Spotify (SPOT) Stock Forecast & Price Target

Spotify Technology is recognized as the leading global music streaming service, boasting nearly 700 million monthly active users and over 250 million paying subscribers, from whom it derives the majority of its revenue and nearly all its gross profit. The firm has shown strong financial performance, with a gross margin rise forecasted at 390 basis points year-over-year, reaching 31.5%, alongside an anticipated operating profit of €548 million, marking an operating margin increase of 840 basis points year-over-year. Additionally, the continued growth of premium revenue at approximately 18% year-over-year and ad-supported revenue at about 27.5% underscores Spotify's pricing power and effectiveness in monetizing its advertising capabilities.

Spotify Technology is experiencing a deceleration in subscription average revenue per user (ARPU), with growth now at 7% in constant currency, down from 11% in the previous quarter, indicating challenges from tougher year-over-year comparisons. The company's 1Q25 revenue guidance reflects a forecasted 15% growth in constant currency, which is a 200 basis points slowdown from the prior period, suggesting that revenue growth may further decline due to reduced ARPU amid rising price pressures. Additionally, concerns surrounding royalty payments, subdued advertising growth against tough comparisons, and a recent reduction in full-time staff by 21% indicate potential downward pressure on margins and operating profit, raising doubts about Spotify's ability to sustain strong financial performance moving forward.