Spotify Technology S.A.
Company: Spotify Technology S.A.
Ticker: NYSE: SPOT
Sector: Streaming & Digital Media
Key narrative: Spotify is ultimately more than simply a music platform for Gen-Z—it’s a cultural utility. Whether one is sharing their Spotify Wrapped, discovering new recommended songs or simply listening to playlists, Spotify has embedded itself in not only our generation’s lifestyle but other generations' lifestyles as well. However, with TikTok changing the way music spreads and with artists and creators questioning payments, the question is: Can Spotify keep its rhythm?
Spotify is definitely a growth investment case for a few different reasons. Firstly, it has massive global user growth with the company expanding in areas like Latin America, Africa, and Southeast Asia. Secondly, the company has new AI personalization with smart playlists and even your very own personal DJ. Thirdly, because of its expansion into other forms of content like podcasts and audiobooks. And lastly, because the company has a high brand loyalty among its users.
The risk level of this stock is moderate and that is due to a few main factors. The first reason is that the company is facing increasing costs from licensing and content from labels. Another weak point is the company’s monetization of free users, which it has struggled to do. Thirdly, in this sector, there is a lot of competition with Apple Music, YouTube Music, and other streaming and digital media companies.
Spotify is one of the very few tech companies that feels completely native to Gen-Z. However, the company isn’t just a vibes-driven growth company anymore—it’s really making moves, raising prices, tightening its costs, and staying ahead of the curve by experimenting with new content like audiobooks and AI. So is this a disciplined investment? That depends on whether Spotify can turn this cultural fixation into long-term margin.
Spotify is completely and utterly embedded in Gen-Z's lifestyle. I personally can hardly name anybody I know that doesn’t interact with the company in some way. And this sort of adoption is due to a few reasons. Firstly, because of how much Gen-Z uses the app across studying, commuting, relaxing, and even socializing. Secondly, because the company feels native—not forced—mainly due to its personalization and minimalist design. It's also culturally significant, with Spotify Wrapped being a huge social media moment every year with everyone sharing their Wrapped. And lastly, because the company is free, thus enticing users that later upgrade.
Spotify also aligns with Gen-Z's value of sustainability with its various projects centered toward that value. One of its most major projects is its promise to achieve net-zero greenhouse gas emissions by 2030, showing how it cares about sustainability, along with its renewable-energy-only powered offices. The company is also very transparent, showing its carbon emissions every year. It also does various other things to promote sustainability like its Climate Action Hub and its internal Climate Champions Network.
Spotify’s demand is anything but manufactured. The product itself is used widely by people not because it was recommended by an influencer but because it's widely regarded as the best product available. It is also very culturally significant, with many people having Spotify baked into their routines and daily life—and this itself creates demand by people merely recommending it to each other. Also, the product has frictionless adoption, with there being a free version of the app which makes it accessible to all. Ultimately, Spotify’s demand is very real and it is rooted in quality, cultural relevance, and daily utility—not pressure.
Spotify’s current growth rate is definitely real and sustainable and this is shown by a few things. Firstly, in the past, Spotify’s revenue growth has been good with 18 percent revenue growth in 2024 to $15.6 billion and Q1 revenue up 15% YoY. What’s really impressive, however, is how 80% of this revenue is not from new users but from their premium subscriptions, which is a sustainable and safe revenue source. This is very important because it shows that Spotify is not only adding users but knows how to earn from them. Their ad revenue also impressively increased, showing Spotify can succeed even in a volatile ad market. Spotify’s growth is clearly organically sticky, meaning that it's not merely boosted by short-term promos or advertising campaigns. There are also new monetization vectors for Spotify like audiobooks, AI tools, and tiered subscriptions that can turn out quite successful.
Spotify is no longer the growth-at-all-costs company it used to be and has now become a cash-generating machine. Firstly, its gross margins have increased to 30–32%, meaning that it's keeping more of each euro earned than before (25%). Secondly, the company also has become profitable—in 2024, its first year of profitability, the company made $1.14 billion, showing that Spotify can operate well and not merely rely on growth. This profitability is not a fluke either, and this is shown by their continued profit in Q1 of 2025 where they made $225 million—and this is important because it reduces their dependence on fundraising and boosts investor confidence. More specifically, its FCF (free cash flow) was $2.3 billion in 2024 and is only increasing. This is a sign of long-term viability because Spotify can fund its future. Spotify is also smart with its cuts, stopping the throwing of money at flashy content like some of the podcasting deals for example. Instead, the company has focused on maximum return on content investment. Lastly, Spotify’s new features, automation, and personalization tools reduce the need for manual curation, which improves scalability.
Spotify’s balance sheet is very strong at the moment due to a multitude of reasons. Firstly, it has $7 billion in cash and short-term investments, meaning that it can power innovation, mergers and acquisitions, or weather a downturn without any fundraising. And while the company does have a debt of $2 billion, it does have a net cash position of around $4 billion, meaning that the company is ultimately more than financially healthy. Its debt-to-equity ratio is also remarkably good at around 0.3–0.4, meaning the company isn’t over-leveraged and dependent on debt to look good. Spotify’s current ratio being less than one shows that the company can meet its short-term obligations, which also signifies financial health. Ultimately, Spotify doesn’t need market optimism to survive—it has the cash to weather almost anything that is thrown at them.
