Spotify Technology has spent years proving it can build one of the largest music-streaming audiences in the world. Bank of America now thinks the company is entering a more important phase, where the business can turn that scale into higher revenue, stronger margins, and more ways to charge its most engaged users.
In a Bank of America note given to TheStreet, analyst Jessica Reif Ehrlich reiterated a Buy rating on Spotify and kept a $685 price objective on the stock. That target implies 39.8% upside from the $489.93 share price listed in the note.
The call followed Spotify’s investor day, where management laid out a long-term strategy that moves the company deeper into pricing, segmentation, and higher-value experiences. The company’s targets included mid-teens constant-currency revenue growth, 35% to 40% gross margins, and operating margins above 20% by 2030, according to the note.
BofA’s view is that Spotify has moved past the stage where investor focus sits almost entirely on subscriber growth. The company is now trying to build a broader platform that can generate more revenue from users who already spend significant time inside its ecosystem.
Spotify lays out a bigger plan for growth
Spotify’s investor day showed a company leaning harder into the idea that engagement can eventually become a larger financial opportunity. Management pointed to a longer-term ambition of 1 billion subscribers and a roughly €100 billion revenue opportunity, according to the Bank of America note.
The foundation of the bull case is that Spotify’s audience is already large, active, and increasingly attached to the product. BofA noted that Spotify has more than 100 million subscribers spending more than 28 days a month on the platform. Users who listen to podcasts spend roughly three more days on Spotify each month, while video podcast users spend another day beyond that.
That usage gives Spotify a stronger base to introduce add-ons and new experiences. BofA highlighted audiobooks, creator tools, music remix features, podcasts, and live concerts as potential areas where the company can target users willing to spend more.
The note also described Spotify’s strategy as a move toward a “superfan” monetization framework. That would allow the company to stop treating every user the same and instead focus on the customers whose engagement suggests a greater willingness to pay.
AI could become part of Spotify’s next paid tier
One of the more notable updates from Spotify’s investor day was the announcement of a new AI-driven music remix and creation tier. The product is enabled by a licensing agreement with Universal Music Group, which BofA described as the largest of the record companies, with more than 30% share of the global recorded music market.
The product would allow users to legally create and distribute remixes and covers using licensed catalogs, with revenue shared across Spotify, artists, and songwriters. Bank of America said the specific economics of the agreement were not disclosed.
That changes how investors may view AI’s role in music streaming. AI-generated music has been seen as a threat to the music industry, with concerns that it could weaken platforms, pressure artists, and interfere with subscriber growth. Spotify’s approach appears aimed at turning that risk into a paid product.
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BofA expects the AI remix and creation tier to launch as a paid add-on to premium. While the agreement is currently limited to Universal Music Group, the firm said it anticipates similar agreements with other labels in the future.
For Spotify, the opportunity is fairly direct. The company can give highly engaged users more tools, create another paid product tier, and potentially build a new revenue pool that involves the broader music industry.
BofA sees more room for Spotify stock
Bank of America’s $685 price objective is based on roughly 29 times its calendar 2027 free cash flow estimate. The firm said that valuation reflects Spotify’s position in a secular growth area, its improving profitability, and the premium valuations given to leading subscription streaming companies.
BofA said longer-term profit growth and free cash flow generation should be driven by deeper subscriber penetration, price increases, new pricing tiers, advertising improvement, and new businesses. The firm also pointed to a strong balance sheet and improving cash flow profile as reasons Spotify can continue investing in future growth.
The risks are still clear. BofA cited margin pressure, increased content costs, reduced streaming market share, slower revenue growth, and competition from AI platforms as potential downside risks to the price objective.
