Business
Spotify Stock Plummets—Is This the Perfect Buy-the-Dip Moment or a Red Flag?
Spotify (NYSE: SPOT) is usually seen as a market darling among growth tech stocks. After a red-hot 57% rally through the first half of 2025, the streaming giant’s Q2 earnings report landed with a thud—dragging the stock down more than 11% in a single day. But is this tumble a warning sign for long-term investors, or an opportunity disguised as bad news? Spotify exceeded expectations in what many consider its most important metric: Monthly Active Users (MAUs). The platform added 18 million new users in Q2—well above its own forecast of 11 million. Premium subscriptions also surged, rising by 8 million to a total of 276 million. These numbers are strong indicators of Spotify’s global momentum.
Revenue also climbed 10% year-over-year to $4.56 billion, although it slightly missed analysts’ expectations due to foreign exchange headwinds. However, when adjusted for constant currency, growth met projections at 15%.
Where Spotify really stumbled was in earnings. The company reported a loss per share of $0.49, compared to a gain of $1.33 a year ago. The major culprit? Rising “social charges”—payroll taxes tied to stock-based compensation that ballooned as Spotify’s share price soared earlier this year.
Ad Revenue and Forward Guidance Raise Concerns
Spotify’s ad business, which many investors see as its next big growth engine, delivered underwhelming results. Ad revenue dipped 1% YoY (though up 5% in constant currency), with CEO Daniel Ek admitting he was “unhappy” with progress. The company is banking on 2026 as the year its newly integrated ad tech platform begins scaling properly.
Even with Spotify’s MAUs expected to grow by another 14 million in Q3, guidance for revenue and profit disappointed Wall Street. This cautious outlook, combined with the Q2 earnings miss, spooked investors and led to the sharp pullback.
Despite the earnings stumble, Spotify’s long-term fundamentals remain attractive. Free cash flow jumped 43% to a Q2 record. Analysts still give the stock a “Moderate Buy” rating, with a 12-month price target of $718.90—representing nearly 15% upside from current levels.
With a booming user base, surging free cash flow, and future monetization opportunities (especially in advertising and podcasts), Spotify may be offering investors a rare buy-the-dip window—especially if it can smooth out earnings volatility.
Spotify’s Q2 report is a reality check—but not necessarily a dealbreaker. For risk-tolerant investors, this may be a classic case of short-term pain for long-term gain.
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