On Wednesday, UBS analysts demonstrated continued confidence in Spotify Technology SA (NYSE:SPOT)maintaining a Buy rating on the stock.
The firm's optimism is driven by Spotify's performance in 2024 and expectations for continued growth in 2025.
UBS highlighted Spotify's achievements in the past year, noting approximately 20% growth in top-line revenue, over 400 basis points of gross margin expansion, and increased free cash flow (FCF).
For 2025, UBS anticipates the company will sustain its momentum with over 13% growth in FXN revenue, bolstered by an expected addition of 23 million premium subscribers, which is slightly less than the 24 million added in 2024.
The analysts report emphasized Spotify's commitment to enhancing its product offerings to support future monetization strategies. These enhancements are expected to contribute to the company's long-term financial goals.
UBS predicts a continued rise in gross margins, projecting an increase of approximately 230 basis points to 32.3%, though at a slower pace due to investments in Spotify's partner program.
UBS forecasts a significant increase in Spotify's free cash flow, estimating it to reach €3.0 billion in 2025, up from €2 billion in the previous year. The firm also noted several potential catalysts that could further propel Spotify's growth.
These include the anticipated launch of premium and superfan tiers, potential price hikes associated with new product features (including the expansion of the audiobook offering into new markets), possible changes to family plan structures, and improved advertising trends as programmatic partnerships expand.
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