Spotify has increased revenue and audience, but the stock is down. Is it worth buying them?
Shares of Swedish audio streaming giant Spotify fell in price by more than 5% at the opening of trading on November 4, then recovered the fall and again went down by 2.5%. This is how the market reacted to the publication of the company's financial report for the third quarter. It managed to exceed Wall Street's expectations in terms of revenue, margin and user growth. But advertising revenues declined, and the forecast for the current quarter did not encourage investors.
As reported by the company
- Spotify's third-quarter revenue rose 12% year over year to €4.27 billion, slightly above the Bloomberg consensus forecast cited by Yahoo.Finance. Analysts thought revenue would be €4.23 billion.
- Adjusted earnings per share more than doubled to €3.28 from €1.45 in the third quarter of last year. The consensus forecast was for earnings per share to come in at €1.98.
- Gross margin was 31.6%, beating both analysts' estimates (31.1%) and Spotify's own expectations.
- The number of monthly active users (MAUs) rose to 713 million, while the number of premium subscribers increased by almost 12% to 281 million.
- Advertising revenue declined 6% year over year due to pricing pressures, the company noted.
What's next
Spotify expects fourth-quarter advertising revenue growth to offset higher content costs and margins to reach up to 32.9%, while analysts on average were expecting 32.5%.
The company estimates operating profit to be €620 million - against a €605 million consensus forecast.
At the same time, Spotify's revenue estimates for the current quarter fell slightly short of market expectations: €4.5 billion against a consensus of €4.56 billion, CNBC points out . The company's forecast for the total number of premium subscribers of 289 million was also worse than analysts' estimates (291.1 million).
"We continue to view 2025 as a transition year for the advertising business and expect growth to improve in the second half of 2026," CFO Christian Luiga said during a conference call after the report was published, he was quoted by Bloomberg as saying.
Recovery plan
At its investor day in 2022, the company set ambitious goals of achieving gross margins in the 30-35% range. At the time, Spotify was struggling to reach profitability, with margins stuck around 25%, Yahoo.Finance recalls.
This began to change in 2024, when the company began raising the prices of its services and introduced a new premium audio package including music, podcasts and audiobooks. In addition, it launched separate audiobook-only and music-only subscriptions in an effort to expand choice for different categories of users. Gross margin as a result reached a record 32.2% in the fourth quarter of 2024, before falling to 31.6% in the first quarter of 2025 and 31.5% in the second quarter - mainly due to a seasonal downturn in advertising and higher content costs, the publication notes.
The figure improved again in the third quarter, thanks to new subscription price increases, cost cutting and AI innovation, explains Yahoo.Finance.
What the analysts are saying
Wall Street remains optimistic about the company's long-term profitability by 2026, Yahoo.Finance reports.
"Investors continue to expect Spotify's U.S. subscription prices to increase - in the fourth quarter of 2025 or the first quarter of 2026," Citi analyst Jason Basinet wrote before the report was published. Spotify's margins could improve next year if wholesale music costs increase less than projected, he said. While a possible price increase for U.S. subscribers could cost the company a few points of market share - if competitors don't do the same - it would still improve margins, provided license costs remain under control, he said. The analyst maintained a neutral recommendation on Spotify shares and a target price of $750, which implies a 16.5% upside.
Of the 43 analysts covering the audio streaming platform's stock, 30 advise buying it (Buy and Overweight ratings). 11 - like Citi - are neutral (Hold). Two suggest shorting the company (Underweight).
This article was AI-translated and verified by a human editor
