Spotify showed some trading momentum in the L1M, but is still down \~ -25% over the L1Y despite estimates moving up. I think the market has lumped it into the “media company getting disrupted by AI” bucket resulting in multiple de-rating, when it could actually be one of the bigger beneficiaries.
Bear case I keep hearing about / mitigants:
(i) Revenue growth slowdown: Spotify now has \~760m MAUs and \~290m subscribers, with \~50% of global streaming time. Engagement is also materially higher than Apple Music, YouTube Music and Amazon. Spotify's long-term Investor Day ambition is **mid-teens revenue CAGR through 2030**
(ii) Gross-margin expansion maybe harder: The economics are finally improving. Gross margins have gone from \~30% in 2024 to \~33% now, with mgmt. targeting 35–40% by 2030. Plus, Spotify's incremental margins have been running at \~40–70% as the business scales. Spotify is also finally getting more aggressive on pricing, with regular price increases and new tiers/bundles.
(iii) AI could be a bigger threat: Spotify doesn't own the music catalogue, the labels do, so they are the ones at high commoditisation risk (power dynamic shift away from labels could even help Spotify to capture better economics in the future). Spotify owns the consumer relationship, with millions of users generating data on what they want to listen to. Spotify is already integrating AI into the product through things like AI DJ and Prompted Playlist, and its UMG deal allows it to monetise AI-powered music features.
Key near-term milestones to look out for could be more favourable label deals. If they reach an AI licensing agreement with another large label such as WMG and Spotify proves that AI tier could work, the narrative could flip from “AI will disrupt Spotify / Spotify is spending a lot on AI” to “Spotify is monetising AI / generating high ROI”