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Raise prices, make more money. It’s a simple formula right out of a Finance 101 textbook.
And that formula is set to be music to the ears of Spotify’s (SPOT) CFO.
Spotify said this week it would hike the price on US individual premium plans to $12.99 from $11.99. The duo (two-person) plan is increasing to $18.99 from $16.99 a month. The family plan is rising to $21.99 from $19.99. Student plans are also increasing to $6.99 from $5.99.
In the process, Spotify has put itself in the unenviable position of being the most expensive music streaming platform when compared to Apple Music (AAPL) and Amazon Music (AMZN).
The price increases will add up big-time, according to the numbers crunched by Evercore ISI tech analyst Mark Mahaney.
Mahaney estimated a 4% to 5% boost to sales assuming the $1 price increase across individual and student plans and a $2 increase for duo and family plans. Assuming the same gross margin profile as the existing business, Mahaney calculated an approximate $270 million boost to gross profit, “most of which should flow down to operating income.”
Key modeling assumptions he made:
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65 million US subscribers.
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Roughly 45% of these 65 million are on individual plans, and 44% are on duo/family plans.
In total, Mahaney calculated an estimated 842 million euros ($978 million) in incremental revenue from price increases for three quarters of fiscal year 2026.
“We continue to view Spotify as the global leader in streaming audio with accelerating monetization, strong user growth, and improving profitability,” Mahaney added. “Average revenue per user expansion is underway, supported by price increases across 150+ markets and steady retention, confirming Spotify’s pricing power and low churn. We expect the full uplift to layer in through early 2026 alongside the forthcoming rollout of a higher priced Superfan/Premium+ tier.”
Mahaney rated Spotify at Outperform with a $750 price target, which assumes 47% upside from current levels. Mahaney’s price target on Spotify puts him above the $730 average of his Wall Street peers, per Yahoo Finance data. Of the 41 sell-side analysts that cover Spotify, 75% rate the stock a Buy or Strong Buy.
Spotify is no stranger to lifting prices on its customers.
Spotify last hiked subscription prices on its US users in June 2024. That came after a raise in July 2023, which represented its first price increase since its US debut in 2011.
Interestingly, after each announced price increase Spotify shares traded sideways to down slightly as the Street worried about subscriber counts amid the higher monthly dues. But the stock then settled in and enjoyed strong bullish runs as the top- and bottom-line effects of the higher prices became apparent to Wall Street — and users didn’t tune out.
Brian Sozzi is Yahoo Finance’s Executive Editor and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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