StoneX Turns Cautious on Spotify as Margin Outlook Softens

Key Moments

Rating Cut Reflects Margin and Revenue Constraints

Investing.com – StoneX analyst Mark Zgutowicz lowered his rating on Spotify from Buy to Hold in a recent client note, pointing to constrained upside in revenue per user over the coming year and mounting royalty obligations to record labels.

Spotify shares were down 0.8% in premarket trading on Thursday following the downgrade.

Zgutowicz told clients he continues to see strong long-term network benefits for Spotify, but he expects the company to face challenging financial optics over the next 12 months.

Rising Label Costs and Royalty Structure Press Margins

The analyst highlighted continuing increases in per-subscriber minimums with major labels. These step-ups elevate royalty expenses on subscription plans where those minimums apply, including discounted offerings.

He wrote, “We believe PSMs implemented over the past couple years have largely been shielded by Spotify’s premium price increases, the last of which anniversaries in Jan. ’27. Absent another broad premium price increase in CY27 –noting already three increases in the last three years– we expect less gross-margin expansion in ‘27E than consensus anticipates.”

According to Zgutowicz, without another widespread premium price hike, the ability to offset these higher label costs diminishes, implying a less favorable gross-margin trajectory than the market currently models.

AI Remix Product Seen as Incomplete Catalyst

On the product front, Zgutowicz pointed to Spotify’s AI Remix initiative as a potential but not yet fully formed driver. He described the offering as still in development and noted that it does not yet have full participation from all major labels.

Spotify has arrangements in place with Universal Music Group, Merlin and Kobalt, while Warner Music and Sony have not yet joined, according to the note.

The analyst commented, “We doubt it would generate meaningful paid uptake without at least one more major and therefore would not underwrite a scaled rollout before mid-‘27E,” adding that paid AI covers and remixes could enhance labels’ leverage in future negotiations.

Revised Financial Projections

Alongside the rating change, StoneX adjusted its financial outlook for Spotify, trimming both revenue and margin assumptions.

These changes reflect StoneX’s expectation of tighter gross-margin expansion in 2027 than current consensus forecasts, driven by label cost dynamics and limited near-term pricing or product catalysts.