Spotify Shares Rise More Than 9% After Forecasting Operating Income Above Analyst Estimates
Key Facts
Spotify shares rose more than 9% in early trading on October 22 after the company reported third-quarter results and issued fourth-quarter guidance that exceeded analyst estimates for operating income and paid-subscriber growth. At the close of trading on October 22, the stock stood at $583.66, compared with a previous-session close of $525.34. The company reported revenue of 5.0 billion euros, up 16% year over year, or 14% excluding the impact of currency movements. Premium subscribers also rose to 306 million, while monthly active users reached 788 million. The stock’s move followed stronger forward guidance on some measures, even as results and forecasts did not beat analyst estimates across every line item.
Gross margin was 33.0% in the third quarter, up 136 basis points from the same period a year earlier, and operating income reached 672 million euros. In the second quarter, Spotify reported revenue of 4.8 billion euros, a gross margin of 33.4% and operating income of 655 million euros. Year over year, premium subscription revenue grew 17% to 4.487 billion euros, while advertising revenue rose 10% to 482 million euros. Ad-supported users totaled 499 million, up 12% year over year. By contrast, free cash flow fell 9% to 735 million euros, and net cash flow from operating activities declined 11% to 740 million euros, putting revenue and margin growth alongside a slowdown in some cash measures.
Spotify forecast operating income of 820 million euros in the fourth quarter, compared with the average analyst estimate of 813.4 million euros. It also forecast revenue of 5.2 billion euros and a gross margin of 33.8%. On subscriptions, the company projected it would add 10 million paid subscribers, bringing the total to 316 million and exceeding analyst estimates of 314.7 million. But its forecast of 818 million monthly active users was below the estimate of 819 million. The figures present a mixed outlook: above market estimates for profitability and subscriptions, and slightly below them for active-user growth.
Co-CEO Alex Norström said the company “invests when it sees a path to growth, our costs are moderating, and we still have room to grow.” Spotify is betting on AI-linked tools, including its AI DJ, which selects a personalized music mix with spoken commentary, and playlists created from users’ descriptions. Reuters linked the investment to targeting user growth, while Co-CEO Gustav Söderström said entertainment is among the sectors that can benefit from the rise of agentic AI. He added that users want to spend their time on activities they enjoy. These tools put personalization, music discovery and engagement at the center of the company’s bet, while subscriptions and advertising remain key avenues for revenue growth in the quarter’s results.
The company plans to expand audiobook availability from 22 markets to more than 180 markets by the end of 2026, saying the expansion will allow more than 750 million people worldwide to stream or buy books. The move is part of its efforts to broaden its offerings beyond music and podcasts, alongside investment in personalization tools. In the near term, the key measures to watch are execution against fourth-quarter revenue, margin and operating-income forecasts, and progress toward subscriber and active-user targets. The guidance provides a framework for comparing the company’s performance in the coming period with current market estimates. Spotify set the audiobook expansion as a target for the end of 2026.