July 31, 2025

Spotify, the leading music-streaming service, has revealed that it expects to report lower-than-expected profits for the third quarter. This announcement comes on the back of higher taxes imposed on employee salaries, which overshadowed what the company believes is a strong ongoing demand for its premium subscriptions. As a result, Spotify's shares fell nearly 9% in early trading, despite enjoying a remarkable 57% rise in share price over the course of the year so far. The company provided financial guidance that disappointed investors, indicating it expects to achieve an operating income of €485 million ($561.05 million) in the upcoming quarter—a figure that trails behind the market's estimate of €562 million as documented by financial data provider LSEG. However, in a glimpse of positive news, Spotify did forecast its monthly active users (MAU) to reach approximately 710 million, which aligns well with market expectations. Spotify also shared its outlook for premium subscribers, predicting a rise of 5 million to a total of 281 million. This number surpassed the Visible Alpha's estimate of 279 million subscribers, suggesting that despite the profit concerns, Spotify is still experiencing robust growth in its user base. To bolster investor confidence and signal its commitment to returning value to shareholders, Spotify's board has authorized a significant increase to its share repurchase program—raising the total buyback to $2 billion from a previous $1 billion. The move is expected to make $1.9 billion available for repurchases through April 2026. Nevertheless, Spotify faces tough competition in the music streaming and podcasting segments from industry giants like Apple and Amazon. The increasing rivalry has compelled Spotify to ramp up its marketing expenditures. Notably, the company recorded an 8% hike in operating expenses during the April-to-June quarter, attributed to heightened marketing efforts. Positive indicators can still be seen in Spotify's latest subscriber figures. The company reported a 12% increase in premium subscribers, reaching 276 million in the second quarter, exceeding the Visible Alpha estimate of 273 million. Additionally, Spotify added 18 million net new MAUs, elevating its total to 696 million, surpassing analyst expectations. In terms of financial performance, Spotify announced a 10% increase in revenue for the second quarter, soaring to €4.19 billion ($4.85 billion). However, it fell short of the market's €4.26 billion prediction. Contributing to the disappointing revenue figures were unfavorable currency movements that impacted total revenue growth by approximately 440 basis points. For the third quarter ahead, Spotify has projected revenue of €4.2 billion, again falling below estimates of €4.48 billion. As investors digest this forecast, they will be closely tracking Spotify's maneuvers and market performance in a competitive landscape. The future trajectory of Spotify will heavily depend on how well it can balance increasing operational costs and taxes against the backdrop of strong demand for its services. As the company aims for its goal of sustained profitability, it will be interesting to see how it adapts to continued competition and changing market dynamics. Spotify's commitment to growing its user base and premium subscriber numbers may help it overcome these challenges, but the focus remains on the bottom line in an industry where profit margins are notoriously tight. Investors and market watchers alike will be eager to see how these developments unfold in the months ahead.

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Tags: Spotify, Third-quarter profit, Premium plans, Share buyback, Music streaming,