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Spotify just posted its best quarter ever — and the stock is still 40% off its highs.
The streaming giant reported Q4 revenue of €4.53 billion ($4.83 billion) Tuesday morning, a 13% jump on a constant-currency basis that beat the $4.61 billion consensus. Adjusted EPS came in at €4.43 ($4.73) versus the $2.79 Wall Street expected — a 75% earnings crush that sent shares soaring 16% to roughly $482 by midday. The company added a record 38 million monthly active users in a single quarter, blowing past its own guidance by 6 million.
Those are monster numbers. But here’s the part that should really get investors’ attention: every major Wall Street bank covering this stock still has a price target north of $625.
The Numbers Behind the Surge
The Q4 print was strong across the board. Monthly active users hit 751 million, up 11% year-over-year. Premium subscribers grew 10% to 290 million — that’s 9 million net adds in 90 days. Gross margin expanded to 33.1%, up 83 basis points from a year ago and a clear signal that streaming audio can be a high-margin business at scale.
Operating income surged 47% to €701 million, beating expectations of around €620 million. Free cash flow hit €834 million for the quarter and €2.9 billion for full-year 2025.
This isn’t a company burning cash to grow anymore. It’s printing money.
Co-CEO Alex Norström framed 2026 as the "Year of Raising Ambition." That’s not just corporate-speak. Spotify guided Q1 to €660 million in operating income — above the €652 million consensus — and projected 759 million MAUs with 293 million subscribers. Revenue guidance of €4.5 billion was a hair below the €4.57 billion estimate, but the profit guidance tells you where the real story is: margin expansion has more room to run.
Founder Daniel Ek, now executive chairman, struck a forward-looking tone: "What we’ve really built is a technology platform for audio — and increasingly, for all the ways creators connect with audiences." The company launched music videos in 111 markets, rolled out AI-powered "Prompted Playlists," and partnered with Bookshop.org to sell physical books through the app. These aren’t distractions. They’re moats.
Why the Stock Is Still Cheap
Here’s the disconnect that matters. Spotify trades around $482 today — even after a 16% pop. The average 12-month analyst price target sits at roughly $727. Goldman Sachs has a $700 target with a Buy rating. Morgan Stanley targets $775. KeyBanc is at $720. Citi upgraded to Buy on January 30 with a $650 target, calling the recent selloff a rotation-driven dislocation rather than a fundamental problem.
That means even after today’s surge, the average Wall Street target implies another 50%+ upside from here.
Goldman’s Eric Sheridan laid out the bull case back on January 23 when he upgraded the stock: Spotify’s pricing power is underappreciated, its AI-driven personalization creates a retention moat, and free cash flow generation (€2.9 billion in 2025) could support a meaningful capital return program within 12-18 months. The Q4 results just validated every one of those arguments.
The valuation math is straightforward. At $482, Spotify trades at roughly 55x trailing earnings — expensive on the surface, but that multiple compresses fast when you factor in the earnings growth trajectory. Full-year 2025 operating income hit €2.2 billion, up from essentially nothing two years ago. If the company can sustain 30%+ operating income growth (and the margin expansion trend suggests it can), today’s price starts looking like a gift.
How to Play the Streaming Audio Boom
Spotify (SPOT, ~$482) — The obvious play and the best one. The stock has fallen 29% year-to-date and nearly 40% from its June 2025 peak of $785, creating a rare entry point. Record user growth, accelerating margins, and a $12.99 U.S. subscription price hike kicking in this month all point to upside. Goldman’s $700 target implies 45% upside. If you believe streaming audio is a secular growth story — and the 751 million MAU figure suggests you should — this is the name to own.
- Apple (AAPL, ~$274) — Apple Music remains the No. 2 global streaming platform, and the broader Apple ecosystem benefits from any expansion of the audio streaming market. Bernstein reiterated an Outperform rating with a $340 target this week. Apple’s services revenue hit $30 billion in Q1, up 14% year-over-year, and music is a growing contributor. The stock provides diversified tech exposure with a streaming tailwind.
- Netflix (NFLX, ~$81) — If Spotify’s playbook sounds familiar, it’s because Netflix wrote it first: grow users aggressively, then monetize through pricing power and margin expansion. Netflix trades at 32x earnings with 11-13% revenue growth guidance for 2026 — cheaper than Spotify on a P/E basis. The pending Warner Bros. Discovery acquisition could add massive content scale. The average analyst target of $111 implies 37% upside.
- SiriusXM (SIRI, ~$21.50) — The contrarian pick. SiriusXM is the anti-Spotify: a mature audio platform trading at just 9x earnings with a 5.2% dividend yield. The company just reported flat Q4 revenue of $2.19 billion and guided 2026 to $8.5 billion with $1.35 billion in free cash flow. It’s a cash cow that Wall Street has left for dead. If audio streaming continues to grow as a category, SiriusXM’s 34 million subscribers and deep automotive integration represent underappreciated assets.
- Communication Services Select Sector SPDR Fund (XLC) — For investors who want broad exposure to the streaming and media theme without single-stock risk, XLC holds Spotify alongside Meta, Alphabet, Netflix, and Disney. The ETF provides a diversified bet on the digital entertainment ecosystem.
The Bear Case: Currency and Competition
The bears have two real arguments, and they deserve attention.
First, foreign exchange is a genuine headwind. Spotify flagged a 670-basis-point drag on year-over-year revenue growth from currency movements. If the dollar strengthens further, those headline growth numbers compress even if the underlying business accelerates. This is a Swedish company reporting in euros with a massive global user base — FX risk isn’t going away.
Second, advertising remains soft. Ad-supported revenue declined on a reported basis in Q4, despite user growth. On a constant-currency basis, ad growth was 4% — not bad, but not the acceleration bulls want to see. If Spotify can’t unlock its advertising potential (the company reaches 461 million free-tier users), the margin expansion story has a ceiling.
And then there’s Apple. With $30 billion in quarterly services revenue and a willingness to bundle music into its ecosystem at a loss, Apple Music is a permanent competitive threat. Spotify has been vocal about antitrust concerns — and for good reason.
But none of these risks are new, and none of them invalidated a quarter where Spotify posted record user growth, record operating income, and raised its ambitions for 2026.
What to Watch This Week
The broader macro backdrop could amplify or dampen today’s momentum. The rescheduled January nonfarm payrolls report drops Wednesday — a weak number would reinforce the Fed rate cut thesis that’s already lifted growth stocks this week. Friday’s CPI print is the big one: a hot inflation reading could reverse the rate-cut narrative and pressure high-multiple names like Spotify.
On the company-specific front, watch for post-earnings analyst reactions over the next 48 hours. Several banks are likely to raise price targets given the magnitude of the earnings beat. And keep an eye on the February U.S. subscription price hike to $12.99 — if churn stays low through March, it removes the last major bear-case pillar.
Spotify spent 2025 proving it could be profitable. It just spent Q4 proving how profitable it can get. At 40% below its all-time high with every major analyst saying Buy, the market is giving you a second chance. I wouldn’t bet on getting a third.