Spotify Q4'25 preview: Time to press play

Spotify reports Q4 earnings on Tuesday, February 10, before the market opens. We don’t expect any major surprises on top line and user metrics in the print. However, we expect EBIT to beat guidance, driven by lower social charges following the share price weakness during Q4. With recent price increase in the U.S. and prior hikes internationally, we expect investor focus to center on management’s commentary around churn, subscriber momentum, and the broader pricing strategy heading into 2026. In our view, recent share price weakness has materially improved the valuation picture, with Spotify now trading below our acceptable valuation ranges (EV/FCFF 26’: 23x, EV/EBIT: 28x, EV/GP: 12x). Given our view that the fundamentals are intact, we are now more positive on the stock and see attractive risk-adjusted upside from current levels. We therefore raise our recommendation to Accumulate (was Reduce) but lower our target price to USD 590 (was USD 655) to reflect what we feel are lower warranted multiples due to peer multiple contraction.

We expect a solid finish to an eventful year

During Q4, the company continued to expand its platform and feature set (e.g. launching music videos in the U.S. and Canada, widening audiobook access, and extending the Spotify Partner Program), thereby adding value to users and creators alike. Turning to the quarterly outlook, we estimate Q4 MAU/subs of 745m/289m (guidance/Street: 745m/289m), representing q/q net additions of 32m/8m (Q4’24: 35m/11m). We slightly raise our Q4 ARPU forecast, anticipating a smaller FX drag than the management assumption of ~620 bps. Nevertheless, FX remains a notable y/y growth constraint in Q4. On this basis, we expect revenue to land 4.55 BEUR (+7% y/y), and we reiterate our Q4 gross margin estimate of 32.9% (in line with guidance). We are, however, increasing our EBIT estimate to 659 MEUR (was 621 MEUR, +6%) due to lower social charges as a result of the share price weakness in Q4.

U.S. price increase puts pricing power to the test

In early January, Spotify announced a long-anticipated third price hike in the U.S., bumping the individual premium plan by USD 1 from February 1. This will leave Spotify in a position where the company is USD 2/month more expensive than key competitors. While we maintain our view that Spotify retains untapped pricing power, the widening gap now puts this thesis to the test. We’ll be watching closely for any commentary on churn or subscription momentum in the upcoming print. Taken together with the earlier international hikes during Q3, the U.S. move reinforces our view that pricing will become a key growth lever in 2026. On the other side of the equation, royalty costs are set to rise, following new direct licensing agreements signed with all major music publishers in 2025. At the same time, these deals enable the rollout of higher-value offerings, such as the long-awaited “superfan” tier, which unlocks incremental monetization potential and deepens user loyalty for Spotify. 

Time to start building a position

Since initiating coverage, we have repeatedly expressed our liking of Spotify’s strong fundamentals. In particular, we view its scale as a key advantage, enabling superior data-driven personalization, stronger unit economics, and leverage that competitors struggle to match. Combined with improved monetization focus and untapped pricing power, we see a long runway for growth and margin expansion. However, the valuation has been our primary concern, where we have viewed Spotify's long-term potential as fully priced in, often with stretched premiums. The company's reliance on licensed content, gross margins in the low 30s, and limited track record of price increases versus peers like Netflix weighed on our acceptable multiples. That picture has now changed. Recent sustained share price weakness (Q4’25: -15%, YTD: -14%) has brought the valuation, in our view, to attractive levels. With only minor estimate revisions ahead of Q4, Spotify now trades at appealing multiples (EV/FCFF 26-27': 23x-19x, EV/EBIT: 28x-22x, EV/GP: 12x-10x), all below our acceptable ranges. As such, we see the risk/reward has shifted favorably, with strong 12-month upside potential, warranting a more positive view.