Is Spotify Stock Pricing In Growth After Announcing Price Increases and New Services?

If you have been following the wild ride of Spotify Technology stock lately, you are not alone. Whether you are holding, thinking about buying in, or just curious about what is fueling all the excitement, Spotify has become a name that is tough to ignore in the tech world. Over the past year, Spotify shares have soared an eye-popping 89.0%. Looking back three years, the stock is up more than 700%. Even the year-to-date gain stands at a remarkable 57.0%. All of this begs the question: Why is the market rewarding this streaming giant so generously?

Some of these impressive moves can be traced to Spotify’s recent strategic updates. For example, news just broke that the company is hinting at price increases along with new services. This could be a potential signal of both confidence and fresh revenue streams ahead. At the same time, investors are also weighing the impact of leadership changes, such as the departure of Spotify’s ad business head to DoorDash, as well as competitive pressures from names like Apple expanding their radio offerings. The takeaway is that while Spotify’s growth story seems intact, the market is clearly re-evaluating the risks and rewards in real time.

But here is the puzzle: Despite all this momentum, Spotify scores a 0 on our value check, meaning that by our six key criteria, it is not undervalued on a single count. So, how should you really be thinking about Spotify’s valuation? Let’s walk through the usual valuation playbook and see why there might be a better way to measure what the stock is worth now.

Spotify Technology scores just 0/6 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 is a widely used method for estimating a company’s intrinsic value by taking future free cash flow projections and discounting them back to today. For Spotify Technology, this approach helps us peek into the next chapter of its growth story by focusing on its ability to generate cash over time.

Currently, Spotify reports trailing twelve-month free cash flow of around €2.83 billion. Analyst estimates, which only reliably stretch out five years, see free cash flow growing strongly, with projections reaching €5.87 billion by the end of 2029. Beyond that, Simply Wall St extrapolates further, anticipating upward momentum in the years ahead. All figures here are referenced in euros, consistent with Spotify’s financial reporting.

According to this two-stage DCF analysis, the fair value of Spotify shares lands at $696.47. Today’s share price sits about 3.2% above that estimate. In other words, the stock is just slightly overvalued relative to what the model suggests. For a fast-moving tech company, this is a thin margin and signals that market expectations are closely tracking Spotify’s actual prospects.

Result: ABOUT RIGHT

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

Simply Wall St performs a valuation analysis on every stock in the world every day (check out Spotify Technology's valuation analysis). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes.

Approach 2: Spotify Technology Price vs Sales

Another popular approach for valuing companies like Spotify Technology is the price-to-sales (P/S) ratio. This metric is particularly useful for growth-focused, profitable tech companies, as it assesses valuation based on revenue rather than profits, which can fluctuate during high-growth phases. Growth expectations and perceived business risk play major roles in what is considered a “normal” or “fair” P/S ratio in the market. Higher growth or lower risk typically merit a higher multiple. Lower growth or greater risk push the fair multiple down.

Currently, Spotify trades at a P/S ratio of 7.54x. To put this in context, the Entertainment industry average is 1.93x, and Spotify’s peer group average sits at 4.35x. Clearly, the market is assigning a premium to Spotify relative to both its industry and peers, likely reflecting its robust growth profile and strong brand position.

Simply Wall St’s Fair Ratio metric is designed to solve the limitations of standard comparisons by analyzing not just growth, but also Spotify’s profit margins, industry dynamics, market capitalization, and risk factors. This customized benchmark results in a Fair Ratio for Spotify of 4.54x, which is what an informed investor would reasonably expect given the company’s unique profile.

Comparing the actual P/S of 7.54x to the Fair Ratio of 4.54x, Spotify’s stock looks meaningfully overvalued by this method. The difference is sizeable, indicating investors are paying a substantial premium above what would be considered reasonable for its fundamentals at this point in time.

Result: OVERVALUED

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

Upgrade Your Decision Making: Choose your Spotify Technology Narrative

Earlier, we mentioned there is an even better way to understand valuation. Let's introduce you to Narratives. A Narrative is your personal story or thesis about a company, combining the numbers you believe in, your estimates for future revenue or margins, and the qualitative factors you think matter most. This approach enables you to chart your own fair value based on how you see the business evolving over time.

With Narratives, you link Spotify’s story to a financial forecast and to your own estimate of fair value, making it far easier to see if the current share price matches your view or signals that it's time to act. This tool is available and easy to use on Simply Wall St's Community page, where millions of other investors participate. It helps you stay updated as new information arrives. When earnings are released or major news breaks, Narratives dynamically adjust so your outlook stays relevant.

For example, some investors might construct a bullish Narrative for Spotify by projecting rising global market share and expanding audio formats, which could lead to a fair value above $1,000 per share. Others may input more conservative growth and margin assumptions, resulting in values closer to $485. This range of perspectives demonstrates how powerful it is to build and compare unique Narratives when deciding if, when, and why to buy or sell.

For Spotify Technology, here are previews of two leading Spotify Technology Narratives for your consideration:

🐂 Spotify Technology Bull Case

Fair Value: $756.18

The current price is 5% below this fair value.

Forecast Revenue Growth: 13.0%

• Generative AI, expanded personalization, and new content formats are expected to fuel user engagement, drive revenue per user higher, and improve profit margins.
• Major investments in ad technology, diversified monetization, and platform innovation position Spotify for accelerated, multi-channel growth and margin expansion.
• Main risks include ongoing high music licensing costs, slow progress in ad and podcast profitability, and regulatory pressures. However, the narrative expects these to be offset by growth and technological leadership.

🐻 Spotify Technology Bear Case

Fair Value: $703.12

The current price is 2% above this fair value.

Forecast Revenue Growth: 19.0%

• Spotify’s long-term opportunity in audio is robust, with a focus on global user and premium subscriber growth fueling future cash flows. Margins are still constrained by supplier costs and market competition.
• Becoming the dominant audio aggregator is expected to gradually shift leverage away from record labels and toward Spotify, supporting future margin expansion as the business model evolves.
• Cost structure improvements through increased podcasting and audiobook adoption, scale efficiencies, and prudent capital allocation are expected to drive significant future free cash flow. Execution risks and competitive dynamics remain important considerations.

Do you think there's more to the story for Spotify Technology? Create your own Narrative to let the Community know!

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.

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