Spotify Profits Take Hit as Company Doubles Down on AI Investments Despite 300M Paid Subscribers

Spotify profits hit by heavy spending as fears build over streaming growth

Spotify predicted weaker than expected user growth as it reported that profits were held back by investments in marketing and AI amid concerns over a slowdown in the streaming market. On Tuesday, the US streaming company said it anticipated monthly users would reach 788mn in the upcoming quarter, up from 777mn in the last quarter but below the 793mn analysts had forecast. Spotify's operating expenses in the three months to the end of June rose to €941mn, up 19 per cent from a year earlier after adjusting for currency movements and other items. The company said the increase reflected "temporary investments" in marketing and AI that would support future growth initiatives. Spotify made net income of €545mn on revenue of €4.8bn, below analysts' forecasts of €587mn. The company's shares fell more than 5 per cent in pre-market trading on Tuesday. The results come after Universal Music Group reported second-quarter subscription revenue growth below market expectations last week, sending its shares down by a quarter. However, Warner Music on Monday reported that its recorded music streaming revenue from subscriptions -- the widely watched metric -- rose 11 per cent, adjusted for currency changes. Investors are now looking for Spotify's next engine of growth, while fears over the incursion of AI loom over the music industry. In May, the company told investors that future growth would come from persuading its most loyal users to pay more for pricier subscription tiers. In its first investor day in four years, the company previewed several of these initiatives, including early access to concert tickets, AI-powered remixing tools and AI-generated podcasts tailored to listeners' interests. Co-chief executive Gustav Söderström said the results demonstrated that Spotify was "already building" the future he outlined at its investor day. "We are still in the very early stages of what is possible and will continue to have a high bar for investments," he said. Spotify on Tuesday said it added 7mn paid subscribers in the June quarter, reaching 300mn globally, above its guidance. The company's gross margins have widened from about 25 per cent in 2023 to 33 per cent in 2026, easing long-held investor concerns over the economics of music streaming. Despite those gains, its shares have fallen by about a third over the past year, badly underperforming the broader S&P 500.

Spotify Execs Bet People Will Pay for AI Music. Stock Price Plunges

Spotify hit 777 million total users and 300 million paid premium subscribers in the past quarter, company executives shared in an earnings release on Tuesday, along with an AI-driven increase in expenses. Spotify has been upping its experimentation with artificial intelligence recently, banking on a slew of new AI-driven product features to continue the rise in paid subscriptions. "There is plenty of industry debate about AI investment and costs," Spotify co-CEO Gustav Söderström said on the company's earnings call. "Our view is that being an AI beneficiary means winning on the cost side too." Earlier this summer, the company rolled out a new feature called "Talk to Spotify," allowing Premium users to interact with the platform more conversationally via a chatbot interface. "I feel like Spotify is coming alive, and you can literally start talking to it," Söderström said. "You can literally talk to Spotify now, and you get very good answers about the music, about who played in what band, when they're touring, what the song is about. These are better answers than you get from any LLM, certainly within our domains about podcasts and books and music." Another splashy AI initiative includes embracing AI-generated music. Although much of the music industry remains wary of AI-generated songs, Spotify is embracing the technology. The company is partnering with Universal Music Group on a tool that would let users create AI-generated remixes and covers of songs by participating artists. On Tuesday, Spotify announced that Merlin, a digital rights licensing partner representing independent labels and distributors, was also joining to support the feature. Spotify argues their way of doing AI-generated music is just different, and better, than how other AI music generators go about it. "While you can see that there is skepticism around net new artificial music by many people out there, what we're doing is something different, and artists see that our products are about real artists, not fake artists, and in the case of remixes, real artists with real voices," Söderström said. "So you're listening to real people. That's a very different proposition, which is why we're focusing on this." Söderström's co-CEO Alex Norström agreed. "What we're trying to do is very considerate and planned out," Norström said on the call. Norström says the company is looking at the 3Cs while building out the feature: consent from artists, credit to artists, and compensation for artists. "We're talking about the first legal way to partake in this AI tailwind that we see coming for interactive music," Norström said. The tool has yet to launch, but when it does, it will be a paid add-on. Though the timing on that is still murky; on the call, Söderström said that the feature will first launch as a "research preview" but only "when it's ready" and is actually appealing to consumers, without giving a specific time frame. While Spotify is spending all this money on creating better paid features, executives say they are simultaneously and "carefully" introducing "some friction" in the free tier to drive users to paid subscriptions, including some limitations and more ads than before. At market close, Spotify's stock price was down 8%.

