It’s been a wild ride for investors this year as global stock markets try to come to terms with Donald Trump’s tariff policy, yet music streaming app Spotify (SPOT:NYSE) has proved incredibly resilient. Year-to-date, the Wall Street-listed stock is up nearly 40%, rapidly recovering all its ‘Liberation Day’ losses and more.
During that same spell, the S&P 500 remains around 3.5% off where it started 2025. A breakthrough into profitability made 2024 a line in the sand year for Spotify, rewarding the confidence investors started showing the company early in 2023. Since the start of that year, Spotify shares have rallied more than 700%, but if analysts are right, the stock could be an excellent defensive growth stock to add to ISA or SIPP portfolios during what could continue to be turbulent times while Trump is in the White House.
SPOTIFY 101
Spotify is an on-demand music streaming service that allows users to browse a vast catalogue of music and podcasts, licensed through multiple record labels, then create and share playlists with other users.
In much the same way that Netflix (NFLX:NASDAQ) has emerged to dominate streaming TV and films, Spotify has become top dog with music, changing the music consumption landscape since 2008. Spotify has 678 million total users, including 268 million subscribers and 423 million users of its free, ads-backed service.
Founded by CEO Daniel Ek and Martin Lorentzon in Sweden in 2006 as a solution to a massive internet music piracy problem, it now operates in more than 180 markets worldwide. These roots are why it reports in euros, not dollars.
The revenue model is not complex. Spotify pays licence fees to recording labels, artists, publishers, and other rights holders for streaming their music on its platform. It uses clever algorithms to work out what tracks have been played and pays a royalty per stream to the artist or label.
Variables such as where a song is played (geographically), local currency, artist value and a load of other factors go into the royalty calculation per stream. The company stays tight-lipped on details, this is very market sensitive stuff, but it has been previously speculated by experts in the music industry that the average royalty payout per stream lands somewhere between $0.006 and $0.0084, depending on the artist, track or podcast.
WHY DO WE LIKE IT
It’s a big opportunity. Consider, YouTube has more than 2.5 billion active users, according to Statista data from February 2025, and while not strictly comparable, it too offers users a so-called ‘freemium’ model, where users can get free, ads-backed access to content, or choose to pay for an ads-free subscription.
The platform currently charges roughly $12 a month in the US, £12 in the UK, but prices are lower elsewhere. This is useful info for a few reasons; first, Spotify is expected to push through global price rises over the coming month to close the price parity gap, which is good for future revenue. Second, regular price rises are built-in to the business model, but not so most analyst estimates, which provides forecast outperformance potential down the line.
A Spotify subscription remains a relatively low-ticket item, but one highly valued by users, which makes it less likely that subscribers will pull the plug even when they are relatively cash-strapped, a point Shares has made about Netflix too.
RECESSION RISKS
Of course, if we are plunged into a global recession, as some fear Trump’s economic policies might, Spotify’s growth will likely moderate from current expectations, as will its ad revenues. A rolling 12-month PE (price to earnings) multiple above 50 leaves a lot of room to de-rate.
Even so, the essence of Spotify’s defensive qualities are a major reason why so many analysts like the stock in spite of current uncertainties.
According to Stockopedia data, 25 of the 32 analysts that follow the stock have it as a ‘buy’ or ‘strong buy’, with just a single ‘sell’ recommendation.
If current forecasts are on the money, it would imply an average 16% a year revenue growth over the next few years, but a far faster rise in profits as margins rapidly strengthen. Net profit margins were approximately 7.3% in 2024, according to Stockopedia, but are set to firm to 10.2% and 12.8% this year (to end December) and next. It implies 2024 EPS (earnings per share) of €5.67 could grow to €9.21 and €12.80 over the next two years, and higher still beyond.
Investors should think carefully about the risks, volatility in markets can make for uncomfortable times for higher rated stocks. But we believe this is a long-run expansion story with considerable defensive qualities growing far faster than market averages, and thus warrants a premium valuation.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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