At the outset of 2025, streaming industry giants Netflix and Spotify both showcased robust performance trajectories, garnering optimism among investors. However, as the year advanced past midyear, both companies saw their stock prices retract notably, with declines ranging from 25% to 30%. These downturns were primarily in response to earnings reports that fell short of investor expectations, prompting reassessment of their medium-term growth potential.
Spotify’s share depreciation accelerated following its second-quarter earnings release, which revealed contracting operating margins alongside negative earnings per share. While the stock witnessed a partial recovery in the subsequent quarter, investor sentiment shifted again upon the announcement of CEO Daniel Ek's resignation, coupled with disappointing fourth-quarter projections that signaled operational headwinds. Such developments undermined confidence and exerted downward pressure on Spotify's stock value.
Netflix encountered its own share price challenges related to second-quarter disclosures that highlighted the company’s apparent financial improvements were driven more by favorable foreign-exchange rate movements than by enhanced consumer engagement or subscription price increases. The third quarter introduced additional complications, as a one-time tax expense in Brazil adversely impacted financial results. Furthermore, Netflix’s proposed acquisition of Warner Bros. Discovery stirred concerns regarding potential regulatory obstacles and operational integration complexity, further dampening investor enthusiasm.
Despite these setbacks, neither Netflix nor Spotify is displaying fundamental operational failures, but share valuations currently embed expectations of sustained and aggressive growth. In such contexts, mild performance issues or unfavorable news can swiftly trigger shareholder repositioning, leading to notable share price volatility. Within such a competitive landscape, possessing a durable competitive advantage can allow a company to navigate challenges more effectively and seize long-term value creation opportunities.
Comparing the competitive moats of the two companies reveals both have been able to implement price increases — a marker of market strength — with Spotify adjusting U.S. subscription rates in 2023 and 2024 and indicating potential for additional increases. Netflix, on the other hand, has consistently raised pricing over a longer timeframe, initiating hikes since 2014.
Spotify’s pricing strategy includes premium content offerings, such as an allotment of 20 monthly audiobook listening hours exclusive to paid subscribers, aiming to differentiate within a highly commoditized market where music libraries largely overlap. However, the homogeneity of licensing terms across streaming services limits Spotify’s ability to achieve significant content differentiation or cost advantage, which constrains its potential for expanding operating margins substantially.
Netflix counters with a distinctive content portfolio forged through a mix of original productions and exclusive licensing agreements, a differentiator that contributes to subscriber retention and acquisition. Being the largest player in video streaming provides Netflix with economies of scale, enabling it to spread content investment costs over a broad subscriber base without incurring incremental expenses per stream, unlike Spotify's model that is more directly tied to music royalties with less leverage over pricing and costs.
The company’s operational discipline is further reflected in its practice of setting target operating margins annually and managing content expenditures to align closely with these targets under typical conditions. Notwithstanding the unusual tax impact in Brazil, Netflix projects an expansion of its operating margin by approximately 1.6 percentage points for 2025, signaling financial resilience. Spotify’s more constrained cost flexibility suggests narrower margin expansion prospects.
From a valuation perspective, Netflix’s shares currently trade at less than 30 times consensus earnings estimates for 2026, presenting a potentially more attractive entry point relative to Spotify, whose stock is valued nearer to 50 times projected earnings for the same period. Despite anticipated strong earnings growth from Spotify, its higher multiples increase vulnerability should earnings forecasts undergo negative revisions, potentially exacerbating share price declines.
Conversely, Netflix’s relatively lower valuation, combined with cautious optimism around financial execution, suggests investors may have greater confidence in the company meeting its earnings expectations. A successful operational performance in 2026 could thus support a restoration of its stock price toward previous highs and beyond, marking a possible pathway to a market comeback.