Spotify Stock Soars 18% in 3 Months: Should You Buy, Hold or Sell?

Core Viewpoint - Spotify Technology S.A. has experienced an 18% increase in share price over the past three months, contrasting with a 14% decline in its industry, indicating strong performance amidst competitive pressures [1]. Group 1: Competitive Landscape - Spotify's music streaming competitors, including Apple, Amazon, and Alphabet, have faced significant losses in the past three months, with declines of 12%, 21%, and 20% respectively [2]. - Despite the losses of its rivals, questions arise regarding Spotify's ability to sustain its growth momentum in a highly competitive environment [3]. Group 2: Growth Drivers - High-quality content and price hikes are key growth drivers for Spotify, contributing to a substantial increase in monthly active users (MAU), which rose by 35 million to a total of 675 million, exceeding management's guidance by 10 million [4]. - Premium revenues grew by 19% year-over-year, indicating that new active users are primarily high-quality paying users, which enhances average revenue per user potential [4][5]. Group 3: Financial Performance - Spotify has demonstrated strong capital efficiency with a trailing 12-month return on invested capital (ROIC) of 23.55%, surpassing the industry average of 21.84%, reflecting effective resource allocation for profitable growth [6]. - Revenue projections indicate strong growth, with estimates of $18.9 billion in 2025 and$21.7 billion in 2026, representing year-over-year growth of 11.7% and 14.8% respectively [9]. Group 4: Valuation Concerns - Spotify's stock is currently priced at 52.2 times forward 12-month earnings per share, significantly higher than the industry average of 31.3 times, raising concerns about the sustainability of such high valuations [14]. - The company's current ratio of 1.88 is below the industry average of 2.54, although it has improved by 10% from the previous quarter, indicating some short-term debt coverage capabilities [12]. Group 5: Investment Strategy - Given the strong top-line growth and improved pricing power, the company is positioned for long-term success, but investors are advised to adopt a "Hold" strategy and wait for clearer signs of sustained growth and potential valuation corrections before increasing exposure [15][16].