Spotify’s Ad Slump Raises a Bigger Question Than You Think

The #1 stock to buy BEFORE the June S-1 filing (From Behind the Markets)

Spotify Technologies SA (NASDAQ: SPOT) shot down nearly 13% after delivering cautious guidance in its Q1 2026 earnings report. A key area of weakness was in ad revenue, which declined for the second consecutive quarter. Spotify continues to become more efficient at generating revenue by adding premium subscribers. That said, ad revenue still makes up a considerable portion of the company’s top-line number. 

And the early reaction from investors has not been kind. Investors seemed to give Spotify a pass after its last earnings report.

The post-earnings selloff on April 28 had a more punishing feel to it. That’s because the company’s weak guidance went beyond ad revenue and into premium subscribers, which the company is forecasting to slow down after several strong quarters. That speaks to a more fundamental issue with SPOT.

Premium Subscriber Growth Is Slowing at the Worst Time

Let's start with the good news. In the current quarter, Spotify booked year-over-year premium subscriber growth of 9% to 293 million and was up from the 290 million additions in the prior quarter.

But that means that the company is now facing tough comparisons with last year’s growth numbers. And growth gets tricky at a time when consumers may be cutting back on monthly subscriptions.

This gets into one of the core issues to consider with SPOT stock. Since users can get a free (ad-supported) version of Spotify without a premium membership, the company’s earnings report presents a conundrum. If premium subscribers are dropping, it’s logical to expect that ad revenue would be higher. But in the case of Spotify, it wasn’t.

The converse is also true. If ad revenue is down, investors would hope that premium subscribers would be climbing. That was the case for the past two quarters. However, the company is suggesting that it won’t be the case in the next quarter.

This isn’t to suggest that Spotify is a failing business. However, it’s a company that’s been trading at a premium multiple based on growth expectations. Those expectations may need to be repriced.

Spotify’s Valuation Problem: Growth Stock or Media Company?

The core issue for investors to consider is a miscast valuation. SPOT is trading at 45x earnings and 27x forward earnings. At first glance, that doesn’t look too bad. It’s below the company’s historic average. It’s also in line with the premium afforded to most technology stocks.

However, that’s where the issue comes in. Is Spotify really a technology company? On one level, you can make the growth-stock case. However, the business model is far closer to Netflix (NASDAQ: NFLX), which is part of the consumer discretionary sector.

Viewed through the lens of a media company, the valuation question is more problematic. NFLX trades at 29x earnings, which is only a slight premium to both the S&P 500 and the sector average. And that’s where SPOT looks overvalued, which could mean the stock has further to fall.

Analysts were generally bullish heading into the earnings report, at which point SPOT had a consensus price target of $692.14. After the selloff, that target marked over 60% upside. However, once analysts weigh in following the report, that price target may begin to trend downwards.

That would confirm what’s being seen in institutional selling, which has outpaced buying by nearly 3:1 in the last 12 months, with the heaviest selling coming in Q3 2025. One interpretation of that selling is that the institutions were anticipating what investors are now seeing from Spotify.

Technical Breakdown Suggests More Downside Ahead for SPOT Stock

SPOT is under pressure again following another disappointing earnings report, and this time the technical picture suggests the damage could be more lasting. The stock has broken cleanly below its 50-day moving average and is sitting at a precarious ledge around $430-$440.

But it gets really ugly when you look at the weekly chart over a five-year period. SPOT is now at a level that marked prior resistance on the weekly chart before the big 2024-2025 rally. What's concerning is that the February selloff attracted buyers aggressively near $390-$400, but with two consecutive earnings misses now on the books, investors may not be as likely to show up this time.

The daily RSI is technically oversold, but that signal carries little weight when the weekly RSI still has plenty of room to fall. If $390-$400 fails to hold on a closing basis, the next logical target is the $340-$350 range, roughly another 20% lower, where SPOT built its base before breaking out in mid-2024.

A broader macro deterioration could even invite a test of $280-$300, though that remains a tail-risk scenario. Nevertheless, the path of least resistance, for now, points lower.

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