Key Takeaways
- Spotify Technology (SPOT) stock climbed 16% in the month through October 22, outperforming the Nasdaq-100, which declined 6% over the same period.
- Spotify added 6 million premium subscribers, beating guidance by 1 million, while revenue increased 16% and operating income grew 15%.
- Operating expenses increased 26%, making spending discipline essential to maintaining profitability improvements.
- At approximately 36x forward earnings and 5% above Wall Street’s average price target, Spotify looks slightly overvalued, making it a hold rather than a fresh buy.
What Happened?
Spotify Technology (SPOT) stock surged 16% in the month through October 22, closing at approximately $584 as strong third-quarter results fueled investor optimism.
The rally significantly outperformed the Nasdaq-100, which declined 6% over the same period, with much of Spotify’s advance coming after its October 22 earnings announcement.
According to Spotify’s third-quarter earnings report, the company added 6 million premium subscribers, exceeding guidance by 1 million and bringing its total to 306 million. Revenue increased 16% to €4.97 billion, while operating income grew 15% to €672 million.
However, earnings per share of €2.48 missed analysts’ €2.80 estimate, largely because of lower finance income and higher taxes rather than weaker operating performance.
Finance income declined to €62 million from €262 million, while a €72 million tax benefit a year earlier became a €187 million tax expense.
Spotify’s gross margin improved every year since 2022, increasing from 25.0% to 32.0% in 2025.
Third-quarter gross margin reached a record 33.0%, while management projected 33.8% for the fourth quarter, alongside €820 million in operating income.
Spending Remains Spotify’s Biggest Challenge
Spotify’s operating expenses increased 26% to €967 million, partly driven by marketing and AI computing investments, while free cash flow declined 9% to €735 million.
Co-CEO Alex Norström said Spotify’s “costs are moderating, and there is more runway ahead.”
Management’s fourth-quarter guidance implies operating expense growth could slow to approximately 17.5%, with operating margins approaching 15.8%, compared with 13.5% in Q3.
That improvement could support stronger earnings growth if Spotify maintains subscriber momentum while controlling expenses.
Is Spotify Stock Undervalued or Overvalued?
Spotify delivered a strong third quarter, but its valuation already reflects considerable optimism about future profitability.
Shares trade at approximately 36x forward earnings, while Wall Street’s average price target declined from $638 a year ago to $557.
With shares around $584, Spotify trades approximately 5% above that target, suggesting the stock is slightly overvalued despite improving fundamentals.
The next catalyst will be fourth-quarter earnings, with Spotify targeting 316 million premium subscribers and €820 million in operating income.
Spotify’s Q3 report was strong, but the stock looks better as a hold than a fresh buy. A pullback could offer a more attractive entry point, particularly if management demonstrates sustained spending discipline in its first-quarter 2027 outlook.
So what is Spotify stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