Spotify's higher spending on marketing, AI features to hit profit

Spotify anticipates that increased marketing and development expenditures will adversely affect profits in the current quarter. The platform forecasts its third-quarter monthly active users to fall short of Wall Street's expectations, a decline attributed to product changes in emerging markets. To counteract this, Spotify is investing significantly in AI features aimed at attracting and retaining its user base, alongside introducing a new agreement for fan-generated covers and remixes. Spotify said higher marketing and development costs would hurt its profit in the current quarter as the Swedish music-streaming giant bets heavily on features powered by AI to attract users. The company also projected third-quarter monthly active users below Wall Street estimates on Tuesday, blaming the weakness on product changes in emerging markets such as India and Indonesia that may help Spotify in raising prices. US MarketsPowered By As on 04 Aug 2026, 09:06 PM IST S&P 500 Top Gainers Palantir Technologies158.39(26.06%) Zebra Technologies351.03(20.36%) Gartner174.86(15.39%) Teradyne404.81(10.66%) Gainers" S&P 500 Top Losers Aptiv47.61(-16.81%) NRG Energy120.11(-13.26%) Coterra Energy32.56(-8.62%) Rockwell Automation447.26(-7.01%) Losers" "So examples would be sign-up changes, deprecation of old lower-end Android ⁠devices, carefully ⁠introducing some friction in the ad load increase with respect to increasing ad load and some limitations on our free tier as well," Co-CEO Alex Norstrom told Reuters. Price hikes have become central in recent years to Spotify's push to prove it can convert its huge user base into meaningful profit. The company has in recent months also leaned on AI to fend off startups built around the technology, such as Suno. On Tuesday, it unveiled a deal with independent-label group Merlin for its coming ⁠paid tool for fan-made covers and remixes that would let artists on Merlin-affiliated labels opt in. Spotify already signed a deal with Universal Music earlier this year and is looking to sign ⁠up more artists. The company is also aiming to bolster its appeal through new AI features and offerings such as "Reserved," which lets eligible subscribers buy up to two tickets to their favorite artist's concert before they are offered to the public for sale. "We continue to expect marketing and AI-related investments to drive approximately €200 million in incremental operating expense for the full year," CFO Christian Luiga said on a conference call with analysts, adding he expects a moderation in expense growth in the fourth quarter. Spotify shares were trading 2% higher after falling as much as 5% earlier in the session. EXPENSES TO WEIGH ON PROFIT Spotify expects operating income of €670 million ($770.97 million) in the third quarter, below estimates of €677.8 million. Its monthly active users forecast of 788 million for ⁠the third quarter was below Visible Alpha estimates of 793.6 million, while its outlook for a 5 million increase in premium subscribers to 305 million was in line with estimates. In the second quarter, it added 16 million monthly active users. Spotify said 25% of its users overall are already using its AI features, including its conversational assistant for audio discovery "Talk to Spotify" and AI app "Studio by Spotify Labs". Its operating income totaled €655 million in the second quarter, beating estimates of €639.2 million. Revenue rose 14% to €4.78 billion, slightly below expectations. Its revenue forecast of €5 billion for the third quarter was above estimates of €4.93 billion.

Spotify faces earnings test as AI investments weigh on margins By Investing.com

Spotify Technology SA reports second-quarter results Tuesday before the market opens, with investors eager to see whether surging subscriber growth and pricing initiatives can offset mounting costs tied to the audio streaming giant's ambitious artificial intelligence push. Analysts expect earnings of €2.76 per share on revenue of €4.79 billion, representing 14% year-over-year revenue growth. The consensus marks a sequential decline from the prior quarter's €3.45 per share, even as revenue is projected to climb from April's €4.53 billion -- a disconnect that underscores concerns about profitability as the company ramps up investments. Wall Street maintains a buy rating on the stock with a mean price target of $606, implying 21% upside from current levels around $500. EPS estimates have edged up 0.54% over the past 60 days, though they've held steady in recent weeks, suggesting analysts are comfortable with expectations heading into the print. What Investors Are Watching The trajectory of operating expenses looms large. Spotify has ramped spending to fuel product development -- including a new ChatGPT-like AI music assistant launched in mid-July -- and analysts want clarity on whether the current opex surge is temporary or structural. Benchmark's Mark Zgutowicz noted the company could see operating expenses flatten by the fourth quarter, which would help margins rebound. Average revenue per user remains a critical metric. The company is expected to post 7% to 7.5% year-over-year ARPU growth in the second quarter, driven by recent price increases and new tiering strategies. KeyBanc analyst Justin Patterson highlighted that Spotify's rollout of Premium and Platinum tiers in India shows early promise, with roughly 7% of new users opting for the higher-priced offering. The "Superfan" thesis -- that dedicated listeners will pay more for enhanced features -- is being tested in real time. Monetization of AI features will also draw scrutiny. Spotify has rolled out conversational music discovery, AI Remix, and personalized podcasts, but analysts including Benchmark's Zgutowicz have modeled "zero" revenue contribution from AI products for now, waiting for tangible evidence these tools can drive subscription upgrades or ad revenue. The second-quarter report comes as Spotify trades near the bottom of its 52-week range, down 33% from its peak despite robust fundamentals. In the first quarter, the company beat expectations on both earnings and revenue, delivering €3.45 per share versus the €2.95 consensus and posting 14% year-over-year revenue growth on a constant-currency basis. Whether the company can sustain subscriber momentum -- reaching an estimated 800 million monthly active users -- while demonstrating a clear path to profitability from its innovation investments will likely determine whether the stock can break out of its recent slump. This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Is Spotify turning your playlist into AI?

STORY: Would you listen to music made by AI? Because Spotify wants it in your playlist. :: Spotify turns to AI :: Peter Devlin, Reuters :: August 5, 2026 / London, England Imagine taking your favorite song, remixing it or creating entirely new versions with AI - turning one track into thousands. That's the new tool Spotify is building with Universal Music and independent-label group Merlin. :: Spotify goes all-in Spotify is going all-in on AI to attract users. ::25% It says 25% of listeners are already using its features. :: Has there been pushback about AI use? But not everyone is ready to hit play. Subscribers have complained they're being served AI-generated music without knowing it. Spotify says it'll only intervene when AI is used to impersonate artists without permission. And that's not just a theory. A man in North Carolina is accused of using AI to flood Spotify with fake songs, then deploying bots to stream them billions of times. Meanwhile, every music revolution comes with a price tag. :: 300 million :: Will it cost Spotify to spend on AI? The company says higher AI spending will hit profits this quarter, even as it passes 300 million paying subscribers. And as Spotify turns its dominance into profit, price hikes have become part of the strategy. Or as Spotify's management puts it - 'If you want to live in the future, you can. You just pay more.'