• If you are wondering whether Spotify Technology stock still offers value at current levels, it helps to step back and separate the share price story from what the underlying business might be worth.
• The stock recently closed at US$496.95. The share price was roughly flat over the last 7 days, up 16.9% over the past month, but down 13.6% year to date and down 30.2% over the past year, after a very large gain of around 3x over the last 3 years and a little more than doubling over 5 years.
• Recent moves have played out against a backdrop of continuing attention on Spotify Technology's role in global audio streaming and how it monetises its large user base. Headlines around its subscriber trends, content investments and product decisions help frame how investors are reassessing both growth potential and risk.
• Our valuation model currently gives Spotify Technology a valuation score of 4 out of 6, which means it screens as undervalued on most, but not all, of the checks used. The next sections walk through these different valuation approaches, and finish with a way of thinking about value that goes beyond any single model.

Approach 1: Spotify Technology Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes projected future cash flows and discounts them back to what they might be worth today. It is essentially asking what Spotify Technology’s future cash generation could be worth in today’s euros.

Spotify Technology’s latest twelve month free cash flow is about €3.20b. Analysts have provided explicit forecasts for the next few years, and Simply Wall St extends these out using its own assumptions. Under this 2 Stage Free Cash Flow to Equity model, free cash flow is projected to reach about €6.99b in 2030, with further estimates running through to 2035.

When all these projected cash flows are discounted back, the model arrives at an estimated intrinsic value of €791.79 per share. Against the recent share price of US$496.95, this implies the stock trades at a discount of about 37.2%, which indicates that Spotify Technology screens as undervalued on this DCF view.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Spotify Technology is undervalued by 37.2%. Track this in your watchlist or portfolio, or discover 49 more high quality undervalued stocks.

Approach 2: Spotify Technology Price vs Earnings

For profitable companies, the P/E ratio is a useful way to see how much you are paying for each dollar of earnings. A higher P/E can reflect stronger growth expectations or a lower perception of risk, while a lower P/E can point to more modest growth expectations or higher perceived risk. What counts as “normal” depends on both factors.

Spotify Technology currently trades on a P/E of 32.7x. This compares with an Entertainment industry average P/E of about 25.7x and a peer group average of 51.9x. Simply Wall St also calculates a proprietary “Fair Ratio” for Spotify Technology of 28.5x. This is the P/E level that might be expected given characteristics such as its earnings growth profile, profit margins, industry, market cap and specific risk factors.

The Fair Ratio is more tailored than a simple peer or industry comparison because it adjusts for the company’s own growth, risk and profitability, rather than assuming all companies in the sector deserve the same multiple. Setting Spotify Technology’s current P/E of 32.7x against the Fair Ratio of 28.5x suggests the stock is trading above this fair range.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Spotify Technology Narrative

Earlier it was mentioned that there is an even better way to understand valuation, so Narratives are introduced here as a simple way for you to connect your story about Spotify Technology with explicit forecasts for revenue, earnings, margins and a fair value, then see how that stacks up against the current price.

On Simply Wall St, Narratives sit in the Community page and let you pick or build a view. For example, one investor on the cautious side recently set a fair value of US$357.76, while others with more optimistic assumptions arrive at fair values around US$703.12 or even about US$734.24, all based on different expectations for Spotify Technology’s growth, profitability, risk and future P/E.

Once you choose a Narrative, the platform continually links that story to fresh data by updating the forecast and fair value when new news, earnings or analyst estimates come in. This allows you to quickly compare the Narrative’s fair value to today’s share price and decide whether you see Spotify Technology as closer to fully valued or offering a margin between price and value according to your own assumptions.

For Spotify Technology however, we will make it really easy for you with previews of two leading Spotify Technology Narratives:

Start with a bullish view if you want to see what upside supporters focus on, then contrast it with a more cautious take that leans on stricter valuation work.

Fair value in this Narrative: US$703.12

Implied discount to this fair value: the last close of US$496.95 sits about 29.3% below the Narrative fair value.

Revenue growth assumption used in this Narrative: 19%.

• Focuses on Spotify Technology prioritising long term goals in audio over short term profitability, with user growth, engagement and creator reach at the centre of the story.
• Argues that over time bargaining power could shift toward Spotify Technology as an aggregator, while a broader audio platform including podcasts and audiobooks may support a more favourable cost structure and cash generation.
• Sees current market attention on accounting earnings and near term gross margins as missing free cash flow trends and the potential impact of higher margins, new revenue streams and operating leverage.

Fair value in this Narrative: US$357.76

Implied premium to this fair value: the last close of US$496.95 is about 38.9% above the Narrative fair value.

Revenue growth assumption used in this Narrative: 7.02%.

• Applies several valuation methods including DCF, EPS growth and historical P/S, and concludes that at recent prices Spotify Technology screens above the range suggested by these models.
• Highlights that recent return on invested capital trails the estimated 7.71% cost of capital, points to share count growth and cites Morningstar’s Narrow moat and High uncertainty ratings as reasons for caution.
• Uses Monte Carlo simulations to show many scenarios where the stock screens above estimated fair value, and treats current pricing as rich compared with the analyst based forecasts plugged into the models.

If you want to see how your own expectations compare with these, you can review the full community Narratives and the underlying forecasts, then decide which assumptions feel closer to your view of Spotify Technology, or whether you would build a different story of your own. To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Spotify Technology on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

Do you think there's more to the story for Spotify Technology? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.