Spotify Stock Down 40%: Run Through the Bull Case for Long-Term Investors

Spotify’s 2025 delivered stunning operational results—751 million monthly active users, $20.4 billion in revenue, and $2.6 billion in net profit—yet the stock cratered 40% from its peak. Let’s run through the fundamentals to understand whether the selloff presents a genuine opportunity or signals deeper concerns.

An Exceptional Year Built on Streaming Dominance and User Growth

Spotify maintains an iron grip on the global music streaming market with a 31.7% share, comfortably ahead of Tencent Music’s 14.4%. The company added 11% more monthly active users year-over-year, reaching 476 million free users monetized through ads and 290 million Premium subscribers paying for an ad-free experience.

Premium members generated 89% of total revenue because advertising monetization remains weak. This reality keeps Spotify focused on converting free users into paying subscribers—a conversion funnel that continues to expand.

More impressively, Spotify trimmed operating expenses by 2% while revenue surged, sending net income soaring 94% year-over-year. This margin expansion proves management can deliver profitability without sacrificing growth, a critical milestone for a company that burned cash for years.

How AI and Video Podcasts Are Reshaping the Platform

Spotify deployed over 50 new features in 2025, with the AI-powered Prompted Playlist standing out. The tool lets listeners control recommendation algorithms through a chatbot interface, specifying exactly what type of music they want to hear. By returning control to users, Spotify believes engagement will deepen—benefiting both listeners and creators.

On the content side, video podcasts represent the platform’s boldest bet. After launching a creator incentive program last year, Spotify now hosts 530,000+ video podcasts with consumption up 90% since inception. This segment has become a powerful engagement driver, attracting creators and keeping users on the platform longer. It’s precisely the kind of differentiation that separates Spotify from competitors offering identical music catalogs.

Valuation Reset Creates a More Attractive Entry Point

When Spotify stock peaked, its price-to-sales (P/S) ratio hit a record 9.2—more than double its 4.3 average since going public in 2018. The recent 40% decline, combined with steady revenue growth, has normalized the P/S ratio to 4.9. While still above the historical mean, it’s markedly more reasonable.

The price-to-earnings (P/E) ratio of 36.7 commands a premium to the Nasdaq-100’s 31.7, but consider the context. Spotify Premium subscribers represent just 3.5% of the world’s population today. Co-CEO Alex Norström has publicly suggested this could climb to 10–15% eventually—implying the business could expand fourfold. At current valuations, such expansion potential hardly seems expensive.

The Long-Term Opportunity for Patient Investors

Let’s run through the investment thesis: Spotify boasts dominant market positioning, expanding profit margins, technological innovation driving engagement, and a valuation that reflects depressed sentiment rather than deteriorating fundamentals. The company has proven it can monetize scale while investing heavily in AI and new content formats like video podcasts.

For investors with a five-year horizon willing to tolerate volatility, the recent dip offers an attractive risk-reward profile. Management’s vision of expanding from 3.5% to 10–15% of global population suggests enormous headroom—and at current valuations, the stock appears positioned to reward patient capital. Run through the numbers yourself, but the long-term case appears compelling.