The stock market is off to a volatile start to 2026 amid ongoing geopolitical tensions in the Middle East, with the Nasdaq-100 technology index recently plummeting by as much as 12% from last October's all-time high. While sell-offs can be unnerving, history suggests they can also be fantastic buying opportunities for long-term investors.
Spotify (SPOT +0.22%) operates the world's largest music streaming platform, yet despite the company's strong revenue growth and surging earnings, its stock is currently down 31% from last year's record high. Could this be a great long-term buying opportunity?
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The music industry's leading innovator
Record labels aim to give their artists the widest possible reach, so they typically don't engage in exclusivity agreements with any single streaming platform. That means Spotify offers practically the same content catalog as its competitors, so it has to win customers by developing the best technology and by offering other content formats like podcasts and audiobooks.
On the technology front, Spotify is making significant investments in artificial intelligence (AI) to deliver a unique user experience. Every user benefits from the platform's AI-powered content recommendation algorithm, but they can also use standalone AI features like Prompted Playlist, which will curate a collection of songs based on the custom parameters they set.
In terms of content, Spotify is currently betting big on video podcasts to attract new users. Last year, it launched a partner program to reward creators with large financial incentives, and it's working because they have since uploaded more than 530,000 videos. The company said consumption of this content jumped 90% by the end of 2025 compared to when the program was introduced, significantly boosting engagement.
By consistently delivering fresh technology and content, Spotify is enticing users to spend more time on the platform, increasing the likelihood that they will become long-term paying members.
Annuity-like revenues, with soaring profits
Streaming companies like Spotify charge their customers subscription fees on a monthly or annual basis, so they earn recurring revenue for offering the same service over and over again. This revenue grows when Spotify attracts more users or when it increases subscription prices for existing users.
NYSE: SPOT
Key Data Points
Spotify ended 2025 with 290 million paying subscribers. These so-called Premium members accounted for 89% of the company's $20.3 billion in total revenue last year, while the remaining 11% was generated by the platforms' 476 million free users, monetized through advertising. The company's goal is to convert free users into Premium members, who are clearly far more valuable.
Spotify is currently focusing on improving its bottom line to build a more sustainable business for the long run. It reduced its operating expenses by 2% year over year in 2025, and since revenue grew 10%, the company's net income exploded by 94% to $2.6 billion.
Profits can have a major influence on a company's stock price, so while it's unrealistic to expect continued growth of over 90% from here, the positive trajectory of Spotify's bottom line could drive significant returns for investors over the long term.
Spotify's valuation leaves room for upside
Spotify earned $12.40 per share last year, which places its stock at a price-to-earnings (P/E) ratio of 41. That isn't necessarily cheap considering the Nasdaq-100 trades at a P/E ratio of 30.8, but Spotify looks significantly more attractive when we factor in the company's future growth.
According to Yahoo! Finance, Wall Street expects Spotify to earn $15.43 per share in 2026, followed by $19.34 per share in 2027, placing its stock at forward P/E ratios of 32.9 and 26.3, respectively.
Spotify stock would have to climb 17% by the end of next year just to maintain a market multiple (based on the current P/E of the Nasdaq-100), but it would have to soar by 56% to maintain its current P/E ratio of 41. However, if the company continues to deliver blistering growth at the bottom line as it did in 2025, then Wall Street's estimates might be too low, opening the door to even more upside in its stock.
Looking to the longer term, around 3.5% of the world's population is currently subscribed to Spotify Premium, but co-CEO Alex Norström believes that figure could grow to as high as 15% in the future. This potential fourfold increase in the platform's user base would translate to similar growth in the company's revenue and earnings, which would make its current stock price look like an absolute steal.
Therefore, as long as investors are willing to hold Spotify stock for a period of five years or more, its recent 34% sell-off looks like a very attractive buying opportunity.
