Spotify poised to meet Q1 expectations as analysts highlight long-term growth potential
Published: 13:19 01 Apr 2025 EDT
Spotify Technology SA (NYSE:SPOT) is expected to report first quarter 2025 earnings at least in line with guidance on key metrics including revenue, premium subscribers, and monthly active users when it reports its fourth quarter earnings later this month.
Analysts at Bank of America expect Spotify to report revenue of €4.21 billion, versus guidance of €4.2 billion, although recent US dollar strengthening could be a headwind.
Its gross margin is expected to be 31.5%, in line with guidance.
The analysts noted Spotify’s particularly strong year of margin expansion in 2024, but do not expect 2025 to “replicate the magnitude of expansion” seen last year.
“We currently project gross margins to be sequentially flat to modestly decline in Q2/Q3 before returning to expansion in Q4,” they wrote.
“Notably, this margin outlook contemplates the recently announced renewal deals with several of the largest music labels, and therefore, we do not expect a negative surprise in near-term gross margins as a result.”
The bank’s analysts believe Spotify’s subscription model should be more defensive/utility-like amid the current macro uncertainty.
“However, recent volatility could have an impact on future advertising growth, especially since our forecasts contemplate a 2H acceleration,” they wrote.
The analysts awarded Spotify a ‘Buy’ rating and a $700 price target. Shares traded hands at about $548 on Tuesday.
Bank of America believes Spotify is at an inflection point in profitability and free cash flow driven by deeper subscriber penetration, price increases, new pricing tiers, advertising improvement driven by digital initiatives, and new business, such as Audiobooks.
“We continue to view Spotify as well positioned in the music streaming marketplace with several levers for future growth such as future pricing increases, new product launches and programmatic advertising,” they write.
