Spotify Q3'25 preview: Accelerated execution adds to the pricing potential

Spotify reports Q3 earnings on Tuesday, November 4, before the market opens. We expect Q3 revenue to be in line with guidance, driven by robust MAU/subs growth, but FX headwinds to weigh on ARPU. We have increased our Q3 EBIT as we believe the weak share price performance during Q3 (-9%) should provide operating cost benefits via lower social charges*. We think the market was a bit concerned about management’s commentary around future price increases in Q2 and the lack of price increases in larger markets up until Q2. However, Spotify has since raised prices in several markets (excl. U.S.) which, combined with recent platform improvements, have led us to increase our ARPU assumptions slightly. Even so, we still view the risk/reward as unattractive and reiterate our Reduce recommendation, while adjusting target price on updated estimates to USD 645 (was USD 625).

Investment case relies on scale, brand, and improved monetization

Spotify remains the clear global leader in audio streaming, with ~700m MAUs and nearly 280m premium subscribers. In our view, the investment case for Spotify rests on its vast user scale and data insights, strong brand, and improving monetization potential across existing and through new subscriptions plans, advertising expansion, and new content verticals. Having compounded scale and customer goodwill for nearly two decades, coupled with recent years’ transition to a cost-efficiency and profitability mindset, we believe Spotify is well positioned to continue to deliver robust earnings and FCFF growth in the years to come.

Recent platform improvements add to pricing potential

Recent months have been eventful for Spotify, not only with Daniel Ek stepping down as CEO (see comment here), but also through several commercial and product developments. In August, the company raised prices on its premium plans across multiple international markets (excl. U.S.), followed more recently by increases in the UK, showcasing growing evidence of pricing power. The company has also inked new direct licensing deals, including with Sony Music Group and Merlin. On the product side, the company launched lossless audio for Premium users, loosened free-tier restrictions, and added in-app messaging to boost user value and engagement. It also introduced ChatGPT integration and plans to bring its in-house video podcast to Netflix in early 2026 (U.S. launch first). In addition, Spotify announced new ad partnerships and product updates, such as Amazon DSP integration. Overall, we view these developments as supportive of the investment case, through enhancing user and creator value, strengthening industry relationships, and, more importantly, improving long-term monetization potential.

We inch our pricing assumptions slightly higher

In light of recent developments, we make slight upward revisions to our 2026-2027 estimates, reflecting our view that the enhanced user offering strengthens Spotify’s pricing power. As such, our revenue and EBIT estimates for 2026-2027 inches ~1% and 1-3%. Our MAU and subscriber estimates remain unchanged, as we see recent developments as supportive of our existing user growth assumptions. For Q3, we make no changes to our revenue estimate, but we increase EBIT by 5% to 503 MEUR as we expect lower social charges to provide some cost benefits, following the negative share price development during the third quarter

Still too expensive to enter the share

Despite recent share price weakness and our modest upward estimate revisions, we still don't see upside on a 12-month horizon. Based on our estimates, Spotify trades at EV/EBIT 55-39x, EV/FCFF 42-31x, and EV/GP 20-16x for 2025-2026, and thus exceeds the upper end of our acceptable valuation range (EV/EBIT: 33-36x, EV/FCFF: 25-30x, EV/GP: 13-17x). In 2027, we feel that the valuation picture looks more attractive, but not sufficiently to turn bullish just yet, as the share still trades above our comfort levels for 2026. Our DCF model, assuming sustained strong growth and margin expansion, supports our view on the valuation, indicating a fair value of USD 645.