Spotify Earnings Miss Targets as AI Investments Drive Up Costs, User Growth Slows Below Forecasts

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 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.