After third-quarter profit met expectations and revenue fell slightly short, the music-streaming company is betting on artificial intelligence features to attract holiday-season listeners.
Spotify forecast fourth-quarter operating income of €820 million on 22 October, above analysts’ average estimate of €813.4 million. The Swedish music-streaming company also reported year-on-year revenue growth and a fall in free cash flow for the third quarter.
The outlook followed third-quarter operating income broadly in line with analyst expectations and revenue slightly below estimates. Operating income measures profit from running the business, before interest and tax.
| Measure | Reported result | Analyst estimate | Estimate compiler |
|---|---|---|---|
| Operating income | €672 million | €671.8 million | Visible Alpha |
| Revenue | €4.97 billion | €4.98 billion | LSEG |
Spotify added six million net premium subscribers in the quarter ending 30 September, one million more than it had forecast, according to company figures. That brought the number of paying subscribers to 306 million. Monthly active users, which include paying and free listeners, reached 788 million, up 11% year on year and in line with company guidance.
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Variety reported Spotify’s revenue growth of 16% year on year, which the company attributed to relatively consistent premium growth and improved advertising-supported performance. Billboard reported growth of 14% at constant currency. That measure removes exchange-rate fluctuations; it is distinct from the growth in reported euro revenue.
| Measure | Third-quarter result | Comparison |
|---|---|---|
| Gross margin: revenue left after direct costs | 33% | Up 1.36 percentage points year on year |
| Operating margin: operating profit as a share of revenue | 13.5% | 13.7% a year earlier; 13.6% in the previous quarter |
| Operating expenses | €967 million | Up about 26% year on year |
| Free cash flow: cash left after operating costs and capital investment | €735 million | €806 million a year earlier |
Spotify said improvements in both its premium and advertising-supported businesses lifted gross margin. The result slightly exceeded its 32.9% guidance. Operating income also beat the company’s forecast because marketing and personnel-related costs were lower than forecast, Spotify said. That comparison is with Spotify’s own forecast, not with year-earlier spending or analysts’ estimates.
Operating expenses rose 19% after adjusting for currency movements and excluding payroll taxes on employees’ share-based pay. Spotify attributed growth in the remaining expenses to temporarily elevated marketing and cloud computing/artificial intelligence (AI) spending. Those payroll taxes, which Spotify calls social charges, totalled €22 million—€13 million more than the company expected.
CNA reported that Spotify is investing in AI to help listeners discover music and keep them engaged. The company aims to attract users and compete with emerging music-generation rivals such as Suno and Udio. Its AI-powered features include personalised music mixes with spoken commentary and playlists generated from a listener’s description of a mood or listening preference.
In a statement accompanying the results, Spotify co-CEO Alex Norström said costs were moderating and the company invested when it saw a path to growth, Billboard reported.
For the holiday quarter, Spotify projected more paying subscribers than analysts expected, while its forecast for total monthly active users was marginally below expectations.
| Measure | Spotify forecast | Analyst estimate | Estimate compiler |
|---|---|---|---|
| Operating income | €820 million | €813.4 million | LSEG |
| Premium subscribers | 316 million | 314.7 million | Visible Alpha |
| Monthly active users | 818 million | 819 million | Visible Alpha |
Reaching Spotify’s fourth-quarter paying-subscriber target would mean adding 10 million premium subscribers during the quarter.
Microsoft reported $33.17 billion in Azure revenue and a 22% year-over-year decline in Windows OEM and devices revenue. Its reporting overhaul brings quarterly disclosure of Azure’s dollar contribution.
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The US wireless carrier’s third-quarter service revenue rose 6% to $19.4 billion as it raised its expectations for the full year.
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Correction ·
Corrected the wording of the English and Armenian versions.
Update ·
Adds third-quarter subscriber gains, revenue growth, margin and spending figures, and the fall in free cash flow.
