Spotify Q3 Revenue Grows 16% but Misses Estimates as Strong Q4 Profit Outlook Lifts Stock 5%

Spotify reported third-quarter revenue of €4.97 billion, up 16% year-over-year but narrowly missing the €4.98 billion consensus estimate. Diluted EPS came in at €2.48, down 24% from €3.28 a year earlier and missing analyst expectations of €2.81, partly due to social charges running €13 million above forecast at €22 million. Operating income rose 15% year-over-year to €672 million, just shy of the €680 million estimate, while gross margin reached a record 33.0%, up 136 basis points year-over-year and slightly ahead of the 32.9% estimate. Net income was €518 million against an estimate of €589 million, and free cash flow fell 9% year-over-year to €735 million.

Premium subscribers grew 9% year-over-year to 306 million, adding 6 million net new paying subscribers in the quarter and beating both the 305.15 million analyst estimate and prior management guidance. Monthly active users hit 788 million, up 11% year-over-year and in line with the 788.13 million estimate. Ad-supported MAUs reached 499 million, up 12% year-over-year, while premium average revenue per user rose 9.3% to €4.95. Premium revenue was €4.49 billion, just below the €4.5 billion estimate, and ad-supported revenue grew 10% year-over-year to €482 million. Spotify also disclosed $1.1 billion in share repurchases year-to-date through October 21.

For the fourth quarter, Spotify guided operating income of €820 million, above the roughly €803-813 million analyst consensus, and projected gross margin of 33.8% against an estimate of 33.7%. Revenue guidance of €5.2 billion came in slightly below the €5.24 billion estimate, and MAU guidance of 818 million was marginally under the 819 million forecast, though premium subscriber guidance of 316 million topped the 314.72 million estimate. The company attributed its profit confidence to AI-powered personalization features, including the newly launched Taste Profile for U.S. premium subscribers and Creator Memberships for podcast creators. Shares jumped roughly 5% in premarket trading on the Q4 outlook and record margins.