Spotify Q4'25: Turning up the volume to max

Spotify’s Q4 print demonstrated strong operational execution, with profitability and user intake exceeding our estimate. Q1 guidance followed a similar pattern, with stronger-than-expected EBIT and MAU growth, which we believe reinforces that the company's fundamentals remain strong. Management's comments on the January U.S. price increase were encouraging, noting that early churn trends remain low and in line with historical levels, despite Spotify now sitting at a USD 1-2/month premium to key competitors. Despite the post-earnings rally, the share is still below levels seen at the time of our previous update and, with our raised earnings estimates, we view the current valuation as increasingly attractive, with strong risk-adjusted upside on a 12-month horizon. As such, we upgrade to a Buy recommendation (was Accumulate) and raise the target price to USD 595 (was USD 590).

User intake and profitability exceeded our expectations

Spotify reported Q4 MAUs of 751m and premium subscribers of 289m (Q3’25: 713m/281m), beating its own guidance and our estimates (745m/289m), representing net additions of 38m and 9m, respectively. We view this solid user intake underscoring the effectiveness of recent platform enhancements, including the expanded free-tier offering and feature rollouts (e.g. widening audiobook access, launch of music videos in the U.S. and Canada), but also a strong holiday and Wrapped campaigns. Revenue came in at 4.53 BEUR (8% y/y, 13% FX-neutral), slightly below our 4.55 BEUR estimate, primarily due to lower-than-expected advertising revenue. Gross margin reached 33.1%, above guidance and our estimate (32.9%), driven by continued favorable dynamics in the ad-supported segment and recent price increases. EBIT landed at 701 MEUR (15.5% margin), ahead of our revised 659 MEUR estimate and significantly above the original guidance of 620 MEUR. While social charges* benefited EBIT in Q4 due to declining share price, these were lower than our forecast (i.e. benefitted EBIT more than expected). Adjusted for this, EBIT still exceeded our estimates by ~2%, showcasing continued strong execution.

We raise our profitability and MAU estimates slightly

After wrapping up “the year of accelerated execution”, Spotify labeled 2026 as “the year of raising ambitions”, highlighting faster innovation and product delivery. The main theme during the earnings call was AI and its threat to the industry, Spotify’s competitive position, and its business model. Management pushed back on this narrative, arguing that AI is more likely to enhance its personalization, engagement on the platform, and ultimately lifetime value and monetization potential, rather than weakening Spotify’s position. At the same time, the company reiterated its commitment to disciplined investment where clear long-term value creation opportunities exist, acknowledging that this could introduce some variability in quarterly margin progression, but remained confident in these to improve in 2026. Following the report and Q1 guidance, we have slightly raised our 2026e MAU and profitability estimates by 1% and 3%, respectively, with a small follow-through effect on the rest of the forecast period. For 2026, we now expect 14% revenue growth (was 15%) with a 15% EBIT margin (was 14%).

An attractive entry point to a market-leading company

Despite the strong share price appreciation post-earnings, the share is still down ~5% since our late-January upgrade. Coupled with our upward-revised earnings estimates, we believe the valuation has turned even more attractive. The stock currently trades at EV/EBIT of 25x-20x, EV/FCFF of 21x-18x, and EV/Gross Profit of 11x-9x for 2026-2027, all below the low end of our acceptable valuation ranges. We believe this invites to an attractive entry point to buy a market-leading company with clear scale advantages and data capabilities relative to competitors, which previously has traded at rich premiums. We believe that Spotify has a long runway of growth and margin expansion ahead, through improved monetization focus and, what we view, untapped pricing power. As such, we see the risk/reward as very attractive, with a high 12-month upside potential.