Can Spotify's Reliance on AI-Powered Offerings Drive Growth?

Spotify Technology S.A. SPOT has consistently focused on integrating AI to personalize its offerings. This approach has helped the company’s steady growth in user engagement reinforce its leadership in the audio streaming market. The AI DJ feature, launched in 2023, continues to resonate with users, with reports indicating high engagement.

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In the first quarter of 2023, SPOT had 515 million monthly active users (MAU), which increased 16.9% in the fourth quarter of 2023. The company then reported 615 million MAU, marking an increase of 2.1% from the previous quarter. This figure grew nearly 10% by the end of the fourth quarter of 2024. In the most recent March quarter, Spotify reported 678 million MAU, adding 3 million from the previous quarter and rising 10.2% from the same quarter last year.

SPOT’s AI DJ partially contributed to MAU growth, as other AI-powered features enhanced the user experience. Spotify Wrapped, an AI-driven personalized summary of listening habits, remains a strong tool for retention and engagement. In the recent earnings call, management explained that the slowdown in the first quarter was due to the strong performance of Spotify Wrapped in the previous quarter. This feature is likely to boost user engagement again in the second half of the year as well.

Spotify’s AI Playlist feature is gaining traction, which allows premium users to create playlists from prompts, and it has expanded to more than 40 new markets in April 2025. This feature improves the value proposition of a paid subscription, contributing toward average year-over-year revenue per user growth of 4% in the first quarter of 2025.

The company has also utilized AI in optimizing its ad targeting for a significant proportion of its ad-supported user base, enhancing its user engagement. In doing so, SPOT registered 8% year-over-year growth in ad-supported revenues and witnessed an 885-basis-point increase in its ad-supported gross margin.

The company has enhanced its focus on AI-based offerings up a notch by accepting audiobooks from ElevenLabs, an AI software company that offers high-quality voice narration technology. Authors can now use the ElevenLabs platform to narrate their audiobooks in 29 languages and distribute the content to Spotify, expanding their reach.

That said, the global audiobooks market is anticipated to grow, seeing a CAGR of 26.2% from 2025 to 2030. Partnering with ElevenLabs is a strategic move for Spotify, allowing it to extend its global reach, strengthen its competitive moat and monetize its enormous global audience.

Spotify’s Price Performance, Valuation & Estimates

The SPOT stock has skyrocketed 128.8% in the past year, significantly outperforming Amazon AMZN and Apple AAPL, and the industry as a whole. The industry has rallied 32%. Amazon has gained 11.7%, while Apple has declined 5.2%.

1-Year Price Performance

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From a valuation standpoint, SPOT trades at a forward price-to-earnings ratio of 64.34X, higher than Amazon’s 33.26X, Apple’s 28.33X and the industry’s 39.73X.

P/E - F12M

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Spotify has a Value Score of F, while Amazon and Apple have a Value Score of D, respectively.

The Zacks Consensus Estimate for Spotify’s earnings for 2025 is pegged at $9.22 per share, implying 55% year-over-year growth.

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SPOT currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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