Spotify Technology S.A., listed on the NYSE as SPOT, experienced a notable increase in its stock value following the announcement of its fourth-quarter 2025 earnings which surpassed Wall Street forecasts.
The company reported earnings per share of $5.16, markedly exceeding the consensus analyst estimate of $2.95. Concurrently, quarterly revenue reached $5.28 billion (equivalent to 4.53 billion euros), reflecting a 7% year-over-year growth and surpassing projections which anticipated $5.16 billion.
This financial performance was largely attributed to key growth initiatives including the highly successful "Wrapped" campaign. This campaign, designed to motivate users to share their top streamed artists and songs across social media platforms, significantly boosted user engagement and visibility. Additionally, the global rollout of an enhanced free tier offering contributed meaningfully to attracting more users, according to Bloomberg.
Accelerated User Growth
The quarter under review highlighted robust growth in Spotify's user base. Monthly active users (MAUs) rose by 11% year-over-year to reach 751 million, representing an addition of 38 million subscribers in the quarter alone. This figure beat company expectations by 6 million, underscoring a strong expansion trajectory.
Premium subscribers totaled 290 million, depicting a 10% increase year-over-year. This milestone aligned with company forecasts and was supported by gains across diverse geographic regions, indicating broad-based adoption of the premium service.
Despite the positive momentum in subscriber numbers, monetization metrics presented a mixed picture. The average revenue per user (ARPU) in the Premium segment declined approximately 3% year-over-year to 4.70 euros. Additionally, revenue generated from the ad-supported tier fell by 4%, signaling pressures on some revenue streams.
Margins Reflect Mixed Dynamics
Spotify achieved an 83-basis-point improvement in overall gross margin, which rose to 33.1%. Gains were supported by positive performance in both Premium and ad-supported segments. The Premium gross margin improved modestly by 10 basis points to 34.8%. This improvement was primarily driven by revenue growth outpacing music and audiobook costs, although increased costs related to video podcasts offset some of these benefits.
The ad-supported segment witnessed a significant 441 basis points rise in gross margin to 19.5%, bolstered by stronger contributions from both podcasts and music offerings.
Operating income expanded by 47% year-over-year, totaling 701 million euros and representing an operating margin of 15.5%. Spotify concluded the quarter with a cash balance of 9.5 billion euros encompassing cash, cash equivalents, restricted cash, and short-term investments. Free cash flow generation during the period was robust at 834 million euros. The workforce comprised 7,323 full-time employees at quarter-end.
Outlook and Forward Guidance
Looking ahead to the first quarter of 2026, Spotify projects revenue of 4.50 billion euros, slightly below analyst forecasts of 4.57 billion euros. The company anticipates growth in its Premium subscriber base to 293 million, which implies an addition of about 3 million new subscribers in the quarter. Total monthly active users are expected to reach 759 million, reflecting estimated net new additions of approximately 8 million.
This earnings beat serves as a promising early indicator under the leadership of Spotify's new co-CEOs, Gustav Söderström and Alex Norström, who assumed their roles at the beginning of the year, succeeding founder Daniel Ek.
Pricing Strategy Update
In a recent strategic move, Spotify announced price increases for U.S. users, with the cost of a single subscription rising by $1 to $13 per month, as reported by Bloomberg. This change forms part of the company's approach to enhance revenue streams amid evolving market dynamics.
Market Response
Following the earnings release, Spotify's shares experienced a strong premarket trading surge, climbing approximately 13.54% to $471, as per Benzinga Pro data, reflecting investor confidence in the company's trajectory.
Key Points:
- Spotify's Q4 2025 EPS of $5.16 and revenue of $5.28 billion both outperformed analyst expectations.
- Monthly active users increased 11% year-over-year to 751 million, with record subscriber additions of 38 million.
- Premium subscribers reached 290 million, growing 10% year-over-year, consistent with forecasts.
- Gross margin improvements were notable, though Premium ARPU and ad-supported revenue declined.
Risks and Uncertainties:
- Softening average revenue per user in the Premium segment may impact long-term profitability.
- Declines in ad-supported revenue introduce uncertainties around advertising monetization.
- Upcoming price increases may affect subscriber growth or churn rates in competitive markets.
- Projected Q1 2026 revenue guidance slightly misses analyst expectations, posing short-term market risks.