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Spotify Technology - Equity Analysis

Updated: Dec 4, 2023

Company description

Spotify is a Swedish audio streaming provider founded on 23 April 2006 by Daniel Ek and Martin Lorentzon.

According to the website, the company manages over 100 million tracks, 5 million podcast titles and 350k audiobooks. In addition, more than 551 million users decided to subscribe to the platform, spread across more than 180 markets.

Spotify proposes both free and paid plans: thanks to the firsts, Spotify became famous for the possibility of listening to music at no cost. Free accounts are subjected to limitations about the app’s functionality and are exposed to constant ads, which represent revenues for the company.

On the other hand, premium plans allow you to experience all the app’s features and don’t contain ads, thanks to monthly or annual payments (naturally, there is a discount for the second one).

In 2022, Spotify became a sponsor of FC Barcelona, a famous soccer club in Spain: the name of the stadium changed, becoming Spotify Camp Nou, and the logo of the brand is shown on the team jersey during the matches. The agreement with a such historical club pealed out the company worldwide.

According to the website, Spotify has the biggest share between the biggest audio share providers, with 30.5% of share, more than double the Apple Music one.

In the end, Spotify is constantly increasing the number of subscribers: in fact, there has never been a quarter with the same number of subscribers of the previous one, from Q1 of 2015.

Liquidity Ratios

The ratios considered for this analysis are the current ratio and quick ratio.

The first one is calculated as current assets/ current liabilities and it measures the company’s ability to pay short-term obligations within one year.

The quick ratio measures the same, but considering the most liquidity assets and it is calculated using the following formula:

The interpretation of both is the same: a result of 1 is considered the normal level and it means that the company is fully equipped with its assets to payoff short-term obligations. With a level of less than 1, the company may be unable to fully pay off its current liabilities and it could resort to debt.

In most of the last six years, Spotify has achieved a current ratio of at least 1, with promising results in the last two years. However, the big volatility can generate some doubts about the current asset management. Very similar is the acid test, which slavishly follows the current ratio in the trend: the small differences in the numbers could be explained by the absence of an inventory.

Profitability Indexes

In order to study the profitability of Spotify, there will be analysed the following indicators: Return on Equity (ROE), Return on Invested Capital (ROIC) and Net Profit Margin.

ROE (Return On Equity): it shows the equity profitability and it measures the company’s ability to manage the equity to increase earnings. It isn’t influenced only by the ordinary operation, but also by financial and asset management.

ROE is calculated by comparing net income to shareholder’s equity.

Attending to the annual financial statements, Spotify’s ROE has always been negative from 2018, where the value was -6,44%, until 12/31/2022, where it was -18,8%, peaking at -1,32% on 12/31/2021 and -24,95% on 12/31/2020.

The decisive factor is net income, almost always in a negative way from 2018 until now.

ROIC (Return on Invested Capital): ROIC shows how the efficiency and profitability of investments. In other words, it measures how many dollars are generated from each dollar invested. A higher ROIC usually means the company is using its money wisely to grow and make more profits, which is a good sign for investors. It is calculated by comparing NOPAT to invested capital.

Like ROE, ROI has always been negative from 2018, attending to annual financial statements. In this period, Averagely, its average value was -11% with a minimum of -30,66% in September 2022. The last quarterly financial statement (September 2023) reported a ROIC of -21,4%.

Net Profit Margin: this is one of the most important indicators for a company. This measures, in fact, net margin compared to revenues. By tracking increases and decreases in its net profit margin, a company can assess whether current practices are working and forecast profits based on revenues.

Despite the strong revenues growth, from $6,21 (FS December 2018) to £13,65 B (FS September 2023), Spotify wasn’t able to increase net income, which are negative. The average value, considering the same period, the average net profit margin in -2,63%, with a minimum of -8,71% and a maximum of 7,71% and the last value available is -5,86% in September 2023.


First, WACC has been calculated. The weighted average cost of capital allows a company or an investor to establish the cost of capital by analyzing all its components, thus enabling them to distinguish between an acceptable or unacceptable expected return on an investment.

