Spotify (NYSE:SPOT) reported its Q1 2025 earnings, and Wall Street hasn’t been too enthusiastic as SPOT stock is down 7% as the market opened today. This is despite the company posting a record high in operating income and beating its own subscriber targets. It still missed analyst estimates for profits and revenue. Should you buy the dip?
Spotify added 5 million net new Premium subscribers. There are now 268 million paid users, and Spotify also reported the best Q1 net adds since 2020. Monthly active users (MAUs) climbed 10% to 678 million, while total revenue rose 15% to EUR 4.19 billion.
“The underlying data at the moment is very healthy: engagement remains high, retention is strong, and thanks to our freemium model, people have the flexibility to stay with us even when things feel more uncertain,” said Daniel Ek, Spotify Founder & CEO.
The main culprit was an earnings miss: operating income, while a record, came in below Spotify’s own guidance (€509 million vs. €548 million forecast), largely due to higher-than-expected social charges tied to share price appreciation. Net profit was up 14% to €225 million, but earnings per share and revenue both fell short of analyst expectations. Earnings per share were just $1.13, well short of the $2.49 consensus.
Plus, ad-supported revenue also declined 22% from the previous quarter.
Subscriber growth is accelerating, engagement is high, and churn is low, even as the company pushes through price increases in key markets. At the same time, the selloff is quite justified at these prices. You’re still paying almost 89 times earnings, and you’d expect such a stock to beat earnings estimates.
EPS is expected to grow 102% year-over-year in 2025, and you’re paying 52 times forward earnings. This growth is expected to slow down significantly in the coming years, and considering that SPOT stock is sitting on a massive 688% rally from its 2022 lows, there are better stocks to buy the dip on.
