Spotify Stock Drops Despite Strong Q1 Results
Spotify reported first-quarter results that exceeded analyst expectations for both earnings and revenue. However, the stock fell sharply—more than 13% at the open—after the company issued weaker-than-expected operating income guidance for the second quarter.
Earnings, Revenue, and User Growth Beat Expectations
Spotify delivered adjusted earnings per share of €3.45, comfortably above the €2.95 forecast. Revenue reached €4.53 billion, slightly ahead of the €4.52 billion estimate, marking an 8% year-over-year increase (or 14% on a constant currency basis).
User growth also remained strong. Monthly active users (MAUs) climbed 12% YoY to 761 million, beating both analyst expectations and the company’s own guidance.
Weak Q2 Operating Income Guidance Weighs on Sentiment
Despite the solid Q1 performance, investor sentiment turned negative following Spotify’s second-quarter outlook. The company projected operating income of €630 million, below the expected €674.3 million.
On the positive side, Spotify forecast Q2 revenue of €4.8 billion, slightly above consensus estimates, and expects MAUs to rise further to 778 million, also exceeding forecasts.
Premium Growth Remains Stable While Ads Lag
Premium subscribers increased 9% YoY to 293 million, in line with expectations, with a net addition of 3 million users during the quarter. Premium revenue grew 10% YoY to €4.15 billion (15% on a constant currency basis).
In contrast, ad-supported revenue declined 5% YoY to €385 million, although it showed modest growth when adjusted for currency effects.
Record Margins and Strong Cash Flow
Spotify reported a record gross margin of 33.0%, up 133 basis points year-over-year and above guidance. Operating income reached a record €715 million, supported by lower costs and improved margins.
Free cash flow also hit a new high for a first quarter, coming in at €824 million, reflecting strong operational efficiency.
Analyst Outlook and Future Catalysts
Following the results, analyst Sean Diffley from Morgan Stanley maintained a positive stance on the stock, highlighting stable subscriber growth and improving margins.
Looking ahead, Spotify’s upcoming Investor Day in May could act as a catalyst, particularly as the company provides more clarity on its long-term strategy and developments in artificial intelligence.
