Key Takeaways
- First quarter earnings per share reached $3.45, surpassing analyst projections by $0.51
- Second quarter operating income outlook of €630M fell short of the €684M consensus estimate
- Premium subscriber projection of 299M for Q2 trailed the 302M analyst forecast
- Advertising-supported revenue declined 5% compared to last year, though increased 3% when measured in constant currency
- SPOT shares dropped up to 12% during premarket hours after the earnings release
The streaming platform exceeded Wall Street expectations for both revenue and earnings in its first quarter, yet market participants zeroed in on forward-looking projections — and the outlook triggered a sharp selloff.
The audio streaming service posted first quarter revenue of €4.53 billion, representing an 8% increase from the prior year and matching analyst forecasts. Earnings per share landed at $3.45, exceeding expectations by $0.51. The platform’s monthly active users reached 761 million, beating the projected 756.6 million.
First quarter operating income hit a record €715 million, surpassing the €681.6 million consensus. The company benefited somewhat from reduced payroll tax expenses, which fluctuate with the stock price — shares have declined approximately 15% year-to-date.
Premium paid subscribers increased 9% to reach 293 million in the first quarter, slightly trailing the 294.5 million estimate, with 3 million net subscriber additions during the period.
Concerns emerged when management unveiled its second quarter projections.
Spotify set second quarter operating income guidance at €630 million — significantly below the €684 million Wall Street anticipated. This represents a substantial decline from the company’s record first quarter performance.
The premium subscriber outlook of 299 million for the second quarter also disappointed, falling short of the 302 million consensus. Management forecasted just 6 million net new subscribers for the period.
Monthly active user guidance of 778 million for Q2 exceeded the 773 million estimate, indicating continued strength in the platform’s ad-supported tier.
Advertising Revenue Faces Headwinds
The company’s advertising segment emerged as a notable area of weakness. Ad-supported revenue fell 5% year-over-year in the first quarter. When calculated on a constant currency basis, it grew 3%, but foreign exchange headwinds reduced overall revenue growth by approximately 600 basis points.
The advertising weakness is attracting scrutiny as Spotify has increasingly positioned its ad business as a key growth engine alongside its premium subscription service.
Second quarter revenue guidance of €4.8 billion came in roughly aligned with the €4.77 billion analyst estimate, providing limited comfort regarding profitability trends.
Ongoing AI Integration Efforts
The streaming company continues expanding artificial intelligence capabilities throughout its platform. Recent developments include expanding its AI DJ voice technology, introducing AI Playlist for natural-language-based playlist generation, and this month extending its Prompted Playlist functionality to incorporate podcasts.
The company underwent a leadership transition at the beginning of the year. Co-founder Daniel Ek shifted to the executive chairman role in January, with Gustav Soderstrom and Alex Norstrom assuming operational leadership.
The platform faces competition from Apple and Amazon in the music streaming market.
SPOT shares declined approximately 12% during premarket trading after the earnings announcement, moderating to around 8% lower as regular trading commenced.
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