User Growth Can’t Save Spotify Shares From 9% Tumble
Spotify Shares Slide After Q2 Earnings Miss, Weak Outlook Overshadows Strong User Growth
Spotify Technology SA (NYSE: SPOT) saw its shares tumble nearly 9% in premarket trading Tuesday after the streaming giant posted disappointing second-quarter results and issued profit guidance well below Wall Street expectations. The decline halted a remarkable 120% stock rally over the past year, pulling shares back from their recent record high of $738.45 to approximately $635 in early trading.
Financial Performance Falls Short
The Swedish audio platform reported Q2 revenue of €4.19 billion ($4.86 billion), a 10% year-over-year increase from €3.81 billion but notably below the €4.27 billion analysts expected. More startling was the company’s swing to an adjusted loss of €0.42 per share, badly missing consensus estimates for a €1.97 profit and reversing the €1.33 per share earnings from the year-ago period.
Currency headwinds played a significant role, reducing year-over-year revenue growth by approximately 440 basis points, or €104 million, versus guidance. “Outsized currency movements during the quarter impacted reported revenue substantially,” the company acknowledged in its earnings release. Operating expenses rose 8% year-over-year, pressured by €116 million in social charges tied to employee compensation, higher payroll costs, and an unfavorable revenue mix.
Subscriber Growth Shines
Buried beneath the financial disappointment was robust user expansion. Monthly active users (MAUs) surged 11% year-over-year to 696 million, easily surpassing the 689 million analysts projected. Premium subscribers grew 12% to 276 million, while ad-supported users climbed 10% to 433 million, both exceeding expectations.
“Despite the bottom-line miss, Spotify’s core engine of user growth remains formidable,” noted media analyst Evelyn Reed of TechInsight Partners. “Their ability to consistently beat subscriber forecasts suggests pricing power and product appeal haven’t diminished, even amid economic uncertainty.”
Cautious Guidance Sparks Concern
Investors reacted most sharply to Spotify’s third-quarter outlook. The company forecasts operating income of €485 million ($561 million), well below the €562 million Street estimate. Revenue guidance of €4.2 billion also fell short of the €4.48 billion consensus projection. Management attributed the conservative profit outlook partly to €25 million in anticipated social charges based on Q2’s closing share price of $767.30. Currency impacts are expected to create a 490-basis-point revenue headwind in Q3..
The company projected continued user growth, anticipating 710 million MAUs in Q3 (above the 707 million estimate) and 281 million premium subscribers, a 5 million quarterly increase that exceeds analyst expectations.
Margin Pressures Emerge
Spotify’s gross margin trajectory also concerned analysts. After hitting a record 32.2% in Q4 2024, margins have sequentially declined to 31.6% in Q1 and 31.5% in Q2. The company expects a further slide to 31.1% in Q3, partly due to a regulatory charge in its Premium segment.
This margin compression follows a dramatic 500-basis-point improvement throughout 2024, fueled by price hikes, cost discipline, and a strategic retreat from expensive podcast exclusivity deals. The company’s renewed licensing agreements with major music labels are also expected to slightly pressure margins going forward.
Strategic Context
The earnings miss interrupts Spotify’s transformative turnaround story. After achieving its first annual profit in 2024 following years of losses, the company had become a Wall Street darling. Its massive restructuring, including layoffs, leadership changes, and podcast strategy refinements, helped fuel a 57% year-to-date stock surge before Tuesday’s selloff.
In a signal of confidence, Spotify’s board authorized a $1 billion increase to its share repurchase program, bringing total buyback authorization to $2 billion through April 2026.
“Overall, we continue to view the business as well-positioned to deliver growth and improve margins in 2025 as we reinvest to support our long-term potential,” the company stated. Whether investors maintain that faith through this profitability speed bump remains Spotify’s immediate challenge.
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