How Spotify’s Audiobook Expansion Impacts Its 2025 Valuation After a 8.2% Price Dip

• Curious about whether Spotify Technology is fairly priced or hiding some untapped value? You are not alone. Investors everywhere are asking the same question as the music streaming giant continues to evolve.
• The stock has posted an impressive return of 27.5% year-to-date and is up 22.9% over the last 12 months. However, it has recently pulled back with an 8.2% dip in the last week.
• Recent headlines have focused on Spotify’s push into audiobooks and updates to its subscription tiers. These moves have sparked debate about the company’s growth strategy and potential revenue streams. This flurry of strategic shifts has fueled both excitement and caution among investors.
• When it comes to valuation, Spotify Technology scores a 2 out of 6 on our checklist of undervalued indicators, suggesting there is plenty of room for debate. Let’s explore the most popular ways investors value Spotify, and stay tuned for an even more insightful approach by the end of this article.

Spotify Technology scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Spotify Technology Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's value by projecting its future free cash flows and discounting them back to their value today. This method helps investors determine whether a stock's current price reflects its expected future growth and profitability.

For Spotify Technology, the current Free Cash Flow sits at approximately €2.93 billion. Analysts forecast steady annual growth in free cash flow, with projections reaching about €5.91 billion by 2029. Beyond 2029, additional growth is extrapolated based on historical trends, with estimates approaching €9.18 billion by 2035. These projections help capture both analyst expectations for the next five years as well as longer-term growth anticipated by Simply Wall St’s model.

Based on this cash flow outlook, the DCF model produces an intrinsic value for Spotify of €667.03 per share. Compared to the recent market price, this suggests that the stock is trading at a 12.5% discount. According to the DCF approach, this indicates undervaluation.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Spotify Technology is undervalued by 12.5%. Track this in your watchlist or portfolio, or discover 928 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Spotify Technology.

Approach 2: Spotify Technology Price vs Earnings (PE Ratio)

For profitable companies like Spotify Technology, the price-to-earnings (PE) ratio is a go-to valuation tool. This is because it directly relates the company’s stock price to its actual earnings, letting investors gauge how much they are paying for each unit of profit. When a company is generating consistent earnings, the PE ratio offers a clear snapshot of whether it might be bargain-priced or getting ahead of itself.

Growth expectations and risk play a major role in what a “normal” PE ratio should be. Higher growth companies typically sport higher PE ratios, reflecting investor optimism about future earnings. Similarly, a business with steady profits and less risk might warrant a premium multiple, while a riskier or cyclical firm may see a lower one.

Currently, Spotify’s PE ratio sits at 74.34x, noticeably above the entertainment industry average of 19.42x and its peers’ average of 67.23x. However, Simply Wall St has developed a proprietary “Fair Ratio” for each stock. This calculation considers factors like Spotify’s long-term growth, profit margin, market cap, business model, and industry-specific risks. For Spotify, the Fair Ratio is calculated to be 36.91x.

The Fair Ratio provides a more realistic and tailored benchmark than simply comparing with peers or the broad industry. It accounts for Spotify’s specific prospects and risks, leading to a fairer yardstick for valuation.

Comparing Spotify’s current PE ratio of 74.34x to its Fair Ratio of 36.91x, the stock appears overvalued relative to its fundamental risk and growth profile.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1432 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Spotify Technology Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is a simple, story-driven way of turning your perspective on a company, such as your assumptions about Spotify Technology’s future growth, profitability, and risk, into a financial forecast and a fair value estimate.

Instead of looking at just one number, a Narrative links Spotify’s underlying story, for example its plans for audio platform dominance or challenges with music margins, to specific forecasts for revenue, profit margins, and share price. Narratives are easy to create using Simply Wall St’s Community page, already relied on by millions of investors, and help you make smarter, more personalized buy or sell decisions by comparing your Fair Value with the current market price.

As new earnings or news are released, Narratives update automatically so your view always reflects the latest developments. For example, some investors believe that Spotify’s rapid user and margin expansion will propel its shares above $1,000, while others, more cautious on licensing costs and competitive risks, estimate Fair Value closer to $485. The difference comes down to each Narrative’s unique story, assumptions and numbers.

Do you think there's more to the story for Spotify Technology? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com