Spotify’s Impressive Growth Amid Wall Street’s Struggles

This year has been a rollercoaster on Wall Street. The major stock market indexes have given back all of their early-year gains — and then some. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average have retreated 6%, 10%, and 5%, respectively, year-to-date.

However, investors don’t have to look far to find stocks that have bucked the trend. Today, let’s examine one such Spotify Technology (NYSE: SPOT), and consider why it might be a strong buy right now.

Strong Performance Since 2022

Spotify is not just a fleeting success. Founded in 2006, well before digital media streaming became mainstream, it has consistently been a leader in the streaming space. This leadership has rewarded patient shareholders with significant returns.

Since late 2022, the company’s stock has surged 670%, which translates to a compound annual growth rate (CAGR) of 128%. This is one of the highest CAGRs among stocks in the streaming sector. For comparison, Netflix (NASDAQ: NFLX) has a respectable CAGR of 71%, while Meta Platforms (NASDAQ: META) enjoys a 104% CAGR. Even Nvidia (NASDAQ: NVDA), the leader in AI technology, has only slightly outperformed Spotify with a CAGR of 134%.

Clearly, Spotify’s stock has made savvy investors very happy since 2022. But what factors are driving this impressive performance, and will the trend continue? Let’s explore further.

The Appeal of Spotify’s Subscriber Base

When discussing Spotify, “stickiness” is a key term. In economics, “sticky” variables resist change, and in Spotify’s case, we’re referring to subscribers who remain loyal over time. Evidence of this stickiness can be seen in the company’s low churn rate, high engagement levels, and strong customer loyalty.

Spotify has raised prices twice in recent years, yet its subscriber base has expanded significantly—from 206 million at the end of 2022 to around 265 million in the latest quarter. Such growth amidst price increases is a clear indication of a loyal and engaged customer base.

Image source: Statista.

Is Spotify’s Loyalty a Reason to Buy Now?

In summary, Spotify’s strong subscriber retention is one of its greatest strengths. Customers clearly enjoy the platform, and for millions, its extensive catalog of music, podcasts, and audiobooks is integral to their daily lives.

This loyalty translates into real financial gains. Although Spotify struggled to turn a profit in the past, this has changed. Alongside price hikes, the company has managed to reduce operational costs since 2022, resulting in substantial profit growth. After posting a net loss exceeding $1 billion in 2022, Spotify turned this around in 2024, recording a net profit of $1.2 billion. Furthermore, free cash flow—a crucial indicator of financial health—has risen to $2.5 billion.

With these profits, Spotify is positioned to potentially return value to shareholders through stock buybacks, dividend payments, or strategic acquisitions.

Investors looking to capitalize on Spotify’s strong market position may find it a compelling option worth considering.