Spotify Earnings: Continual March Up in Sales, Profits, and Users; Foreign Exchange a Near-Term Headwind

Key Morningstar Metrics for Spotify

• Fair Value Estimate: $490
• Morningstar Rating: ★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Spotify’s Earnings

Spotify SPOT‘s third quarter was not flashy but showcased the firm’s continuing ability to achieve strong revenue growth while continually expanding margins. Subscriber and user growth stayed high, and there are several areas that are poised to catalyze strong sales growth again in 2026.

Why it matters: Spotify’s stock remains at a high valuation, so it is imperative that the growth story stays intact. This quarter’s results and guidance shouldn’t materially dent the narrative, but we still expect growth to slow in the long term to a greater extent than the stock is pricing in.

• Spotify’s premium subscriber base is up 12% in the past year after another 5 million net additions in the third quarter. Spotify added 13 million ad-supported users, continuing an acceleration from last year and enhancing the pipeline for further additions of higher-value premium subscribers.
• The third-quarter gross margin expanded by about one percentage point from last year, while the operating margin expanded by two points. Free cash flow was up 15%. The firm continues to benefit from leverage on its growing scale, as revenue increases outpace growth in costs.

The bottom line: Our outlook is unchanged following this quarter’s results, as we raise our fair value estimate from $480 to $490. Over the next several quarters, currency headwinds appear to be the biggest threat to growth, but the firm’s dollar-based shares provide a hedge for a weak US dollar.

• Slightly light fourth-quarter sales guidance that implies 6% year-over-year growth is due to an expected currency headwind of 620 basis points. Third-quarter sales grew 7% year over year, including a 450-basis point currency drag.

Between the lines: Sales growth this quarter was driven solely by the expanding user base over the past year, but we see multiple areas that should boost average revenue per user, or ARPU, in 2026, notably price increases, add-on services, and a recovery in advertising revenue, which has been poor.