Spotify's (SPOT) second-quarter results told a story of strong user growth overshadowed by financial headwinds.
While the streaming giant added millions of new premium subscribers and grew its user base by double digits, missed revenue targets, a surprise earnings loss, and weaker-than-expected guidance sent shares tumbling. Investors, it seems, were looking for more than scale—they wanted margins.
Revenue and Profit Miss Despite 12% Jump in Premium Subscribers
Spotify reported second-quarter revenue of €4.19 billion (about $4.86 billion), up 10% from the year before but falling short of the €4.26 billion expected by analysts. More jarring was the swing to a net loss of €86 million, or €0.42 per share, compared to a profit of €1.33 per share in the same quarter last year. Wall Street had been looking for a healthy profit of roughly €1.90 per share.
The miss wasn’t due to a lack of momentum on the user side. Premium subscribers climbed to 276 million, a 12% increase year over year and ahead of both analyst expectations and company guidance. Monthly active users rose 11% to 696 million, setting the stage for Spotify to potentially cross 700 million by next quarter.
The company credited its performance to long-term product initiatives, including broader rollout of its AI DJ and expanded audiobook access in new markets. Still, rising payroll expenses, professional services, and a €115 million hit from social charges—taxes tied to equity compensation—wiped out much of the topline benefit.
Spotify reported second-quarter revenue of €4.19 billion (about $4.86 billion), up 10% from the year before but falling short of the €4.26 billion expected by analysts. More jarring was the swing to a net loss of €86 million, or €0.42 per share, compared to a profit of €1.33 per share in the same quarter last year. Wall Street had been looking for a healthy profit of roughly €1.90 per share.
The miss wasn’t due to a lack of momentum on the user side. Premium subscribers climbed to 276 million, a 12% increase year over year and ahead of both analyst expectations and company guidance. Monthly active users rose 11% to 696 million, setting the stage for Spotify to potentially cross 700 million by next quarter.
The company credited its performance to long-term product initiatives, including broader rollout of its AI DJ and expanded audiobook access in new markets. Still, rising payroll expenses, professional services, and a €115 million hit from social charges—taxes tied to equity compensation—wiped out much of the topline benefit.
Third-Quarter Guidance Disappoints Amid Margin Pressures and Currency Drag
Spotify expects third-quarter revenue to rise only slightly to €4.2 billion, well below the €4.47 billion Street forecast. Currency effects, particularly the strengthening of the euro against key currencies, are projected to drag revenue growth by nearly five percentage points. Gross margin is also expected to decline to 31.1%, marking the third consecutive quarter of margin contraction.
On the subscriber front, Spotify projects net adds of just five million premium users next quarter, a slowdown from the eight million added in Q2. Monthly active users are forecast to reach 710 million, slightly ahead of expectations, but not enough to quell concern over the company’s ability to translate user growth into earnings leverage.
CEO Daniel Ek addressed the underwhelming guidance head-on, attributing the softness to execution missteps rather than flawed strategy. "While I’m unhappy with where we are today, I remain confident in the ambitions we laid out for this business," he told investors, reaffirming plans to expand monetization through music, podcasts, audiobooks, and programmatic ads.
Ek Stresses Long-Term Strategy as Ad Business Lags and Costs Climb
Spotify’s advertising-supported revenue declined 1% to €453 million, highlighting ongoing challenges in monetizing its large base of free users. Executives pointed to sluggish progress in building out the company’s ad tech stack and monetization tools but insisted the runway remains intact.
In contrast, Venmo-like success was visible in premium services. Premium revenue rose 10%, and both the premium and ad-supported businesses contributed to a company-wide gross margin of 31.5%. That margin, while down from Q4 highs, still reflects progress on Spotify’s path to sustainable profitability.
Free cash flow was a bright spot, surging 43% to €700 million, giving Spotify room to maneuver strategically. The company also expanded its stock buyback program by $1 billion, signaling confidence in long-term value despite near-term volatility.
Conclusion
Spotify’s latest quarter showed a platform continuing to grow at scale, with nearly 700 million users and a loyal base of paying subscribers. But as revenue misses, surprise losses, and soft forecasts reveal, the market is demanding more than reach—it’s looking for durable profitability. CEO Daniel Ek remains optimistic that 2025 will be a breakout year. For now, though, investors are recalibrating expectations as the streaming giant works through growing pains in its evolution from disruptor to digital media mainstay.
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