Metric Spotify (Q1 2025) Apple Services (Q2 FY2025) Amazon Music (FY 2024)
Revenue Growth (YoY) 15% 12% 16%
Gross Margin 31.60% ~75.7% Not disclosed
Price-to-Sales Ratio ~9.2× ~7.3× ~4×
These metrics display a few key things. First, they show that Spotify is one of the fastest-growing players in the audio space, with revenue growth slightly outpacing Apple Services and closely rivaling Amazon Music. But unlike Amazon, where music is just a bundled perk, Spotify’s growth is standalone and earned—not subsidized. When it comes to margins, Spotify has made huge progress, with a 31.6% gross margin that, while lower than Apple’s elite ~75%, represents a major turnaround from its earlier “growth-at-all-costs” model. It’s proof the business is not just growing—it’s maturing. Then there’s valuation: Spotify’s ~9.2× price-to-sales ratio may seem steep, but when you factor in its accelerating profitability, strong cash flow, and unique position as the only pure-play global audio platform, it starts to make more sense. Apple’s lower P/S ratio reflects its maturity and lower risk, while Amazon’s shows that Wall Street doesn’t really view Amazon Music as a serious business yet. In contrast, Spotify has earned its premium by doing what few streaming companies have pulled off: scaling globally, turning a profit, and maintaining growth without a hardware or Prime bundle to lean on.
There are a bunch of industry tailwinds that this company is benefiting from. Firstly, and most importantly, the company is benefiting from the longtime trend that continues accelerating of people shifting away from physical and downloadable music to streaming services. Another trend Spotify is benefiting from is the podcast boom, with podcasts like The Joe Rogan Experience taking off in popularity, thus creating new monetization for Spotify and increasing both their users and ad revenue. Gen-Z and Millennials also both prefer listening to whatever they want, whenever they want, as opposed to traditional radio schedules. Lastly, the trend of having device ecosystems in your house like speakers or virtual assistants integrates Spotify even more into daily life. All of these tailwinds provide a great foundation for continued growth and market leadership.
There are also tons of moats and differentiators that Spotify has that prevent competitors from replicating their business. One of their moats is its scale—Spotify has over 600 million monthly active users, which is something that every single competitor really struggles to match. And since so many people use it actively, it creates a network effect, meaning more users attract more artists, and the more data it has, the better the recommendations it can make for users. Another huge moat is its content library and licensing that includes exclusive podcasts and deep and broad music options. And lastly—and probably most importantly—the company has a really good reputation and is widely seen as the go-to streaming platform globally, especially by Gen-Z. All these factors together make it very difficult for any competitor to replicate its user experience and engagement.
Spotify has a ton of brand stickiness and I see Gen-Z remaining loyal to Spotify for a couple of reasons. Firstly, because Spotify has a very strong connection with Gen-Z, because a lot of Gen-Z has grown up with Spotify as their go-to, which creates familiarity and habit with the app. Spotify also creates a personalized experience with the user that keeps users coming back to the app for features like the DJ and the Daily Mix. This loyalty is clearly shown in its high free user conversion rate, showing that people—not only Gen-Z—like the product so much they are willing to pay for it. Spotify is almost part of Gen-Z culture and while the competition may be fierce from competitors, I don't see a company in the industry taking Spotify’s place.
"While Spotify may trade at a premium valuation as suggested by their price-to-sales ratio, the valuation is supported by the numbers. The stock has strong fundamentals, with the company being profitable with $2.3 billion in free cash flow in 2024 and $225 million in net income in Q1 2025. There has also been consistent revenue growth—15% YoY last year—and that growth has shown no sign of slowing down. They also have improved gross margins, with the company hitting 31.6%, proving that the company is becoming more efficient. Spotify may trade at a premium valuation, but the numbers back it up. It's profitable, scaling, and expanding margins. This isn’t a “trend stock”—it’s a proven digital platform with a defensible model. The hype may have launched it, but fundamentals are what keep it moving."
Spotify is definitely a long-term compounder play rather than a momentum play for a few reasons. Firstly, the company is very solid—being profitable and cash-generating with over €2.6B in trailing free cash flow and €509M in Q1 2025 operating profit. Secondly, the company is a market leader with 600M monthly users. Thirdly, the company has solid growth every year and multiple revenue methods with its subscriptions and ads. Fourthly, it has strong brand loyalty, especially among Gen-Z, that means that the product will continue to be used for a long time. For investors betting on the future of digital audio and Gen-Z's media habits, it's one of the few public names offering both scale and upside.
Spotify is suitable for a disciplined investment strategy because it's no longer a tale of hope-growth—it’s an earnings, global business with expanding margins and great free cash flow. Its leadership in audio streaming, hyper-brand loyalty in Gen-Z, and fit into broader trends like mobile-first consumption and AI personalization make it greater than a fad trade. While its valuation is rich, it's backed by real execution and not hope. To long-term investors who are interested in owning category leaders in trend-shaping spaces, Spotify is a bet on behaviors that won't go away.
Some key price levels to watch for are if the stock dips down to 750–755—below would be a good long-term entry point. However, on the flip side, the stock going to 785 with good volume would show renewed investor confidence and would be a strong entry point. A key catalyst would be the earnings report before the market opens on July 29, 2025.
