Spotify User Base Grows, But Profitability Concerns Linger

Spotify Technology (NYSE:SPOT) experienced a notable decline in its stock price on Tuesday following the release of its second-quarter 2025 financial results.

While the audio streaming giant demonstrated robust growth in its user base, a significant miss on earnings per share and revenue, coupled with a conservative outlook for the upcoming quarter, weighed heavily on investor sentiment.

For the second quarter, Spotify posted a loss of 48 cents per share, a considerable deviation from the analyst consensus estimate of a $2.11 profit.

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This earnings shortfall was compounded by missed revenue projections, with quarterly sales reaching $4.75 billion (4.19 billion euros), marking a 10% year-over-year increase but falling short of the analyst projection of $4.84 billion.

Strong User Acquisition, But Monetization Challenges Persist

Operational highlights for the quarter included impressive user acquisition. Monthly active users (MAUs) saw a net addition of 18 million quarter-over-quarter, reaching a total of 696 million, exceeding the company’s own guidance by 7 million.

Premium subscribers also demonstrated robust growth, expanding by 12% year-over-year to 276 million, outperforming expectations by 3 million and showing consistent growth across all geographical regions.

However, a slight decline was observed in key monetization metrics, with average revenue per user (ARPU) for Premium subscribers falling 1% year-over-year to 4.57 euros, and ad-supported revenue also experiencing a 1% decrease.

From a profitability standpoint, Spotify showcased improved margins. The company’s gross margin expanded by 227 basis points year-over-year to 31.5%, driven by enhancements in both its Premium and Ad-Supported segments.

The Premium gross margin reached 33.1%, an increase of 171 basis points from the prior year, primarily attributed to revenue growth outpacing music and audiobook costs, albeit partially offset by Spotify partner program expenses.

The ad-supported gross margin saw a more substantial improvement, rising 495 basis points to 18.3%, buoyed by stronger contributions from podcasts and music.

Operating income surged by 53% year-over-year, reaching 406 million euros, with an operating margin of 9.7%. Spotify also reported a strong financial position, holding 8.4 billion euros in cash and equivalents and generating 700 million euros in free cash flow.

The company’s disciplined approach to expenses was further evidenced by a slight reduction in its global workforce, which stood at 7,309 full-time employees, down from 7,372 a year ago.

Conservative Q3 Outlook Weighs on Investor Sentiment

Despite these operational successes, Spotify’s third-quarter 2025 revenue outlook fell short of market expectations. The company forecasts revenue of $4.95 billion (4.2 billion euros), below the analyst consensus of $5.15 billion, while anticipating total MAUs to reach 710 million.

Prior to the announcement of the 2025 second-quarter results, Spotify’s stock experienced a strong rally throughout 2025, surging 57% year-to-date and gaining 22% over the last three months.

However, the premarket trading on Tuesday saw SPOT stock trade lower by 6.99% at $652.00, reflecting investor reaction to the earnings miss and softer guidance.

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