Spotify shares surge 11% despite missing revenue estimates
Spotify Technology shares surged 11% following the company’s latest earnings report, ending its two-quarter streak of post-earnings falls and marking the entertainment stock’s largest single-day gain since May. While headline figures missed Wall Street consensus estimates, investors focused on stronger underlying user metrics, moderating costs, and expanding artificial intelligence initiatives.
Revenue and earnings trail consensus as subscriber growth beats targets
During the quarter, Spotify posted revenue of 4.97 billion euros, or approximately $5.58 billion, representing a 14% year-over-year increase on a constant-currency basis. That figure fell short of analyst estimates of $5.64 billion. Diluted earnings per share landed at $2.78, missing expectations of $3.16. For the fourth quarter, the company expects revenue of approximately $5.82 billion, which also trails analyst projections of $5.86 billion.
Despite the mixed headline figures, underlying operational metrics surpassed company guidance. Premium subscribers increased 9% year-over-year to reach 306 million, beating guidance by one million. Monthly active users climbed 11% to 788 million, matching company targets. Gross margin expanded 140 basis points year-over-year to hit 33%, edging out expectations by 10 basis points.
AI investments and the large taste model drive engagement
Management pointed to artificial intelligence as a primary driver for long-term growth, specifically highlighting the development of its large taste model. The system trains on trillions of user listening habits to predict future content preferences and boost user discovery. Spotify reported double-digit growth in content discoveries, a leading indicator that is already adding billions of listening hours annually.
Increased engagement directly supports retention, reducing user churn and decreasing the acquisition costs required to expand the subscriber base. Price increases also fueled growth during the quarter, with average revenue per user expansion accounting for roughly half of the 15% constant-currency premium revenue growth.
Margin expansion targets and cost moderation through 2030
Looking ahead, Spotify expects gross margin to reach 33.8% in the upcoming quarter, up approximately 70 basis points year-over-year, as investment expenses moderate. The company maintained a flat headcount while accelerating feature rollouts through automation and artificial intelligence.
Spotify’s long-term financial targets point toward a gross margin between 35% and 40% by 2030, compared to 32% in 2025. The company also aims to push operating margins above 20% by 2030, an increase from 13% in 2025.
Frequently asked questions about Spotify’s earnings
What drove Spotify’s 11% stock surge if revenue missed estimates?
Investors reacted favorably to stronger-than-expected premium subscriber additions, expanding gross margins, and cost-moderation projections rather than headline revenue figures.
How much did premium subscribers grow year-over-year?
Premium subscribers increased by 9% year-over-year to reach 306 million, exceeding company guidance by one million users.
What is Spotify’s long-term margin target for 2030?
Spotify is targeting a gross margin between 35% and 40% by 2030 alongside an operating margin exceeding 20%.
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