S&P 500 Correction: 1 Spectacular Growth Stock to Buy Now and Hold for the Long Run

The S&P 500 slipped into correction territory in April after suffering a decline of as much as 19% from its all-time high (narrowly avoiding the bear market threshold of 20%). The tariffs that President Donald Trump imposed on imported goods from America's trading partners triggered the sell-off, as investors feared they could lead to a severe economic slowdown.

Tariffs primarily affect physical goods, whereas digital products and services are mostly exempt. Spotify Technology (NYSE: SPOT) operates the world's biggest music streaming platform, and its subscriptions are not facing any new levies as things stand today. Moreover, Spotify operates in 180 different countries, so its revenue base is very diversified, which insulates the company from dramatic shifts in trade policy.

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Spotify stock is down 13% from its all-time high, but given its resistance to tariffs, here's why it could be the ideal stock to buy on the dip during the S&P 500 correction.

Leading the way in technology and content

Most music streaming platforms have near-identical content catalogs, so it can be difficult for them to differentiate their service from the competition. That's why Spotify has consistently focused on delivering the best technology, and offering other content formats to give users more reasons to sign up.

Artificial intelligence (AI) is a big part of Spotify's tech strategy right now. It launched a series of features last year including AI Playlist, which enables users to type in a basic prompt -- whether it be a feeling, a mood, or even a color -- to generate a list of songs. It's only available for Premium subscribers, so it could help Spotify convert free users into paying users.

Spotify also has a growing portfolio of automated solutions for advertisers, which use AI to help them buy ad slots, measure their performance, and even create ad content. These tools might help the platform attract more businesses, especially those without in-house marketing teams. During the first quarter of 2025, the company said over 10,000 advertisers were using them, which was a 21% increase from the year-ago period.

On the content side, Spotify said users spent 44% more time watching videos on the platform during the first quarter. Therefore, the company is trying to build its catalog of video podcasts by offering a new monetization system that helps creators earn more income. The new system paid out over $100 million to video podcasters in Q1 alone, which should encourage more creators to dive into this content format.

Spotify has also become the world's second-largest audiobook platform behind Amazon's Audible. Premium subscribers can choose from over 375,000 titles and enjoy 15 hours of monthly listening with an option to pay extra to unlock more capacity. Therefore, not only can this content format attract new paying users, but it also creates a new revenue stream for the company from existing members.

Image source: Getty Images.

Spotify's profits are soaring

Spotify had 268 million paying subscribers at the end of the first quarter of 2025, which was a 12% increase compared to the year-ago period. The platform also had 423 million free users who are monetized through advertising, which was up 9%. It's positive that the paying subscriber base is growing more quickly, because it accounts for 90% of Spotify's revenue.

On that note, the company generated $4.7 billion in total revenue during Q1, which represented 15% year-over-year growth. But the real story for Spotify lately has been at the bottom line, because management has carefully managed costs in recent quarters to improve its profitability. The company's operating expenses were down 2% in Q1 compared to the year-ago period, led by modest cuts in marketing and research and development spending.

With revenue steadily growing and costs falling, Spotify's first-quarter net income increased by 14% to $255 million on an IFRS (International Financial Reporting Standards) basis. But free cash flow is Spotify's preferred measure of profitability, which is a non-IFRS metric that excludes some costs like the interest on debt, and stock-based compensation. It came in at $607 million in Q1, representing eye-popping 158% growth.

It carried Spotify's trailing-12-month free cash flow to a record high of almost $3 billion.

Significant long-term growth might be on the horizon

Before diving into Spotify's long-term potential, it's important to consider its valuation, because the stock isn't necessarily cheap. Based on the company's trailing-12-month earnings per share, its price-to-earnings (P/E) ratio is around 96 as of this writing, which makes the stock 4 times more expensive than the S&P 500.

However, Wall Street's consensus forecast (provided by Yahoo! Finance) suggests Spotify's earnings per share will soar by 66% this year to around $10.42, followed by a further increase to $14.88 in 2026. That places its stock at forward P/E ratios of around 50 and 38, respectively. In other words, Spotify's earnings are growing so quickly that its valuation looks significantly more attractive the further you look into the future:

SPOT PE Ratio data by YCharts

That brings me to Spotify's long-term outlook. Back in 2022, CEO Daniel Ek issued a 10-year forecast suggesting the company's annual revenue could hit $100 billion by 2032, with over 1 billion monthly active users on the platform. That would represent an eye-popping increase of 461% from its 2024 revenue of $17.8 billion, so if we assume profit margins remain constant, there could be a similar increase in the streaming giant's earnings.

However, it's worth noting profit margins have soared over the last few years, and the company is anticipating further improvement from here. Therefore, patient investors who are willing to hold Spotify stock for the long term (potentially as long as eight years) could be scooping up a bargain at the current price.

Should you invest $1,000 in Spotify Technology right now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Spotify Technology. The Motley Fool has a disclosure policy.