Key Supporting Arguments
- Spotify’s business model is resilient enough to rising tariff barriers between countries and economic downturns
- Spotify and other music streaming platforms are undercapitalized and may demonstrate substantial growth in 2025, driven by increasing subscription prices.
Investment Thesis
Spotify (SPOT) stands as the world’s leading global audio streaming platform, boasting over 600 million active users, around 265 millions of whom are paying subscribers. The company’s primary revenue stream is derived from premium subscriptions, which constitute approximately 88% of its total revenue, with advertising revenue comprising the remaining 12%. This model offers the company relative stability amidst ongoing tariff tensions.
Amidst global economic instability and the threat of escalating trade wars, Spotify emerges as a safe haven for investors. Spotify’s audio streaming platform is not reliant on the supply of physical goods, rendering it immune to tariff barriers. The high entertainment value, the ingrained habit of daily usage, and the superior quality of the platform ensure a strong subscriber base, even during times of economic uncertainty. 88% of Spotify’s revenue is derived from paid subscribers, while advertising revenue accounts for only about 12%. This revenue structure makes the company more resilient to downturns in consumer demand and reduced advertising budgets. Approximately 40% of Spotify’s revenue is generated in the U.S. and 10% in the UK, with the remainder coming from other markets worldwide. This geographic diversification mitigates vulnerability to localized economic shocks.
The music streaming sector is undercapitalized. This industry is undergoing transformation. Initially, competition among music streaming platforms was centered on mass user acquisition, often keeping prices low to attract listeners away from piracy services. However, beginning in 2022 and through 2023, a wave of price increases was initiated by all major industry players, including Spotify, Apple, Amazon, and YouTube. As users have grown accustomed to paid subscriptions and their loyalty has increased due to enhanced user experiences, the cost of switching between platforms has risen substantially. This has empowered streaming services, particularly Spotify, to raise prices without experiencing significant audience loss. We anticipate that subscription price increases will be a primary driver of the company’s revenue and margin in 2025.
Our two-month price target for the SPOT stock is $650, with a “buy” rating. We recommend setting a stop-loss order at $500.