SPOT Skyrockets 106% in a Year: How Should You Play the Stock?

Spotify Technology S.A. SPOT shares have surged 105.9% in a year, surpassing the 44.9% rally of its industry and the 18.3% rise in the Zacks S&P 500 Composite.

The SPOT stock has outperformed its competitors, Apple AAPL and Amazon AMZN. Apple and Amazon have gained 2.6% and 30%, respectively.

1-Year Price Performance

Spotify’s growth over the past year is appealing to investors. However, the question is whether investors should ride the tide or stay away from it. Let us delve deeper and find out.

SPOT’s Robust User Engagement

Spotify’s monthly active users (MAUs) in the second quarter of 2025 increased 11% year over year to 696 million. Premium subscribers registered 12% year-over-year growth in the said quarter. Successful marketing campaigns in developing markets, a favorable shift in competitor dynamics, and robust global promotional campaign intake drove this user growth.

Management is optimistic about user growth and anticipates the total MAUs to increase by 14 million in the third quarter of 2025. It expects to add 5 million users as premium subscribers in the same quarter. This optimistic outlook translates into strong user appeal and retention in the long run, an important trait required to tackle major industry players.

Spotify Struggling Over Ad-Monetization

SPOT’s ability to enhance ad monetization weighs on its performance. CEO Daniel Ek stated that this is not a strategic problem, but an execution one. Spotify’s decision to wash off exclusivity from certain podcasts and change its Partner Program model lowered available ad inventory. These changes had short-term negative impacts on ad revenues, which are acknowledged by the company’s chief business officer, Alex Norström.

Lee Brown, the global head of advertising sales, exited the company recently. Norström stated that the management was dissatisfied with the progress made, and a change in leadership was inevitable. Although the monetization strategy is robust, the company is unable to execute it efficiently, and the recent change in leadership is a direct response to this setback.

SPOT Faces Stiff Competition

Despite Spotify’s shares performing way better than Apple's and Amazon's over the past year, there is no denying the fact that these two giants pose a significant threat to Spotify’s music streaming business.

Per Digital Music News, Spotify leads the market with 36% of paid audience in the United States as of 2024. Apple Music and Amazon Music’s shares account for 30.7% and 23.8%, respectively. This goes to show that Spotify faces significant challenges from tech giants, prompting it to invest to gain an edge, which affects its ability to balance growth and profitability.

Investors may put their bets on SPOT’s superior recommendation algorithms. However, they must acknowledge Apple Music’s lossless and spatial audio and Amazon Music’s Prime Subscription.

Spotify Stock Looks Pricey

SPOT is priced at 72.39 times forward 12-month earnings per share, which is higher than the industry’s average of 24.65 times. When looking at the trailing 12-month EV-to-EBITDA ratio, Spotify is trading at 61.82 times, far exceeding the industry’s average of 35.95 times. Metrics as such, signal valuation concerns for investors, which can limit their willingness to invest in Spotify.

SPOT’s Bleak Bottom-Line Prospects

The Zacks Consensus Estimate for earnings per share is set at $5.73, a decline of 3.7% from the year-ago quarter. Furthermore, seven estimates for 2025 have moved south in the past 30 days and 60 days, versus no northward revision. This reflects a lack of analyst confidence.

Spotify Unfavorable for Income-Seeking Investors

SPOT does not pay any dividends and shows no plan to pay the same in the future. Reluctance to pay dividends demotivates income-seeking investors as the means of generating return is vested in stock appreciation, which is not a guaranteed phenomenon, evidenced by the 4% decline in SPOT shares in the past month.

Exiting Your SPOT Seems the Best Option

Spotify witnessed significant growth in its MAUs and premium subscribers, driving its top line in the second quarter of 2025. However, the inability to effectively monetize ads threatens its revenue streams. Competition in the audio streaming market is intensifying daily, with Apple and Amazon eager to gain market share.

Spotify’s high valuation raises concerns for investors. Weak earnings prospects and declining analyst confidence are worrisome, while SPOT’s reluctance to pay dividends does not attract income-focused investors.

Although the stock has surged over the past year, a 4% decline in the last month indicates a correction phase. Considering these negatives, we suggest long-term investors holding SPOT consider selling now, and potential investors are advised to refrain from investing at this time.

Spotify carries a Zacks Rank #4 (Sell) at present.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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