Spotify (NYSE:SPOT) Valuation: Weighing Long-Term Growth Against Recent Share Price Slowdown

Spotify Technology (NYSE:SPOT) shares have pulled back this month, giving investors a chance to take stock of the company’s outlook. While the stock has surged over the past year, short-term momentum has eased recently.

See our latest analysis for Spotify Technology.

Spotify Technology has enjoyed a massive run over the past year, with total shareholder return reaching 70.32%, even after a recent dip in share price momentum. Despite the pullback over the last month, the broader performance suggests long-term growth potential is still very much in play. The company’s 3-year total shareholder return stands at an impressive 674.69%.

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With Spotify’s stellar multi-year gains countered by a recent slowdown, investors are left wondering whether there is room for fresh upside here, or if the current price already reflects the company’s impressive growth story.

Most Popular Narrative: 8% Undervalued

Spotify Technology’s last close price left it trading below the narrative’s fair value but still well above where it started the year. According to MichaelP’s thesis, recent share price weakness does not detract from the company’s transformative financial trajectory. One of MichaelP’s central points explains the strategic moves expected to reshape Spotify’s earnings power and valuation over the coming years.

Gross margins were 29.2% in Q2 of 2024. Based on the cost structure of non-music content listened to, new negotiations with the labels, and new revenue streams from the marketplace and ads, I expect overall gross margins to slightly improve from 29.1% to 30% by end of Q2 2029.

Read the complete narrative.

Curious how this ambitious margin expansion drives the valuation? The real unlock lies in the narrative’s blend of scale, shifting cost structures, and new revenue sources. Which assumptions are powering the leap toward higher profitability, and what’s the one variable that could surprise everyone? Unlock the full breakdown behind this eye-catching fair value.

Result: Fair Value of $703 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, competitive pressure from rival streaming platforms or slower than expected monetization of new audio formats could quickly challenge Spotify’s upbeat long-term projections.

Find out about the key risks to this Spotify Technology narrative.

Another View: The Market Multiple Tells a Different Story

When we look at Spotify’s valuation through the lens of its price-to-earnings ratio, the picture shifts. Spotify trades at a lofty 141.8 times earnings, far higher than the US Entertainment industry average of 27.3 and well above the peer average of 48.6. Even compared to the fair ratio, estimated at 43.9, Spotify stands out as much more expensive.

This big gap means investors may be assuming a great deal of future growth and flawless execution, which could increase the risk if expectations change. Could the market be getting ahead of itself, or is there more upside ahead if Spotify continues to beat the odds?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Spotify Technology Narrative

If you see things differently or want to dive deeper into the numbers, crafting your own perspective takes less than three minutes, so Do it your way.

A good starting point is our analysis highlighting 3 key rewards investors are optimistic about regarding Spotify Technology.

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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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