Spotify Earnings: Amazing Year Concludes With an Exclamation Point

We are raising our fair value estimate of Spotify stock.

Matthew Dolgin 5 February, 2025 | 9:55AM
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ARCHIV - Das Logo des Musik-Streaming-Dienstes Spotify am 25.02.2014 in Berlin. Der weltgrößte Musikstreaming-Dienst Spotify setzt laut Medienberichten zu seinem seit langem erwarteten Börsengang an. (zu dpa «Medien: Spotify reichte vertraulichen Antrag für Börsengang ein» vom 04.01.2018) Photo by: Britta Pedersen/picture-alliance/dpa/AP Images

Key Morningstar Metrics for Spotify


What We Thought of Spotify’s Earnings

Spotify Technology SPOT materially exceeded its guidance as it posted record fourth-quarter subscriber additions and revenue growth remained strong (17% year over year). More critically, operating income and free cash flow continued to surge as the firm ended its first year of net profitability.

Why it matters: Spotify continues to show itself as the dominant streaming music provider, and it has now reached such a scale that it is showing continually greater operating leverage. New subscription tiers, an ability to raise prices, and success with podcasts can drive further margin expansion.

  • The firm added 11 million premium subscribers during the quarter and saw revenue per subscriber jump 5%, again benefitting from price increases. The rollout of a super-premium tier following a recent rights renewal with Universal Music seems imminent.
  • We see further upside in revenue per subscriber, and we expect most incremental revenue to drop straight to the bottom line. However, we believe further penetration opportunities in higher-priced developed markets are shrinking, so future subscriber growth should be less accretive.

The bottom line: We’ve raised our fair value estimate to $450 per share from $390 due mostly to an even brighter outlook for margin expansion. Spotify is operating exceptionally well, but we believe our forecast reflects this and that shares are overvalued at 40 times 2025 free cash flow.

  • For the full year, Spotify’s gross margin expanded 450 basis points to 30%. Spotify generated EUR 1.4 billion in operating income (after losing EUR 1.1 billion over the prior two years combined), EUR 1.1 billion in net income, and EUR 2.3 billion in free cash flow, up from EUR 680 million.
  • Rapid subscriber growth despite recent price increases provides further evidence of Spotify’s moat. Its reliance on record labels underpins our belief that Spotify’s moat is narrow rather than wide, but the firm’s dominance makes it an indispensable partner for labels for the foreseeable future.

Spotify Stock vs. Morningstar Fair Value Estimate

Source: Morningstar Direct. Latest price as of 04:00 PM EST.


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Matthew Dolgin  is an equity analyst at Morningstar

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