Spotify's Subscriber Machine Shows No Signs of Stopping — 316 Million Now in Sight

Spotify Technology S.A. (NYSE:SPOT) stock climbed Thursday despite the music streaming company reporting third-quarter earnings and revenue that missed Wall Street estimates, as continued growth in premium subscribers and monthly active users helped lift investor sentiment.

Spotify reported earnings of $2.85 per share, missing analysts’ consensus estimate of $3.11.

Revenue rose 16% year over year to 4.97 billion euros ($5.72 billion), slightly below the consensus estimate of $5.73 billion.

Spotify Subscriber Growth Remains Strong

Spotify’s monthly active users increased 11% year over year to 788 million, with 11 million net additions matching company guidance.

Premium subscribers rose 9% to 306 million, including 6 million net additions.

Average revenue per premium user increased 9.3% to 4.95 euros, while ad-supported revenue grew 10%.

Margins Expand Despite Higher AI Spending

Gross margin expanded 136 basis points to 33%, exceeding company guidance, driven by improvements in its premium and advertising businesses.

Premium gross margin rose 130 basis points to 34.5%, while ad-supported gross margin increased 105 basis points to 18.7%.

Operating income climbed 15% to 672 million euros, representing a 13.5% operating margin.

Operating expenses increased 26% year over year to 967 million euros. Excluding currency movements and social charges, expenses rose 19%, primarily reflecting increased marketing, cloud and AI spending.

The company generated 735 million euros in free cash flow and ended the quarter with 9.9 billion euros in cash, cash equivalents, restricted cash and short-term investments.

Premium Growth, Advertising and Audiobooks Fuel Expansion

Premium revenue increased 17% year over year, or 15% on a constant-currency basis, supported by subscriber growth and higher average revenue per user.

Premium ARPU rose 9.3%, or 7.5% at constant currency. Ad-supported revenue grew 10%, or 9% at constant currency, supported by automated advertising channels and podcast sponsorships.

Spotify plans to expand its audiobook offerings to more than 180 markets by year-end.

Co-CEO Alex Norström said audiobooks are increasing user engagement, retention and lifetime value, while Audiobooks+ add-ons provide additional revenue opportunities.

Bets on AI-Powered Discovery and Distribution

Co-CEO Gustav Söderström said Spotify is evolving into an AI-powered media platform that allows users to interact with content through natural language.

Management said AI investments are already driving double-digit improvements in content discovery and could generate billions of additional listening hours annually.

Spotify has integrated with ChatGPT, Meta’s Ray-Ban smart glasses, OpenAI’s Dots and Meta’s Muse as part of its strategy to expand distribution through third-party AI platforms.

The company also signed a new multiyear agreement with Joe Rogan and expanded partnerships with Believe and TuneCore to support remixes and covers.

Spotify is expanding its Partner Program and introducing Creator Memberships, allowing fans to pay for additional creator experiences.

Spotify Forecasts More Subscriber Growth in Fourth Quarter

Spotify expects fourth-quarter revenue of 5.2 billion euros, or approximately $5.985 billion, below analysts’ consensus estimate of $6.010 billion.

The company projects premium subscribers will reach 316 million, representing approximately 10 million net additions.

Monthly active users are expected to increase to 818 million.

Spotify forecasts a gross margin of about 33.8% and operating income of approximately 820 million euros, including roughly 6 million euros in share-based social charges.

Management expects operating expense growth to moderate in 2027 while continuing to invest in AI, advertising and new products.

Executives emphasized the need to balance investments in emerging growth opportunities with sustainable margin expansion and stronger long-term monetization.

SPOT Price Action: Spotify Technology shares were up 8.34% at $569.15 at the time of publication on Thursday, according to Benzinga Pro data.

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