Why is Spotify's stock price falling despite its record profits?

Spotify's stock price is falling due to market concerns about monetization challenges, including stagnant average revenue per user and a decline in advertising revenue, despite overall user growth and profitability.

What are the main reasons for Spotify's strong business growth?

Spotify's growth is driven by its expanding free user tier, steady increases in premium subscribers globally, enhanced user engagement, and continuous product innovation, as highlighted in its recent Q3 results.

What structural limitations affect Spotify's stock market valuation?

Structural limitations include lower gross margins due to content rights payouts, intense competition from major tech companies, and challenges in scaling its advertising business, which limit its perceived operating leverage.

Home / Business and Economy / Spotify's Stock Stumbles Despite Record Growth

Spotify's Stock Stumbles Despite Record Growth

24 Jan

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Summary

Spotify reported record profits and user growth over 700 million.
Despite strong fundamentals, its stock price has declined significantly.
Markets are cautious due to concerns over monetization and competition.

Spotify's Stock Stumbles Despite Record Growth

Spotify recently announced stellar Q3 results, surpassing 700 million monthly active users and achieving a gross margin of 31.6%. The company also generated €806 million in free cash flow in that quarter alone. Growth is being driven by a robust free tier, global premium subscriber increases, enhanced user engagement, and continuous product evolution, including features like lossless audio and AI integrations.

Despite these strong business fundamentals, Spotify's stock has underperformed, trading significantly below its mid-2025 highs. The market's caution is rooted in several factors. A key concern is stagnant average revenue per user (ARPU), which declined 4% year-over-year due to a greater mix of discounted plans and growth in lower-priced markets. Additionally, Spotify's advertising revenue experienced a 6% year-over-year decline in Q3, indicating challenges in ad pricing and execution.