubles down on the core” in fiscal 2025 – meaning music.

Swinburne noted that over time, Spotify can and will look to invest prudently in new products and features for users, creators, and advertisers. He said those investments would increase Spotify’s value for all those stakeholders.

The analyst noted that Spotify will then look to monetize that increased value over time, including recurring price increases. Swinburne said it could drive gross margins and remain highly disciplined in operating expense growth as it increases monetization.

Finally, he noted that the competitive backdrop and shared incentives with the music labels will support these expectations. With 20% revenue CAGR as its long-term ambition, Swinburne now forecasts mid-teens top line in his base case through fiscal 2027, with gross margins reaching 34%-35% and operating margins approaching 20%. This should help deliver FCF per share exceeding $20 in the analyst’s base case.

Goldman Sachs: Spotify as the clear global leader in audio streaming. Sheridan expects this leadership to drive scaled, compounded user growth and rising engagement across multiple content formats, along with pricing power throughout his forecast period.

He also anticipates continued momentum in gross and operating margins, driven by favorable content costs, cost discipline, and returns from prior investment cycles. Additionally, he sees the potential for a more consistent shareholder return policy, bringing Spotify more in line with its global TMT peers in the coming years.

Price action: SPOT stock was up 0.02% at $621.91 at last check on Wednesday.

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