Spotify Sees User Growth But Falls Short on Financial Projections

Spotify has reported an increase in its user base for the first quarter of the year, surpassing its own expectations regarding paid subscriptions. Despite achieving its revenue target, the company's operating profit was below forecasts. This cautious outlook led to a nearly 10% drop in Spotify's stock price, which did experience a slight recovery but still ended the day in the red.

The latest figures indicate that Spotify now has a total of 678 million monthly active users, an increase of three million from the end of 2024 and a 10% rise compared to the previous year. Notably, the number of free users, who listen to ads, decreased by two million to 423 million, while there was a five million increase in paying subscribers, bringing the total to 268 million. Analysts had anticipated only 265.2 million paying users.

The financial implications of this growth are significant, as Spotify generates considerably more revenue from paying customers than from advertising. In the first quarter, 90% of its revenue came from subscriptions, which rose by 16% year-over-year to EUR3.77 billion. Overall, Spotify's quarterly revenue increased by 15% year-over-year to EUR4.19 billion. However, advertising revenue fell by 22% to EUR419 million, leading to a one percent decline in total revenue compared to the previous quarter, where Spotify had achieved profitability for the first time in 17 years.

Spotify continues to maintain profitability, with a net profit of EUR1.33 billion, reflecting a 32% increase year-over-year. However, this figure is lower than the previous quarter, which had shown a 3% increase. The operating profit rose by 7% from the previous quarter and more than tripled compared to the same period last year, reaching EUR509 million. However, this was below the company's own estimate of EUR548 million.

Looking ahead to the second quarter, Spotify forecasts a 13% increase in total revenue compared to the previous year. It also anticipates that its operating profit will double year-over-year and increase by nearly 6% from the first quarter. Additionally, the company expects its user base to grow to 689 million, although analysts had projected a higher increase to 694.4 million users.

Despite the disappointing outlook, analysts remain optimistic about Spotify's potential for growth. Factors such as possible price increases and new features, including video podcasts, are expected to drive further expansion in both revenue and user numbers. Last year, Spotify introduced music videos for premium users, helping to close the gap with competitors like YouTube Music and Apple Music, which have already integrated music videos into their offerings.

Initially, the stock experienced a setback, dropping by 9.6% on the New York Stock Exchange after a 22% gain since the start of the year. Nevertheless, the stock rebounded throughout the trading day, finishing with a loss of less than half a percent.