The S&P 500 is in a raging bull market right now. It returned 23% over the past year, but that pales in comparison to the whopping 180% gain in Spotify Technology (SPOT -0.02%) stock.

Spotify operates the world's largest music streaming platform, and investors appear very pleased with the company's ability to continue growing its subscriber base, while carefully managing costs to deliver surging profits at the same time.

Spotify stock is starting to look pricey following its incredible gains, so is it too late for investors to buy?

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More than just a music platform

Spotify ended 2024 with a record 675 million monthly active users. It breaks customers into two categories: 425 million free users who are monetized through advertising, and 263 million users who pay a monthly subscription for Spotify's premium, ad-free service. The premium subscriber figure was 3 million higher than management's forecast, which is exactly what investors want to see because premium users represent 87% of the company's total revenue.

Spotify is investing heavily to continue attracting users. First, it's betting big on technologies like artificial intelligence (AI) to improve the user experience. Over the past year, it launched features like AI Playlist, which allows users to enter a text-based prompt referencing a color, a place, or even an emoji, and it will instantly generate a list of songs to match.

Second, Spotify continues to expand its content catalog beyond music. It's already one of the world's largest podcast platforms, but it's offering creators more financial incentives to make video podcasts to complement the audio experience, in order to improve engagement. As of the end of 2024, more than 270 million Spotify users streamed at least one video podcast, and its library now contains over 330,000 titles (and growing).

Moreover, Spotify is also now the second-biggest provider of audiobooks behind Amazon's Audible. Premium subscribers can listen to 15 hours worth of audiobooks per month, but they can also pay an additional fee to unlock more time, which creates a new revenue stream for the company. There are more than 375,000 audiobook titles available, and that number will continue growing to entice users to spend more time listening.

Spotify posted its first annual profit in 2024

Spotify generated $16.3 billion in total revenue during 2024. It was an 18% year-over-year increase, which marked an acceleration from the 13% growth the company delivered in 2023.

That's even more impressive than it sounds because Spotify slashed its operating expenses by around 12% during 2024, which included reductions in everything from research and development to marketing. Conventional wisdom suggests that would hurt any company's ability to attract new customers and generate additional revenue, but Spotify's investments in technology and its growing content catalog have spurred significant organic growth.

Accelerating top-line growth combined with steep cost cuts allowed more money to flow to the bottom line as profit. As a result, Spotify delivered $1.2 billion in net income during 2024, which was a big swing from the $554 million net loss it generated in 2023. It was also the company's first profitable year.

Spotify stock is expensive by every traditional metric

Now that Spotify has a full-year profit under its belt, investors can start valuing its stock using the price-to-earnings (P/E) ratio. Based on the company's earnings per share of $5.74 in 2024, the stock trades at a P/E ratio of 109 as of this writing.

That is extremely high -- by comparison, the S&P 500 index trades at a P/E ratio of 25.5. Even high-flying AI stock Nvidia trades at a lesser P/E ratio of 49.1.

However, Wall Street's consensus forecast (provided by Yahoo!) suggests Spotify's earnings per share could soar to $10.82 during 2025, placing its stock at a slightly cheaper (but not necessarily cheap) forward P/E ratio of 57.2.

The stock can also be valued using the price-to-sales (P/S) ratio, which divides a company's market capitalization by its annual revenue. Spotify's P/S ratio just hit a new all-time high of 7.8, which is double its long-term average of 3.9:

SPOT PS Ratio data by YCharts

So Spotify stock isn't cheap, but is it a buy? Back in 2022, CEO Daniel Ek issued a long-term forecast suggesting Spotify's annual revenue could hit $100 billion by 2032. A year later, he predicted the platform's monthly active user base could top 1 billion by 2030. If his revenue guidance comes to fruition, Spotify stock looks like a bargain right now for any investor who can hold onto it for the next eight years (or more).

However, investors should always be cautious about long-term forecasts of that nature. Anything can happen between now and 2032 -- a new technology could replace streaming, or the entertainment industry could change dramatically because of AI-generated content.

As a result, it might be safer for investors to wait for a pullback in Spotify stock before buying in.