Key Stats for Spotify Stock
- 1-Day Price Change for Spotify stock: -2.25%
- $SPOT Share Price as of Nov. 4: $630
- 52-Week High: $785
- $SPOT Stock Price Target: $734
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What Happened?
Spotify (SPOT) stock slipped 2% on Tuesday despite the streaming giant reporting third-quarter results that beat Wall Street expectations on both the top and bottom lines.
Revenue came in at €4.27 billion versus €4.23 billion expected, while adjusted earnings per share of €3.28 crushed the €1.97 estimate. The company also surpassed expectations for monthly active users, reaching 713 million, versus the consensus of 710 million.
However, Spotify forecast fourth-quarter revenue of €4.5 billion, missing the €4.56 billion Street estimate.
Even more concerning for investors, the company expects to add just 8 million net premium subscribers in Q4 to reach 289 million, which is below the 291.1 million that Wall Street was expecting.
That’s slightly lower than last year’s Q4 net additions, which Spotify attributes to churn resulting from recent price increases rolled out across more than 150 markets (versus just six markets in the prior year).
CEO Daniel Ek attempted to put a positive spin on things, stating, “The business is healthy” and highlighting the company’s faster product development pace.
But with Ek set to transition to executive chairman in January and co-presidents Gustav Söderström and Alex Norström taking over as co-CEOs, the timing of weaker-than-expected guidance creates some uncertainty around the leadership transition.
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What the Market Is Telling Us About Spotify Stock
The decline in Spotify stock reflects investor concerns that subscriber growth is decelerating, despite the company’s aggressive product innovation and expansion into new content verticals.
While premium subscribers grew 12% year-over-year to 281 million (roughly in line with expectations), the sequential net adds of just 5 million in Q3 were already below historical trends. Guidance for 8 million net adds in Q4 suggests the company is hitting some growth headwinds.
The bigger issue is the advertising business, which continues to struggle. Ad-supported revenue came in at €446 million, down 6% year-over-year and significantly below the expected €467.7 million.
On a constant currency basis, ad revenue was flat, marking the second straight quarter of disappointing ad performance.
Management blamed the weakness on its ongoing transition from direct sales to programmatic/auction-based advertising, saying they don’t expect growth to resume until the second half of 2026. That’s a long time to wait.
On the positive side, Spotify stock has multiple long-term growth drivers. Monthly active users surged to 713 million (up 11% year-over-year), driven by major enhancements to the free tier rolled out in September.
The company is betting these free users will eventually convert to paid subscribers as engagement increases. Management noted that consistent usage consistently leads to higher conversion rates over time.
The company is also making significant investments in AI and multi-format content. Spotify launched integration with ChatGPT in October, allowing users to get personalized music and podcast recommendations.
Video podcasts are experiencing a surge, with nearly 400 million users streaming video content (up 54% year-over-year), and the company has just struck a deal to license content to Netflix.
Audiobooks continue to gain traction, with over half of eligible premium users trying the feature and listening hours increasing by 36% year-over-year.
Gross margins improved to 31.6%, up 50 basis points year-over-year, and operating income of €582 million crushed guidance.
The company generated €806 million in free cash flow and bought back €77 million in shares during the quarter.
Management reiterated confidence in hitting long-term margin targets and expects 2026 to bring “healthy revenue growth, disciplined reinvestments and margin and cash flow improvement.”
Despite strong profitability metrics and product momentum, Spotify stock is being dinged because the core subscriber growth engine appears to be slowing, while the ad business remains stagnant.
With shares up nearly 150% year-to-date before yesterday’s decline, investors are clearly resetting expectations for how quickly the company can reaccelerate growth.
Until Spotify can demonstrate that it can add subscribers at historical rates despite higher prices and show meaningful progress in fixing the ad business, the stock is likely to remain range-bound.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
