Spotify (SPOT) reported strong first-quarter results, marking a major milestone in the company’s push toward higher margins and a more efficient cost structure. While the company beat Q1 earnings per share (EPS) and gross margin estimates, SPOT stock fell sharply, about 14% in regular trading, due to a weaker-than-expected revenue outlook for the second quarter.
Claim 55% Off TipRanks
- Unlock hedge fund-level data and powerful investing tools for smarter, sharper decisions
- Discover top-performing stock ideas and upgrade to a portfolio of market leaders with Smart Investor Picks
Q1 revenue rose 14% year-over-year (constant currency basis) to €4.53 billion ($5.3 billion) and beat expectations of €4.5 billion. Furthermore, Spotify’s adjusted earnings per share came in at €3.45 ($4.03), beating the consensus estimate of €2.95 per share and up 222.4% year-over-year.
Record Profitability Drives a Strong Q1
Spotify posted record operating income and net profit, driven by higher subscription revenue, stronger ad monetization, lower content and operating costs, and continued margin gains across music and podcasts.
During the quarter, the company’s user base continued to expand, with Monthly Active Users up 12% year-over-year to 761 million, beating guidance. Premium subscribers grew 9% to 293 million, roughly in line with expectations, and the platform added 10 million total users in Q1.
Outlook Missed the Mark
Despite strong results, Spotify’s outlook came in below Wall Street estimates. Softer guidance for revenue and operating income signaled a slower path to profitability than investors hoped. Management cited higher planned spending on product and AI features, a more cautious view on ad growth, and timing effects in subscriber additions.
The company guided to €630 million in operating income for the current quarter, below the €680 million that analysts were expecting. Also, Spotify expects to add six million premium subscribers this quarter, reaching 299 million, just shy of Wall Street’s 300 million forecast.
The shortfall raises concerns about consumers’ willingness to pay more in a tough economy, especially after Spotify raised the U.S. individual premium price to $12.99 from $11.99 in February.
Is SPOT a Good Stock to Buy Now?
On TipRanks, SPOT has a Strong Buy consensus based on 16 Buy and four Hold ratings assigned in the past three months. SPOT stock’s consensus price target is $635.53, implying a 48.75% upside.
