Spotify shares rise more than 9% on forecast for operating profit above estimates
Key Facts
Spotify shares rose more than 9% in early trading on October 22, 2026, after the company forecast fourth-quarter operating profit above analysts' estimates, Reuters reported. The shares advanced after the release of third-quarter results, in which the company reported revenue of 4.97 billion euros. Analysts had estimated revenue of 4.98 billion euros, according to London Stock Exchange Group data cited by the news agency, leaving the quarterly total narrowly below expectations. Earnings per share for the period were 2.48 euros, against estimates of 2.80 euros, marking another miss against market expectations. Nevertheless, the shares rose following the operating profit forecast for the coming period, despite the gap between actual earnings per share and analysts' expectations for the completed quarter.
Spotify reported that the number of subscribers to its paid service rose to 306 million in the third quarter of 2026. That represented growth of 9% from the same period a year earlier, according to the company's earnings statement, as its subscription base continued to expand. Total monthly active users reached 788 million, up 11% year on year, a faster pace than paid subscriber growth over the same period. The expansion was accompanied by a 16% year-on-year increase in reported revenue, according to Spotify, although the total fell short of analysts' average estimate. At constant exchange rates, revenue grew 14% compared with the third quarter of the previous year, according to the comparison provided in the company's earnings announcement.
Spotify's gross margin was 33.0% in the third quarter, an improvement of 136 basis points from the same period a year earlier. However, it was below the 33.4% margin recorded in the second quarter of 2026, according to the company's earnings announcements for the two periods. The second quarter's year-on-year margin improvement had been about 193 basis points, leaving third-quarter results showing continued annual expansion alongside a decline from the previous quarter. The company attributed improved profitability in its subscription business partly to revenue growing faster than music costs. It described this factor in its earnings presentation as "revenue growth outpacing music costs." Meanwhile, free cash flow was 735 million euros in the third quarter, down 9% year on year. Free cash flow also fell 8% from the previous quarter, alongside the quarterly decline in gross margin.
Against the backdrop of its plans for paid products, Spotify and Believe signed a licensing agreement for a forthcoming tool that uses artificial intelligence in music, according to a Spotify statement. The tool includes song remixes and AI-performed cover versions among the uses covered by the agreement. The service is designed to launch as a paid add-on, making its use subject to an additional charge on top of the subscription. The add-on is aimed at Spotify's paid subscribers, according to the company's description of its planned availability. The proposed tool also provides for revenue generation for rights holders, linking the licensing agreement's use of these AI-powered music capabilities to compensation for rights holders.
For the fourth quarter of 2026, Spotify targets operating profit of 820 million euros, compared with an average analyst estimate of 813.4 million euros, according to the company's presentation and London Stock Exchange Group data cited by Reuters. The company expects a gross margin of 33.8%, above the levels achieved in both the third and second quarters. Spotify set its fourth-quarter revenue forecast at 5.2 billion euros, according to its earnings presentation. The company targets 316 million paid subscribers over the same period, continuing to expand its subscription base after the third-quarter results. The subscriber target compares with market expectations of 314.7 million, according to Reuters, putting the company's guidance above analysts' estimates for both operating profit and paid subscriber numbers.