Spotify Forecasts Weaker Profit as User Growth Slows in Key Western Markets

Spotify Technology S.A. issued a third-quarter profit forecast that fell short of analyst expectations, citing slowing user growth in its mature markets of North America and Europe. The guidance sent the company's shares down nearly 4% in premarket trading on Tuesday.

Third-Quarter Guidance Misses Estimates

For the upcoming third quarter, Spotify projects an operating income of €670 million ($770.97 million), which is below the average analyst estimate of €677.8 million, according to data from Visible Alpha. The company's forecast for monthly active users (MAUs) also came in light at 788 million, compared to expectations of 793.6 million.

However, the company's revenue forecast of €5 billion for the third quarter was slightly ahead of LSEG-compiled estimates of €4.93 billion. Its outlook for a 5 million increase in premium subscribers to 305 million was largely in line with analyst expectations.

Second-Quarter Performance

In the second quarter, Spotify reported an operating income of €655 million, beating estimates of €639.2 million. The company attributed the better-than-expected result to strong revenue growth and lower-than-anticipated payroll taxes, which are linked to the company's share price.

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Quarterly revenue for the period rose 14% to €4.78 billion, just shy of the €4.80 billion estimated by LSEG. Despite recent growth, the company's shares have declined about 16% year-to-date, according to the source.

Strategic Context and Market Headwinds

The weaker outlook highlights a key challenge for Spotify: while total user and subscriber numbers are growing, the contribution from its core, high-value markets in North America and Europe is declining as a percentage of the total. This slowdown in established regions puts pressure on profitability.

To combat this and fend off competition from rivals like YouTube and AI music startups, Spotify is rolling out new features, including AI-driven "Personal Podcasts." The company also announced a new licensing agreement with Merlin on Tuesday for a paid tool that will allow for fan-made covers and remixes.