Key Takeaways
- Spotify jumped 6.5% on Friday to $593 and is up 33% in six months, as Universal Music reported a subscription beat the same day.
- Third-quarter operating income of €672 million beat guidance, and co-CEO Alex Norström said “this was a quarter where we did what we said.”
- Fourth-quarter guidance needs 10 million net subscriber adds and a 15.8% operating margin, both well above what the third quarter delivered.
- The stock trades at 37.5x forward earnings with a $642 average target, so the February report has to confirm the margin step-up.
In July, Spotify stock was down about 16% for the year. Investors were punishing it for spending.
That mood is gone. Spotify (SPOT) jumped 6.5% on Friday to close at $593, and it is now up 33% over six months. The stock sits about 11% below its 52-week high of $669.
Friday’s move came as Universal Music Group (UMG), the world’s biggest record label, reported subscription growth that beat expectations. That’s a reversal for UMG, whose stock fell about 25% in July when its underlying subscription growth missed. On the same day, the Financial Times reported that Spotify is aiming for a 2027 launch of an AI remix service.
Those stories connect. Spotify and UMG signed licensing deals in May covering fan-made covers and remixes, the groundwork any remix product needs.
So at $593, do you take profits or buy more?
A quarter of small beats
Spotify’s third quarter, reported October 22, edged past its own guidance almost everywhere.
- Revenue rose 16% to €4.97 billion, or 14% in constant currency.
- Gross margin hit a third-quarter record of 33.0%, up 136 basis points.
- Premium subscribers reached 306 million on 6 million net adds, 1 million above guidance.
Operating income of €672 million topped the €670 million guide as marketing and personnel costs came in light. “This was a quarter where we did what we said,” co-CEO Alex Norström said in the results release.
Net income fell 42% to €518 million, but that drop sits below the operating line. The year-ago quarter carried €197 million of gains on since-repaid exchangeable notes plus a tax benefit.
Gross margin is the trend that matters…
Management guided fourth-quarter gross margin to 33.8%, so the climb isn’t finished.
Pricing is doing the lifting
Premium revenue grew 17% to €4.49 billion, well ahead of 9% subscriber growth. Price increases and add-ons like Audiobooks+ fill that gap.
That’s faster growth than the labels Spotify pays. Its Premium revenue grew 15% in constant currency last quarter, more than double the 6.7% underlying subscription growth UMG posted in its second quarter.
Ads remain the weak spot. Ad-supported revenue grew 10% to €482 million and still makes up less than a tenth of sales.
What does the Street expect from here?
Analysts see roughly 14% annual revenue growth over the next two years. So the bull case leans on margins more than on the top line.
TIKR tracks 40 analysts on Spotify. How many say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on Spotify, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Spotify’s Analyst Ratings
The fourth quarter asks a lot
Spotify guided fourth-quarter revenue to €5.2 billion and operating income to €820 million, a 15.8% margin. Last quarter’s margin was 13.5%.
The subscriber target is steep too. Spotify expects 316 million Premium subscribers, which means 10 million net adds after 6 million in the third quarter. The holiday quarter is usually the strongest, yet that’s still a big jump.
If Spotify hits it, 2026 operating income would total about €2.86 billion, a company record.
The multiple already reflects plenty of that optimism…
At 37.5x forward earnings, the $642 average target sits just 8% above Friday’s close.
Spotify does hold about $7.5 billion of net cash, and it upsized its buyback by $1.5 billion in August. Co-CEO Gustav Söderström, meanwhile, sold about $11 million of stock in October.
My take: I like the business more than the price after this run. The margin story is working, and AI remixes could widen what a subscription is worth. But a 33% rally already assumes a clean fourth quarter, so I’d hold rather than chase.
The fourth-quarter report, expected around February 2, will show whether 10 million subscribers and €820 million of operating income actually arrive.
So what is Spotify stock actually worth?
TIKR lets you forecast the future price of any stock in less than a minute. Just enter a few assumptions into TIKR’s valuation model and see what Spotify could be worth. Start from Wall Street consensus estimates, or adjust the inputs to reflect your own view of the business. It’s free to use.
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 stocks mentioned. Thank you for reading, and happy investing!
