Spotify Exceeds Fourth-Quarter Profit Forecasts Amid Cost Cuts and Subscriber Growth
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Spotify is anticipating fourth-quarter profits that outshine Wall Street predictions. This optimistic outlook is driven by stringent cost-cutting measures and rapidly growing subscriber numbers during the busy holiday season, as reported by Reuters.
The Swedish audio streaming platform has set its sights on becoming profitable by implementing several measures. These include laying off employees, reducing spending on podcasts, and cutting back on marketing costs. In the U.S., Spotify has raised prices for its premium plans to better meet the rising demand for its premium features.
Spotify projects an operating income of 481 million euros ($509.76 million) for the fourth quarter, higher than the average analyst forecast of 445.7 million euros. The company also estimates reaching 665 million monthly active users (MAUs), surpassing the expected figure of 661 million, according to Visible Alpha. An estimated 8 million new premium subscribers will boost the total to 260 million.
CEO Daniel Ek highlighted that “the company is on track for its full-year profitability, which is a very important milestone that investors have been waiting on for us for a long time,” according to Reuters.
Spotify’s approach includes offering a free, ad-supported service with limited features alongside a full subscription model that unlocks premium functions. Expanding its offerings has been vital in attracting new users. For instance, in September, Spotify rolled out a generative AI tool for playlist creation to four additional markets, including the U.S.
This initiative has played a role in a 12% increase in premium subscribers, now totaling 252 million, outpacing estimates of 251 million. Meanwhile, MAUs grew by 11% to reach 640 million, slightly exceeding expected numbers.
On the downside, overall revenue rose a less-than-expected 19% to 3.99 billion euros during the third quarter, falling short of projections of 4.02 billion euros. This gap is largely due to challenges in the digital advertising sector.
These trends, along with a stronger dollar, may add pressure on fourth-quarter revenue, projected at 4.1 billion euros—below the anticipated 4.26 billion euros.
Ek noted, “We have been seeing pressure across the ad industry, where the industry is transitioning from more brand spending to more automated and direct spending. This is an area we’re investing in quite heavily.”
Nevertheless, Spotify reported a significant 40% increase in gross profit, reaching 1.24 billion euros in the third quarter, surpassing estimates of 1.22 billion euros. The company’s gross profit margin also improved, rising to 31.1% from 29.2% in the previous quarter.
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