According to latest reports, Spotify forecast third-quarter operating income of €670 million ($770.97 million), falling below the €677.8 million average analyst estimate compiled by Visible Alpha. The streaming company's shares fell about 5% in premarket trading following the announcement, with the profit forecast miss coming despite the company's strong Q2 performance. For the second quarter, Spotify reported operating income of €655 million, beating estimates of €639.2 million, driven by strong revenue growth and lower payroll taxes. The company's quarterly revenue rose 14% to €4.78 billion, slightly below LSEG-compiled estimates of €4.80 billion, while third-quarter revenue forecast of €5 billion came in slightly above the €4.93 billion analysts had expected.
The worry is users, not money, as Spotify delivered another quarter of solid user expansion with monthly active users growing 12% year over year to 777 million, with 16 million net additions though this fell slightly short of the company's guidance of 17 million. However, the company guided to 788 million monthly listeners, below the 793.6 million Visible Alpha estimates, and pointed to slowing growth in its mature markets of Europe and North America. Premium subscribers hit 300 million in Q2, adding 7 million net subscribers and exceeding its own guidance of 6 million, with the company forecasting 5 million increase to 305 million for Q3. One drag on profit is unusual - social charges tied to Spotify's own share price weigh on the numbers, with the stock down about 16% this year. The company has pushed through price increases in several markets, lifting the revenue it earns per user even as sign-ups slow, though there is a ceiling to how far that goes.
Despite the profit forecast miss, Spotify delivered strong operational metrics with premium revenue growing 15% year over year to €4.33 billion, driven by 9% subscriber growth and premium average revenue per user of €4.89, up 7% year over year. Ad-supported revenue increased 1% year over year to €446 million, or 3% on a constant currency basis, with the company reporting a record gross margin of 33.4%, up 193 basis points year over year and above its guidance of 33.1%. Free cash flow reached €797 million in the quarter, bringing trailing 12-month free cash flow to €3.3 billion. The company stated it views the business as well positioned to deliver improved growth and margins in 2026 as it reinvest to support its long-term potential.
As reported by The Economic Times, Spotify is investing significantly in AI features to attract and retain users, with 25% of its overall users already using AI features including its conversational assistant for audio discovery "Talk to Spotify" and AI app "Studio by Spotify Labs." The company has been launching new features to attract users and fend off competition from rivals including YouTube and Netflix, as well as AI music startups like Udio and Suno, including AI-powered "Personal Podcasts" and new offerings such as "Reserved." However, Spotify is also fighting on newer fronts, as a flood of AI-generated tracks has swamped streaming, and rivals like Deezer have moved to label synthetic songs while Spotify has been slower to. The company has had to crack down on AI-generated music fraud, as a flood of synthetic tracks games royalties and clutters the catalogue.
The subscriber performance underscores the appeal of Spotify's expanded content library, which now spans more than 100 million tracks, 7 million podcast titles, and 500,000 audiobooks across 184 markets. The company has pushed beyond music, starting to sell physical books and expanding audiobooks, hunting for revenue that does not depend on squeezing more listeners out of saturated markets. Engagement is the other lever, as the more time a listener spends in the app, across music, podcasts, and audiobooks, the more Spotify can eventually charge for and sell against, which is the logic behind its feature blitz. The results underscore the challenges facing the streaming industry as growth in mature markets slows and competition intensifies, with Spotify's focus on AI-driven personalization and exclusive content aiming to differentiate its service and maintain subscriber momentum.
