Does Robust Cash Generation Highlight Spotify's Operational Prowess?

Spotify Technology S.A.’s SPOT rapidly growing free cash flow (“FCF”) highlights its operational strength and prudent capital management strategy. During the second quarter of 2025, SPOT reported FCF of €2.8 billion, up 8% from the preceding quarter and 115% year over year.

Quarterly figures indicate that the company has made substantial progress compared with the previous year's figures. During the June quarter of this year, SPOT generated €700 million in FCF alone, increasing 31.1% sequentially and 42.9% from the year-ago quarter. This appreciating trend is long-standing, evidenced by €2.3 billion in FCF during 2024, increasing 237% from 2023. This trend not only substantiates Spotify’s position as a high-growth tech company but also solidifies its position as a leading player in cash generation within the audio streaming landscape.

This exponential growth in FCF that SPOT has experienced is caused by a combination of multiple factors. During the second quarter of 2025, the company witnessed 12% year-over-year growth in this metric. With growing members, the company registered significant growth in its top line as the metric surged to €4.2 billion, up 10% from the year-ago quarter’s actual. Improvements in premium and ad-supported segments drove gross margins to 31.5%, rising 227 basis points from the year-ago quarter.

Strategic cost management, evidenced by gross margin expansion and a favorable product mix, improved Spotify’s focus on cash flow reinvestment for platform enhancements and global expansion. SPOT’s strong FCF ensures flexibility to invest in new content formats, market penetration and lower volatility from dynamic user demography and macroeconomic setbacks.

SPOT’s Price Performance, Valuation & Estimates

The stock has skyrocketed 109.3% over the past year, significantly outperforming the industry’s 40.7% growth and the 15.6% rise of the Zacks S&P 500 composite. SPOT outperformed its close competitors, Apple’s AAPL 1.9% rise and Amazon's AMZN 26.6% growth for the same period.

1-Year Price Performance

From a valuation perspective, SPOT trades at a forward price-to-earnings ratio of 74.49X, higher than the industry’s 39.35X. Apple and Amazon appear more affordable with 29.71X and 31.47X, respectively.

P/E - F12M

Spotify and Apple carry a Value Score of F each. Amazon carries a Value Score of D.

The Zacks Consensus Estimate for Spotify’s earnings for 2025 and 2026 has declined 38.1% and 10%, respectively, over the past 60 days.

SPOT currently has a Zacks Rank #4 (Sell).

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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