The Spotify Turnaround: From Cash Burner to $2.78 Billion Free Cash Flow

Core Insights - Spotify has transformed from a cash-burning company to a profitable streaming giant, achieving $2.78 billion in free cash flow and a 14% stock surge after beating Q4 earnings expectations by 60% [1] - The company reported earnings per share (EPS) of $5.16, significantly higher than the expected $3.21, while reaching 751 million monthly users and a record operating margin of 15.47% [1] Financial Performance - Spotify's operating income reached €701 million (approximately $835 million) with an operating margin expansion from -3.37% in 2023 to 12.79% in 2025, indicating improved profitability [1] - Free cash flow increased dramatically from €21 million in 2022 to €2.9 billion in 2025, showcasing the company's ability to negotiate better licensing deals and enhance user engagement without proportional cost increases [1] User Growth and Market Position - The platform added 38 million monthly active users in Q4 2025, bringing the total to 751 million, with 290 million being premium subscribers [1] - Gross margin improved to 31%, up from 11% a decade ago, reflecting Spotify's enhanced leverage in licensing negotiations and operational efficiency [1] Investor Sentiment and Analyst Outlook - Following the earnings report, sentiment among Reddit traders shifted positively, with discussion volume increasing from 20.5 to 31.8 [1] - Goldman Sachs upgraded Spotify to a "Buy" rating with a price target of $700, citing durable advantages in pricing power and AI-driven personalization [1] Future Growth Strategies - Spotify's co-CEOs have positioned 2026 as a year of ambition, focusing on AI features and expanding audiobooks as key growth drivers [1] - The company's ability to maintain profit margins while investing in product innovation will be crucial for sustaining its recent stock rally [1]