Spotify’s Q1 print was broadly in line with our expectations, though net subscriber additions surprised positively. However, guidance for Q2’25 came in somewhat below both our and Street’s estimates, particularly on MAUs, revenue, and operating income. That said, the guided +5m premium subscriber additions (q/q) stood out as a clear positive, beating our expectations. We think this underscores the strength of Spotify’s value proposition even amid macroeconomic headwinds and soft consumer sentiment. However, following the Q1 report, we have slightly lowered our estimates, primarily due to FX-effects, with currency-neutral estimates remaining largely intact. The share price has been resilient despite a broader market downturn and continues to trade at rich levels. As such, we continue to view the risk/reward as insufficient and reiterate our Reduce recommendation and, when adjusting for the effects of a weaker USD to EUR, we increase our target price to USD 570 (was USD 535).

Delivers a solid Q1…

MAUs came in at 678m, in line with company guidance, reflecting a modest +3m q/q increase after a very strong Q4 (+35m). While ad-supported users declined by 2m q/q, premium subscriber additions stood out, rising by +5m (+12% y/y), which was the highest subscriber growth in a first quarter since 2020. ARPU grew 4% y/y to EUR 4.73, supported by price increases implemented in 2024, resulting in a 15% y/y revenue increase to 4.2 BNEUR, in line with our estimates. Gross margin printed 31.6%, slightly above guidance (31.5%) and in line with our forecast, though down from 32.2% in Q4 due to seasonal effects and investments in areas such as video. Operating income (EBIT) reached 509 MEUR (Q1’24: 168 MEUR), corresponding to a 12.1% margin. This was roughly in line with our estimate of 502 MEUR, though ~7% below guidance. FCFF was strong and came in at 534 MEUR (Q1’24: 207 MEUR), reflecting a 13% margin. 

…but the Q2 outlook was a bit soft

Q2 guidance came in somewhat below our and consensus pre-Q1 estimates across most lines, except for subscribers, which again surprised to the upside. Revenue guidance of 4.3 BNEUR (13% y/y) was below our 4.4 BNEUR, largely due to FX effects. Gross margin guidance of 31.5% was also below our 31.9% estimate, suggesting more variability than we had anticipated. On the earnings call, Spotify reaffirmed its confidence in 2025 MAU net additions being within the historical 4-year range and reiterated expectations for full-year gross margin to improve compared to 2024. However, we have slightly trimmed our estimates, mainly on revenue and profitability due to FX-effects, while nudging our net subscriber additions higher. On a currency-neutral basis, our estimates remains largely intact. We also lowered our 2025 gross margin assumptions slightly. For 2025, we estimate revenue growth of 15% to 18 BNEUR (prev. 18.4 BNEUR) with an EBIT of 2.2 BNEUR (12% margin, prev. 2.3 BNEUR).

Still too early to turn bullish on the stock

Following our revised estimates, we still believe the near-term valuation to be on the high side, trading at EV/EBIT 43x, EV/FCFF 33x, and EV/GP 17x for 2025e. For next year, the overall valuation picture looks more neutral, falling within the top of our acceptable valuation ranges. While we believe Spotify to be largely insulated from current global turmoil, we think it is somewhat premature to turn bullish on the stock as of now based on 2026 and beyond. Our DCF model, assuming sustained strong growth and margin expansion, supports our view on the valuation, indicating a fair value of USD 572. That said, the long-term fundamentals remains intact, and Spotify has, in our view, a long runway of growth left and years of margin expansion ahead, with pricing likely to play a larger role. We believe much of this is already priced into the stock and we view the risk/reward to be insufficient to turn bullish on the stock at this time.