Spotify Expands Music Video Offering to North America, Testing Content Diversification Amid High Valuation

What happened

Spotify has launched music videos for its Premium subscribers in the U.S. and Canada, expanding a feature previously in beta overseas and secured through new agreements with music labels. This move aims to enhance the Premium tier's value proposition and align with the company's strategy to evolve into a multi-format audio and video super-app. However, Spotify remains heavily dependent on label partnerships for content, with royalty terms that could impact margins, and faces intense competition from integrated ecosystems like Apple and YouTube. The rollout occurs as Spotify's stock trades at elevated multiples (~72x P/E) and only ~6% below a DCF estimate, implying the market already prices in sustained growth and profitability. Investors must scrutinize whether this expansion drives meaningful ARPU uplift without escalating costs or regulatory risks, given the company's short track record of profitability.

Implication

If successful, music videos could strengthen Spotify's competitive position and support mid-teens revenue growth by enhancing user engagement and enabling future price increases. However, new label agreements may involve higher royalties, potentially pressuring gross margins if not offset by operational efficiencies or pricing power. Spotify's history of costly podcast investments, including write-downs, highlights the risk of value-destructive spending on unproven formats like video. Regulatory scrutiny over bundling and app-store distribution, such as the FTC's audiobook complaint, adds uncertainty and could constrain monetization efforts. With the stock trading close to intrinsic value and a thin margin of safety, any misstep in this expansion could lead to downside, while success offers limited upside without clearer margin sustainability.

Thesis delta

The video launch reinforces Spotify's aggressive push into new content formats but does not fundamentally shift the investment thesis of high valuation and execution risk. It underscores the ongoing dependence on label partnerships and the need for disciplined capital allocation to avoid past mistakes in podcast investments. Investors should maintain a cautious stance, watching for evidence of monetization efficiency and favorable regulatory outcomes before reassessing the stock's attractiveness.