Spotify Technology S.A. provides global audio streaming services through Premium and Ad-Supported segments. Premium offers ad-free streaming; Ad-Supported offers on-demand, commercial-included streaming. By December 31, 2021, it had 406 million monthly active users and 180 million premium subscribers across 184 countries. Founded in 2006, based in Luxembourg.

Spotify Technology S.A. operates as a leading global audio streaming service, providing both Premium (subscription-based) and Ad-Supported services. Its business model transitioned from a traditional transaction-based to an access-based streaming model, appealing to diverse customer segments with options like Standard, Family, Duo, and Student plans, along with ad-supported offerings. The company has expanded its content to include podcasts and audiobooks, aiming to increase user engagement and enhance its Premium Service. Strategic priorities include content expansion and operational optimization, supported by significant investments in technology and research to align with evolving consumer preferences and drive long-term growth.

Revenue sources, markets and channels

Spotify Technology S.A. generates revenue through its Premium and Ad-Supported segments, offering distinct services to a global audience of 675 million Monthly Active Users across 184 countries. The Premium segment, which provides subscription sales with offerings like Standard, Family, Duo, and Student plans tailored to various markets, constitutes a primary revenue source. The Ad-Supported segment, functioning as an acquisition channel for Premium Subscribers, earns revenue from display, audio, and video advertising. Spotify also invests in podcasts and audiobooks to diversify its portfolio, with Europe as its largest market and notable growth seen in Latin America.

Key risk factors

Spotify Technology S.A. faces significant risks from intense competition with major technology companies such as Apple, Alphabet, and Amazon, which possess extensive resources and integrated ecosystems. To maintain its competitive position, Spotify must continuously innovate and adapt to changing consumer preferences and technological advances. Regulatory compliance and currency fluctuations create challenges, especially in international markets. Additionally, macroeconomic challenges like inflation and geopolitical conflicts add uncertainty to the business environment. Regarding legal proceedings, Spotify's annual report indicates no ongoing or unresolved cases that could materially affect the company's financial position or operations.

Financial performance

Spotify Technology S.A.'s revenue reached €15.7 billion in 2024, up 18.3% year-over-year, reflecting a consistent upward trend since 2016. Gross profit increased 39.6% to €4.7 billion in 2024, indicating operational efficiency. EBITDA improved significantly to €1.5 billion. Growth is driven by subscription sales and innovative advertising strategies across music, podcasts, and audiobooks.

Growth trends

The company's compound annual growth rates reflect moderated growth, as revenue, gross profit, and EBITDA exhibit 17.0%, 22.0%, and 47.0% respectively. The decline in revenue growth highlights a notable deceleration, while stable gross profit suggests consistent operational efficiency, with EBITDA contributing strongly to profitability dynamics.

Profitability

Margin profile

Spotify Technology S.A. has demonstrated significant improvements in its gross and EBITDA margins, indicating enhanced pricing power and a more efficient cost structure. The gross margin rose to 30.2% in 2024, up from 25.6% in 2023, while EBITDA margin increased to 9.6%, signaling strengthened financial stability and operational efficiency.

Peer margin benchmark

Spotify Technology S.A. has seen a substantial improvement in its gross profit and EBITDA ratios, demonstrating considerable growth compared to peers. The gross profit ratio improved to 30.2%, marking a significant year-on-year increase of 4.6 percentage points. Meanwhile, the EBITDA ratio notably turned positive at 9.6%, a stark contrast from previous negative figures, underscoring Spotify's enhanced operational efficiency over the years.

Efficiency metrics

Return on capital

Spotify Technology S.A. demonstrates strong capital efficiency with a high ROIC of 15.3%, indicating exceptional capital allocation and suggesting durable competitive advantages. The ROA of 9.5% highlights efficient asset utilization, positioning Spotify above peer averages in asset productivity. These metrics reflect effective management of capital resources for long-term value creation.

Balance sheet strength

Assets & capital

Liabilities & leverage

Financial stability

Leverage ratios

Spotify Technology S.A. displays a cautious financial stance, with a debt-to-equity ratio of 0.4, indicating that the company primarily relies on equity financing, thereby reducing financial risk. The debt-to-assets (0.2) and debt-to-capital (0.3) ratios highlight a minor role of debt in its capital structure. This conservative approach aligns with value investing principles, supporting long-term solvency and flexibility.

Liquidity ratios

Spotify Technology S.A. demonstrates robust liquidity with a current ratio of 1.9 and a cash ratio of 1.1, reflecting an upward trend. These metrics, both firmly in moderate to high ranges, suggest that the company is well-positioned to meet short-term obligations and navigate economic downturns without selling long-term assets, while maintaining flexibility for potential investments.

Debt coverage ratios

Spotify Technology S.A.'s financial measures showcase a robust improvement in its capacity to manage obligations. With a debt service coverage ratio of 54.0 and an interest coverage ratio of 56.9, both metrics far exceed high benchmarks, indicating strong earnings and solvency positions, thus mitigating financial distress risks.

Cash flow performance

Capital allocation

Acquisitions and investments

Debt repayment

Dividends

Spotify Technology S.A. maintains a dividend payout ratio of 0%, reflecting its strategy to reinvest all earnings into growth and operational initiatives rather than distribute cash dividends. This approach aligns with its capital allocation priorities, emphasizing R&D and content expansion, while underscoring a focus on long-term business sustainability and shareholder value creation.

Share buybacks & issuances

Earnings yield vs risk-free rate

Valuation & market multiples as of 2024-12-31 (price: 432.03 EUR)

Trading multiples

Spotify's price-to-earnings (PE) ratio of 76.2 suggests a premium valuation, reflecting investor expectations for above-average future earnings growth. This elevated ratio contrasts with lower historical values, indicating increased market confidence despite potential sectoral risks and competitive pressures.

Peer comparison

Spotify Technology S.A.'s EV to EBITDA ratio of 56.0, up 152.7% year-over-year, significantly exceeds the high threshold of 14. This high multiple indicates that the market assigns a premium to Spotify, reflecting substantial growth expectations or a perceived competitive advantage in its audio streaming and content offerings.

Yield metrics

Intrinsic value

Disclaimer

This presentation is for informational and educational purposes only and does not constitute investment advice, an offer, or a solicitation to buy or sell any security or financial product. The content herein is based on publicly available information, believed to be accurate and reliable at the time of publication, but no representation or warranty, express or implied, is made as to its accuracy, completeness, or correctness. Any opinions, projections, or forward-looking statements expressed in this material reflect our judgment as of the date of publication and are subject to change without notice. Past performance is not indicative of future results. Investing involves risks, including the potential loss of principal. The recipient is solely responsible for their own investment decisions and should seek independent financial, legal, and tax advice where appropriate. We disclaim any liability for any direct or consequential loss arising from any use of this presentation or its contents.