Spotify Technology SA shares fell sharply in premarket trading on Tuesday after the streaming giant issued a weaker-than-expected second-quarter profit outlook and missed subscriber growth estimates, raising concerns about momentum in its core markets.
The company forecast second-quarter operating income of 630 million euros ($736.41 million), significantly below the 684 million euro consensus estimate, according to LSEG data. This marks a notable step down from the record 715 million euros in operating income reported for the first quarter, which beat expectations.
The stock declined as much as 12% in premarket trading and was around 8% lower during early trading hours. Spotify's shares have fallen roughly 15% so far this year.
Mixed Q1 Results
In the first quarter, Spotify reported revenue of 4.53 billion euros (up 8% year-over-year), slightly above the 4.52 billion euro estimate. Earnings per share came in at $3.45, beating the $2.95 estimate by $0.51. Monthly active users reached 761 million, exceeding the 756.6 million forecast, while premium subscribers rose 9% to 293 million, just below the 294.5 million estimate.
The strong Q1 operating income was partly supported by lower payroll taxes tied to Spotify's lower stock price, which reduced social charges. Gross margin improved to 33.0%, above the 32.8% estimate.
Weak Q2 Guidance
For the second quarter, Spotify guided for operating income of 630 million euros, well below the expected 684 million euros. The company forecast 299 million premium subscribers, missing the 302 million estimate, implying only 6 million net additions. Notably, fewer new subscribers are coming from Europe and North America, Spotify's key markets.
Monthly active user guidance of 778 million did beat expectations of 773 million, suggesting the free, ad-supported tier remains healthy. Revenue guidance of 4.8 billion euros for Q2 was broadly in line with the estimated 4.77 billion euros.
Ad Revenue Pressure
Spotify's advertising business, a key growth driver alongside subscriptions, showed weakness in Q1. Ad-supported revenue dropped 5% year-over-year. On a constant currency basis, it rose 3%, but currency headwinds cut total revenue growth by around 600 basis points.
AI Investments and Competition
Spotify continues to invest in artificial intelligence features to boost engagement. It expanded its AI DJ voice tool, launched AI Playlist for generating playlists via natural language prompts, and extended its Prompted Playlist feature to include podcasts.
Leadership changed at the start of the year. Founder Daniel Ek moved to executive chairman, with Gustav Söderström and Alex Norström now serving as co-CEOs. Spotify operates in a competitive market alongside Apple and Amazon.
