Spotify delivered a broadly solid second quarter, with operating profit, margins and premium subscriber growth ahead of expectations. However, shares traded modestly lower, down 1.7%, after third-quarter guidance for monthly active users and operating income fell short of consensus.
Key results versus consensus:
- Revenue of €4.78 billion, up 14% and broadly in line with the €4.79 billion expected.
- Operating income of €655 million, around 3% ahead of the €637 million expected.
- Gross margin of 33.4%, around 30 basis points ahead of the 33.1% expected and up from 31.5% a year ago.
- Adjusted EPS of €2.61, around 3% below the €2.68 expected.
- Free cash flow of €825 million, modestly ahead of the €815 million expected.
- Monthly active users of 777 million, up 12% but slightly below the 778.2 million expected.
- Premium subscribers of 300 million, up 9% and slightly ahead of the 299.2 million expected.
- Ad-supported users of 494 million, ahead of the 491.2 million expected.
- Average revenue per user of €4.89, marginally ahead of the €4.87 expected.
The weaker point was guidance. SPOT expects third-quarter monthly active users of 788 million, below consensus of 793.5 million, while operating income guidance of €670 million also missed the €681 million expected. Premium subscriber guidance of 305 million was broadly in line, while revenue guidance of €5 billion was slightly ahead of consensus.
Higher spending on AI, marketing and new product development will weigh on near-term margins, while advertising revenue remains the softer part of the business. Management is investing in AI-driven personalisation and new premium features, with the aim of lifting engagement and monetisation over time.
MM’s view: The core result was solid, with margins, operating profit and premium subscribers all tracking well. However, the softer user-growth outlook and higher investment spend means we’ll need to see evidence that AI and product development can translate into stronger monetisation. Spotify still has meaningful pricing and margin upside, but the third-quarter outlook could see the stock tread water for a while.
