Goldman Sachs recently revised its outlook on Spotify Technology (NYSE: SPOT), shifting from a Neutral stance to a Buy recommendation. The investment bank's analysis suggests that the recent depreciation of Spotify's stock provides a compelling opportunity for investors looking ahead to the company’s forthcoming fourth-quarter earnings report for 2025.
Eric Sheridan, the lead analyst covering Spotify at Goldman Sachs, implemented this upgrade while concurrently lowering the price target from $735 to $700. The decision is heavily influenced by observed improvements in user engagement metrics and the growing breadth of monetization avenues available to Spotify's platform.
Sheridan acknowledges that investor apprehension regarding pricing decisions, the introduction of premium subscription tiers, margin pressures, and the impact of artificial intelligence on Spotify's business model has weighed on the stock’s performance in recent months. These factors contributed to a notable pullback in share prices. However, he argues that current market debates tend to underestimate Spotify's capacity for sustained long-term growth.
Price Strategy and Margin Outlook
A key aspect underpinning the bullish thesis is an expected steady increase in Average Revenue Per User (ARPU), which Sheridan attributes primarily to ongoing subscription price hikes and the expansion of premium tier offerings. Sheridan's financial models anticipate approximately mid-single-digit annual growth in premium ARPU through to the end of the decade.
In addition to revenue growth, the analyst highlights the potential for consistent gross margin expansion between 80 to 100 basis points annually over the next three to four years. This margin improvement is projected to stem from more favorable music royalty agreements and enhanced fixed cost utilization in podcast content production.
Strategic Positioning with Artificial Intelligence and Global Expansion
Sheridan also notes that Spotify is strategically positioned to leverage generative artificial intelligence technologies rather than be adversely impacted by them. He points to the company’s extensive global footprint, diversified content formats encompassing music and podcasts, and strong partnerships with music labels and content creators as competitive advantages in this evolving technological landscape.
Looking ahead, the analyst forecasts that Spotify can sustain mid-teen percentage growth in annual revenues. This projection is driven by anticipated subscriber base expansion, particularly within emerging markets where digital audio consumption is on the rise.
With the recent downward adjustment in Spotify’s share price, Sheridan suggests that investors now have an attractive entry point ahead of the company’s fourth-quarter earnings announcement. He maintains his revenue forecast of 4.5 billion euros and earnings per share (EPS) estimate of 2.47 euros for that period.
Market Reaction
Following these developments and the announcement of Goldman Sachs’ rating upgrade, Spotify's stock price demonstrated positive movement. At the time of publication on Friday, shares increased by 2.86% to $513.02 according to market data.
Spotify’s stock performance reflects the evolving investor sentiment influenced by the combination of fundamental business factors and market perceptions of technological shifts. This recent bullish stance by Goldman Sachs provides a counterpoint to earlier concerns and highlights key financial metrics that suggest potential for sustained growth.