Why Spotify’s Best Days Are Still Ahead

Spotify is one of those rare platforms with global reach, deeply loyal users, and a product millions engage with every day. Despite that, it still sits in an awkward place in the market — big enough to dominate headlines, but not yet profitable enough to satisfy Wall Street’s expectations. And after a mixed Q2 report, that tension is once again front and center.

But here’s the thing: under the surface, Spotify is quietly turning into a very different business. One with real cash flow, improving margins, and a growing edge in the broader audio content space. The recent drop might have caught headlines — but it may also have opened up a window.

The Growth Engine Is Still Running

Spotify’s Q2 2025 showed the company isn’t slowing down. Monthly active users rose to 696 million, a year-over-year increase of 11%. Premium subscribers grew to 276 million, adding six million in the quarter and beating the company’s own guidance. Growth was strong across all regions, especially in Europe and Latin America.

This kind of growth at scale is rare. It signals a platform that still has room to expand — not just in user count, but in reach, engagement, and long-term monetization potential.

Profitability Is Finally Gaining Traction

Spotify has long been labeled as a growth-at-any-cost story, but that label is starting to fade.

Gross margins expanded to just over 31%, the highest Spotify has ever posted. Free cash flow topped $765 million, and operating income landed at roughly $440 million. These are not small numbers. They're signs that Spotify is learning how to make its scale work financially.

The platform isn’t just growing. It’s becoming more efficient. It’s starting to generate real operating leverage. And it’s doing so while continuing to invest in new product lines and content types.

The Net Loss: A Misleading Headline

Despite all the positive momentum, Spotify reported a net loss of around $95 million. On the surface, that sounds concerning — but the details matter.

The loss was driven almost entirely by two items that have little to do with core operations:

1. A sharp increase in payroll taxes tied to employee stock-based compensation. As Spotify’s stock price rose, so did the associated tax liability. It’s not a recurring expense tied to performance — it’s an accounting issue tied to equity appreciation.

2. Foreign exchange headwinds. A weaker U.S. dollar cut into reported revenue, even though performance in local currencies remained strong.

Neither of these issues reflect problems with the business. But they were enough to send the stock down double digits in the days after earnings.

What’s Still Lagging? Advertising

If there’s one part of the business that deserves real criticism, it’s advertising.

Spotify’s ad-supported user base grew by about 10%, but total ad revenue actually declined slightly year-over-year. Leadership acknowledged that they’ve been too slow in building the infrastructure needed to scale this part of the business. That includes automated tools, better targeting capabilities, and more self-serve options for advertisers.

This is arguably Spotify’s biggest missed opportunity. But it’s also a fixable one. The user base is there. The engagement is there. Now it’s a question of execution.

The Bigger Picture: Spotify Is Evolving

While music streaming still makes up the majority of revenue, Spotify is quickly expanding its role as a broader audio platform.

Audiobooks are growing fast — usage was up over 35% from the prior year. Podcast consumption continues to rise, with more video formats and creator tools being rolled out. New “a la carte” features are being tested to give users more flexible ways to consume and pay for content.

This is the next phase of Spotify’s strategy. The goal isn’t just to dominate music. It’s to become the go-to destination for all things audio.

Valuation, Buybacks, and Setup

After the earnings dip, Spotify now trades around $627 per share — down from recent highs, but still up strongly on the year. The company has also authorized a $2.2 billion stock buyback, signaling real confidence from management in the long-term trajectory.

For long-term investors, this setup is intriguing. Spotify has:

• Record user growth

• Expanding margins

• Record free cash flow

• A growing moat in audio content

All while still being seen by many as an unprofitable tech name.

That gap between perception and reality is where opportunities are born.

Risks Still on the Table

No stock is without risk. For Spotify, the key concerns are:

• Continued delays in monetizing advertising effectively

• Ongoing pressure from music labels and rights holders to increase royalty payments

• Competition from Apple, Amazon, and YouTube Music — especially in the premium tier

Spotify’s edge lies in product experience, personalization, and scale — but these risks can’t be ignored.

Final Thoughts

Spotify is at a turning point. It’s no longer just a fast-growing platform chasing scale. It’s becoming a real business — one that generates cash, improves margins, and builds toward platform-wide monetization beyond music.

The recent pullback isn’t about fundamentals. It’s about optics. The opportunity now lies in looking past short-term headlines and seeing the longer arc of Spotify’s evolution.

It’s not a perfect business — but it’s a far better one than the market currently gives it credit for.

Disclosure: This article is for informational and educational purposes only and does not constitute investment advice. All views expressed are the personal opinions of the author based on publicly available information at the time of writing. The author is not a licensed financial advisor and may hold positions in the securities mentioned. This content is not sponsored or endorsed by Spotify or any affiliated entity. Always do your own due diligence and consult with a licensed financial professional before making any investment decisions. Investing involves risk, and past performance is not indicative of future results.