It’s Spotify.
The company published its Q3 results back in November. The numbers were staggering.
Over 700 million monthly active users. 281 million paying subscribers. Gross margin at 31.6%. €806 million in free cash flow in just one quarter. Nearly €3 billion over the past year.
By most measures, this is a business that’s doing incredibly well. Usage is up, profits are up, cash flow is up.
But the stock? It’s down. Around 26% lower than it was six months ago. And still way below the peak it hit in mid-2025.
So naturally, the question is: why?
This article is not about making a bullish case or trying to “call the bottom.” It’s just trying to understand the gap. Because when a company posts record results and the stock still underperforms, there’s usually a story there. Either the market’s missing something or maybe it’s seeing something we are not.
Let’s talk about it.
Where Is the Growth Coming From?
Before we jump into the stock side of things, it’s worth understanding what’s actually driving Spotify’s growth. Because it’s not just “more users” as the growth has layers.
First, the free tier is doing heavy lifting.
Spotify added 17 million new monthly users in Q3, and a big chunk of that came from its ad-supported, free tier. That might sound less exciting than paid subscribers, but it’s a key part of their funnel as the free experience brings people into the ecosystem.
And this year, Spotify made some big changes to that free tier: better playback controls, improved discovery, even a messaging feature to share songs with friends. It’s working. More people are trying Spotify, and they’re sticking around.
Second, premium is still growing and globally.
Paid subscribers grew by 12% year-over-year, hitting 281 million. That’s a lot of people paying monthly for Spotify, and the growth isn’t just from one region. Latin America and North America led the way this quarter, but all regions saw gains.
Spotify also ran some smart promotions and global campaigns that helped bring more people onto paid plans including families, students, and couples on Duo plans.
Third, people are spending more time inside Spotify.
This part is easy to miss, but it matters. It’s not just about how many users there are but how often they use it.
And this year, Spotify users are spending more days and more hours on the app than ever before. That’s huge for both retention and monetization. The more time people spend on Spotify, the more value it creates whether that’s through subscription renewals, ad impressions, or deeper engagement with new features like audiobooks or video podcasts.
And finally, the product keeps evolving.
Over the past few months, they rolled out over 30 product updates; things like lossless audio for premium users, new playlist mixing tools, and integration with ChatGPT. They even launched on Meta’s Ray-Ban smart glasses. It’s not always clear how these updates turn into revenue right away, but they matter. They keep the product sticky, fresh, and competitive.
So in short: Spotify’s growth is coming from a healthier funnel, steady subscriber gains, stronger engagement, and fast-paced product development. It’s a good mix. And it explains why the top-line numbers look so solid.
But now the bigger question: if all of this is working, why isn’t the stock?
So Why Isn’t the Stock Responding?
This is where things get interesting.
Because while Spotify’s business is clearly growing, the stock hasn’t gone anywhere. In fact, it’s gone down and still well below its mid-2025 highs. That’s a big disconnect. So what’s the market worried about?
The short answer is: monetization.
Spotify is adding users. But it’s not making dramatically more money per user. In fact, Premium ARPU (average revenue per user) actually went down 4% year-over-year in Q3 and it’s been flat for a while when you adjust for currency. A lot of this comes down to plan mix. More users are coming in through discounted family, student, or Duo plans. Spotify has also grown fast in markets with lower price points.
It’s great for scale. But it makes it harder to grow revenue per person. And investors notice.
Then there’s advertising
Spotify has been talking for a while about building a bigger ad business and there’s been real progress. But in Q3, ad-supported revenue actually declined by 6% year-over-year. That’s despite growing the number of free users and ramping impressions.
So while ad tech is improving, pricing and execution haven’t fully clicked yet. And the ad business still only makes up about 10% of Spotify’s total revenue so it’s not moving the needle much, at least for now.
Margins are improving, but not “tech company” level.
Yes, Spotify’s gross margin is now over 31%, which is a big improvement. But that’s still a far cry from the 60–70% margins investors see in software or infrastructure businesses.
