Spotify’s recent performance on Wall Street has investors hitting the pause button. The streaming giant saw its shares tumble nearly 8% yesterday after releasing its quarterly results. While the company reported better-than-expected profits, its forecast for new subscriber growth fell short of what Wall Street wanted to hear.
The Swedish audio streaming platform posted a quarterly profit of €197 million ($211 million), surprising analysts who had predicted more modest earnings. This marks their third consecutive profitable quarter, a significant milestone for a company that spent years prioritizing growth over profitability. Revenue increased by 20% compared to last year, reaching €3.64 billion ($3.9 billion).
Behind these numbers lies an interesting story about how Spotify makes money. The company saw a 22% jump in premium subscribers, who now total 239 million worldwide. These paying customers generate most of Spotify’s revenue. At the same time, advertising income grew by 13%, showing that even listeners on the free tier contribute meaningfully to the bottom line.
“We’ve managed to balance growth with improved financial performance,” said Spotify CEO Daniel Ek during the earnings call. “The investments we’ve made in content and technology are beginning to yield the results we’ve long anticipated.”
Yet investors focused less on these achievements and more on what comes next. Spotify projected it would add 16 million new premium subscribers in the current quarter, falling short of the 17.9 million analysts had expected. This gap between expectations and guidance triggered the sell-off.
The slowdown in user growth raises questions about market saturation in key regions. Spotify has already captured significant market share in North America and Europe. Finding new subscribers might require deeper penetration in emerging markets where average revenue per user tends to be lower.
Price hikes implemented last year have helped boost revenue without causing a mass exodus of subscribers. The company raised its premium plan price in the U.S. from $9.99 to $10.99 monthly, with similar increases in over 50 markets globally. These increases have stuck, suggesting consumers see enough value in the service to absorb higher costs.
Competition in the streaming audio space continues to intensify. Apple Music and Amazon Music are formidable rivals backed by tech giants with deep pockets. Meanwhile, YouTube Music has been gaining ground, especially among younger listeners. Spotify’s leadership position remains secure for now, but maintaining it requires constant innovation.
The company’s podcast strategy appears to be paying off after years of heavy investment. Podcast advertising revenue grew faster than the overall ad business, though Spotify doesn’t break out specific figures. The company has scaled back some of its exclusive content deals while maintaining partnerships with high-profile creators like Joe Rogan, whose show consistently ranks among the platform’s most popular.
Spotify’s operating expenses grew at a slower rate than revenue, showing improved operational efficiency. This reflects the company’s more disciplined approach to spending after laying off about 17% of its workforce in December. Those cuts, while painful, have helped strengthen the bottom line.
“We’re seeing the benefits of operational discipline without compromising our ability to innovate,” noted Spotify’s CFO Paul Vogel. “The structural improvements we’ve made to our business model are delivering sustainable results.”
Analysts remain divided on Spotify’s prospects. Some view the stock drop as an overreaction to what was otherwise a solid quarter. Morgan Stanley maintained its overweight rating on the stock, noting that “profitability continues to surprise to the upside.” Others worry that slowing user growth could signal deeper challenges ahead.
The streaming company has been expanding beyond music and podcasts into audiobooks, which it began offering to premium subscribers last year. This move puts Spotify in competition with Amazon’s Audible and Apple Books. Early adoption rates haven’t been disclosed, but management expressed satisfaction with the performance so far.
Looking ahead, Spotify faces both opportunities and challenges.
