Spotify Earnings Beats Q1 Estimates, But Weak Outlook Sends SPOT Stock Tumbling 12%
Spotify Technology SA posted first-quarter results that surpassed estimates on Tuesday, but the market was in no mood to party. SPOT shares
Quick overview
- Spotify's Q1 revenue of €4.53 billion exceeded analyst expectations, with a 12% year-over-year increase in monthly active users.
- Despite strong earnings, shares fell over 12% due to disappointing Q2 guidance, particularly in operating income and premium subscriber growth.
- The company is investing heavily in AI and marketing, which is expected to keep operating expenses high in the coming quarters.
- Analysts have lowered their price targets for Spotify but maintain positive ratings, suggesting the stock may still be attractive at current prices.
Spotify Technology SA posted first-quarter results that surpassed estimates on Tuesday — but the market was in no mood to party. Shares in the Swedish audio-streaming behemoth tumbled by more than 12% as investors focused on a second-quarter projection that disappointed on nearly every count.
Spotify announced revenue of €4.53bn for the three months to March 31, rising 8% year-on-year and 1% above analyst expectations. Monthly active users rose 12% year-over-year to 761 million, while premium subscribers increased 9% to 293 million, with 3 million net additions in the quarter. Earnings per share were $3.45 compared with the $2.95 average expectation. Perhaps most strikingly, operational income came in at a record €715 million, beyond the projection of €681.6 million.
The Guidance Gap That Spooked Spotify Investors
Trouble is in front of us. For the second quarter, Spotify forecast operating income of 630 million euros — a steep sequential drop from the record set in Q1 and significantly below the roughly 680 million euros analysts had predicted. Revenue guidance of €4.8 billion was in line with estimates but the addition of 6 million premium subscribers to take the total to 299 million missed the 300.4 million Wall Street had pencilled in. A slight bright area was monthly active user guidance of 778 million, which was modestly ahead of the 773 million consensus.
Management said the weaker profit guidance was due to faster investment in artificial intelligence and marketing for new product launches, not more staff. The company is investing in computing capacity for AI and in the promotion of new features, Co-CEO Gustav Söderström told Reuters. Operating expenses will stay high for the next couple of quarters while Spotify works through a packed product pipeline, CFO Christian Luiga said, telling investors bluntly: “We’re going to ship a lot of features in the middle of this year.”
AI Features and a Peloton Partnership Drive Product Push
New products fueling that spend are an AI DJ with voice interaction, an AI Playlist tool for natural-language playlist construction, an extended Prompted Playlists feature now including podcasts, and a new Fitness hub built in cooperation with fitness platform Peloton. Taste Profile was also beta launched in New Zealand and Prompted Playlists expanded to the US and Canada.
The geography of growth dynamics has also changed. Management admitted that fewer new users are coming from Spotify’s key regions of Europe and North America, but there’s no clear timescale for reversing that trend. The advertising business again fell short in Q1, although Spotify predicted progress in the second half as its rebuilt ad stack scaled up.
Analysts trim targets, maintain positive ratings
Spotify (SPOT) Stock Outlook: Analysts Cut Targets but Hold Positive Ratings
Canaccord Genuity downgraded its price target on Spotify shares to $720 from $750 and kept a Buy rating while BofA Securities trimmed its target to $685 from $750, and kept a Buy rating, saying it cut its free cash flow expectation for 2027. Raymond James maintained an Outperform rating, lowering its target to $555 from $605, citing Q2 guidance that below Street expectations.
Several experts say the stock still appears attractive at present prices, even after the selloff. Shares of Spotify closed Tuesday at about $434, a drop of almost 15% for the year and near its 52-week low of $405. Subscriber growth could re-accelerate in the second half of 2026 as new features bed in and the impact of February’s US pricing rise – from $11.99 to $12.99 per month – takes fully effect. Whether investors are prepared to wait that long is another matter completely.
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