Key Takeaways
- Spotify (SPOT) stock is up 7% in the past week, mostly after a report that it plans a paid AI remix and cover service for early 2027, possibly at $4 to $5 a month extra.
- The add-on would let Spotify charge for AI just as growth in Premium revenue per user slows after its price increases.
- Analysts already expect normalized earnings per share to rise about 45% from 2025 to 2027, and the remix service isn’t in those estimates.
- JP Morgan and Morgan Stanley recently raised the target price to $700. This works out to about 44x expected earnings, below the stock’s average since early 2024, so reaching it depends mainly on the Q4 report in early February.
Spotify is up 7% in the past week. Over the same stretch, the Nasdaq 100 fell 7%, and the S&P 500 slipped 5%. As of Thursday’s close, the stock sits about 4% below its 52-week high.
$700 is about 14% above that close. Getting there would take two things: a new way to charge subscribers, and a strong holiday quarter.
What exactly happened
The biggest gain came on Friday, Oct. 30. Early that morning, the Financial Times reported that Spotify plans a paid AI service for remixes and covers:
- Timing: Q1 of 2027, possibly around the Grammy Awards in February
- Price: possibly $4 to $5 a month on top of a subscription
- Labels: Universal Music Group, indie-label group Merlin and Believe have signed on, while Sony Music and Warner Music are still negotiating
On Monday, Citi raised its target to $715 from $620 and kept its Buy rating. Wednesday’s gain came with no company news, as internet stocks rallied with the market.
TIKR tracks 41 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
A new way to charge more
Spotify could use one. Its Q3 beat its own guidance on Oct. 22, and price increases did much of the work: Premium revenue grew 17% to €4.49 billion while subscribers grew 9%.
That boost is fading. Premium revenue per user rose 7.5% at constant currency in Q3. For Q4, management guides 4.5% to 5% as Spotify laps price increases in more than 150 markets.
At $4 to $5, the remix add-on would cost roughly a third as much as the $12.99 US individual plan. It would also have Spotify making money from AI, which investors have mostly treated as a threat.
Last month, Jefferies analyst James Heaney called the platform “highly defensible against AI disintermediation fears.” The add-on goes further: subscribers would pay extra for the AI itself.
The catch: rights holders already take most of Spotify’s revenue, and any new product comes with royalties of its own.
February has to deliver
Without a cent of remix revenue, analysts already expect normalized earnings per share to climb about 45% from 2025 to 2027, and more than 80% by 2028:
Those estimates rest on the step-up Spotify guided for Q4:
- 316 million Premium subscribers, which would be 10 million net additions, up from 6 million in Q3
- €820 million of operating income on €5.2 billion of revenue, a 15.8% margin against 13.5% in Q3
- A 33.8% gross margin, up from 33.0% in Q3
That report is expected in early February.
$700 is closer than it looks
Spotify traded at 38x forward earnings on Monday and closer to 40x at Wednesday’s close. Since early 2024, its quarter-end readings have run from 31x to 69x and averaged about 50x.
On today’s estimates, $700 works out to about 46x, still below that average. JPMorgan and Morgan Stanley already have $700 targets, and Citi’s is higher still.
So $700 is within reach at a multiple below where Spotify has usually traded since early 2024.
To get there, Q4 has to hit those targets, and the 2027 outlook has to keep spending growing more slowly than revenue. If Spotify does both, the remix service is upside analysts haven’t counted yet.
After a week like this one, though, investors already expect a clean quarter. I’d hold here and look to buy on a pullback before February.
Of course, Sony and Warner still have to sign. A remix service without two of the three major labels would be a much smaller product.
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!