Spotify pays out a big chunk of its revenue, often around 70%, to rights holders like labels and publishers. That puts a natural ceiling on margins, unless the business shifts more toward owned content or higher-value services.
And finally, competition is everywhere.
Spotify doesn’t own music. It doesn’t bundle with hardware. It doesn’t have a massive advertising platform like YouTube. It’s competing against Apple, Amazon, Google – companies that can afford to treat music streaming as a loss leader to keep people inside their ecosystems. That creates real pricing pressure.
And it limits how far Spotify can push subscription prices or ad loads without risking user churn.
So even though the business looks strong, the market sees a model with real constraints:
- Low pricing power
- Margin ceilings
- Heavy competition
- A still-developing ads business
In other words: good business, just not the kind of business the market gets excited about right now.
What the market is rewarding and why Spotify doesn’t fit that narrative
To understand why Spotify’s stock is lagging, it helps to zoom out and look at what the market is rewarding right now.
Over the past year, tech stocks with a clear AI angle, platform leverage, or high-margin software models have been re-rated. These are companies that either:
- Create new revenue streams from AI tools (like Microsoft or Adobe),
- Sell infrastructure that powers AI (like Nvidia), or
- Run platforms where scale leads directly to better margins (like Meta or Google).
In that world, steady growth isn’t always enough. Investors are chasing step-changes – sudden shifts in monetization, unit economics, or distribution. They’re looking for business models where every new user or customer drives up profitability. Ideally with very little friction.
Spotify, for all its strengths, doesn’t really sit in that group.
Its AI features like smart recommendations, playlist building, or ChatGPT integration are useful, but they don’t obviously change the revenue model. They make the experience better, not necessarily more monetizable. At least not yet.
It’s also not a high-margin software product. It’s a content distribution business that depends on third-party rights and tight licensing terms. Every new stream comes with a cost. Every new user requires more content delivery, more payouts, more cloud hosting. That’s not the kind of scale the market puts a high multiple on.
And while Spotify has a huge global audience, it doesn’t quite have the same network effect moat as social media or app store platforms. One person using Spotify doesn’t automatically attract ten more.
So even as Spotify grows and improves its margins, the market doesn’t view it in the same category as other tech giants. It sees a great consumer product but not a business with runaway operating leverage or exponential upside.
That might feel unfair. And maybe it is. But it’s also a reminder: the stock market prices narratives just as much as numbers.
Misunderstood strength or structural Limit?
So where does that leave us?
Spotify, by all accounts, is performing well. It’s growing users, expanding globally, improving margins, and generating real cash. The product is evolving fast, and the business is proving that it can scale profitably, something that wasn’t guaranteed a few years ago.
But the market isn’t fully buying in. And maybe that’s because it’s not just looking at this year’s numbers as it’s trying to guess what the next five years will look like.
If you believe Spotify can keep growing, raise ARPU, scale advertising, and find new ways to monetize its massive user base then the current stock price might look like a mispricing. A temporary disconnect between performance and perception. And in time, that gap could close.
But if you believe the business is bumping up against structural limits — on pricing, margins, and market share then this might be exactly how the market should treat it. A solid company, yes. But one with a ceiling.
The truth? It’s probably somewhere in between.
Spotify is still writing its next chapter. The fundamentals are strong. The questions are around narrative, timing, and how much operating leverage this model really has left to show.
For now, it remains one of the more interesting disconnects in tech: a company doing almost everything right and a stock that’s still waiting for its moment.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a qualified professional before making investment decisions.
Note: This article relies on data from fund reports, index history, and public disclosures. We have used our own assumptions for analysis and illustrations.
Parth Parikh has over a decade of experience in finance, research, and portfolio strategy. He currently leads Organic Growth and Content at Vested Finance, where he drives investor education, community building, and multi-channel content initiatives across global investing products such as US Stocks and ETFs, Global Funds, Private Markets, and Managed Portfolios.