The results are shown in this chart: WACC was also used for discounted cash flow analysis.

For the purpose of calculating the discounted cash flow, the information from the third quarter of 2023 has been used. To obtain the present value of Spotify, revenue projections for the upcoming years up to 2027 were taken into consideration, after which a regression was conducted for capital expenditure, depreciation, amortization, and working capital investments as a percentage of revenue.

In the calculation of the enterprise value, three scenarios were constructed, differing in the revenue exit multiple (2.2x, 2.3x and 2.4x) resulting in three EV values. Following the same structure, the equity waterfall analysed the three scenarios. The final value obtained is $216.98, with a confidence interval between $204.50 and $229.89, compared to a market value as of November 4, 2023, of $169.98.

Comparing the estimated value to the current market value, it is evident that Spotify's price is still reflecting the challenges faced in recent years. The stock certainly has potential, but it also faces risks, which will be examined in the final section.



The ratio is equal to -66.49, a strongly negative value, indicating a potential undervaluation by the market, consistent with the previous analysis. This value could encourage investors to consider purchasing the stock, subject to an analysis of the risks and challenges specific to Spotify.

According to, the median EV/EBITDA value in the communication services sector is 4.5x, meaning the company's value is lower compared to its competitors.

P/E (Price-to-Earnings)

The P/E ratio is calculated by dividing the market value price per share by the company's earnings per share.

Spotify has a value of -42.3x, compared to a market average of 5.4x.

These values reflect the potential undervaluation of the stock under current conditions, in line with the results described above.


From the data presented in the introduction, Spotify has now firmly established its dominance in the streaming market in terms of market share, confirmed by the excellent trend of subscribers. Spotify is a well-established brand, a platform that ensures reliability and has sealed its brand in the minds of consumers.

Risks related to the business model, strategy, and performance

Considering market risks, music platforms now offer the same quality of streaming music, access to similar content, identical features, and subscription packages that are almost overlapping in terms of functionality. The only decisive factor to attract customers is the price: one should expect a continuous battle in terms of offers and promotions to convince customers to at least try a free or low-cost trial, hoping to subsequently retain the customer.

Furthermore, Spotify may risk encountering problems related to internationalization, such as the search for qualified personnel. The company has also had to face significant losses and may not generate sufficient revenue to cover them.

Finally, potential legal risks associated with the content that Spotify offers must be considered.

Risks related to streaming rights security

There are often disputes over third-party licenses necessary for the content that is broadcasted: these disputes, even if they concern authors and not the company directly, can still damage its reputation.

Licensing and royalty payment agreements are based on complex agreements, making it difficult to estimate revenue.

Risks related to operations

The company relies on online platforms and third-party company systems: malfunctions in the suppliers' systems directly affect Spotify's operations and could damage the company's reputation.

Risks related to indebtedness

Indebtedness and liabilities could limit future cash flows.

Furthermore, the company holds convertible securities: it may face difficulty repurchasing them in cash, and their value could negatively impact the financial situation and future results.

Risks related to the ownership of our common shares

The trading price of shares is, of course, volatile.

In addition, provisions in the company's bylaws, the issuance of certificates to beneficiaries, and the existence of certain voting agreements could delay or prevent our acquisition by third parties.

The no-dividend policy, while increasing capital gains on one hand, may discourage potential investors on the other.

Risks related to investing in a Luxembourg company and our status as a foreign private issuer

As a foreign private issuer, Spotify is exempt from numerous U.S. securities laws and regulations, and the rights of its shareholders may differ from those of U.S. company shareholders.

The company is organized under Luxembourg law, and a substantial portion of its assets are not located in the United States. It may be difficult for third parties to obtain or enforce judgments or initiate original actions against the company or board members in the United States.

Luxembourg and European insolvency and bankruptcy laws are substantially different from U.S. insolvency and bankruptcy laws and may offer shareholders lower protection compared to U.S. insolvency and bankruptcy laws.


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