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Finance

Spotify's high payroll taxes hurt profit, shares slide

Published by Global Banking and Finance Review

Posted on April 29, 2025

Featured image for article about Finance

By Jaspreet Singh

(Reuters) - Spotify forecast second-quarter profit below market estimates on Tuesday due to employee salary-related taxes, taking the shine off its strong subscriber growth and sending the shares of the Swedish music-streaming giant down 6% before the bell.

The company's profitability is closely watched by investors looking for signs that it can bolster margins after years of prioritizing user growth.

While cost-cutting initiatives and price increases have aided profit in the recent quarters, its latest earnings took a hit from taxes tied to higher salaries and benefits that jumped sharply due to a rise in the company's stock price.

Spotify took 76 million euros ($86.47 million) in charges in the first quarter, offsetting lower marketing costs and weighing on its operating profit of 509 million euros, which was below estimates of 518.2 million euros, according to data compiled by LSEG.

Its second-quarter profit forecast of 539 million euros includes 18 million euros in payroll taxes, and was below estimates of 557.5 million euros.

Still, strong subscriber growth showed that efforts to draw users with more video content and AI-powered services, including playlists generated with a simple written prompt, were working.

Premium subscribers rose 12% to 268 million in the first quarter, beating Visible Alpha estimates of 265.3 million. The company had 678 million monthly active users, above estimates of 671.9 million.

CEO Daniel Ek told Reuters the company was focused on "adding various higher price point tiers" for those who want all the benefits.

He said a large share of new subscribers came from Latin America and the Asia-Pacific, regions he expects will power Spotify's long-term growth.

It expects monthly active users to rise to 689 million in the second quarter, compared with LSEG-compiled estimates of 684.9 million. Premium subscribers are expected to increase to 273 million, above Visible Alpha estimates of 271.5 million.

First-quarter revenue rose 15% to 4.19 billion euros, slightly below LSEG-compiled estimates of 4.20 billion euros. Spotify forecast second-quarter revenue of 4.3 billion euros, in line with estimates.

Spotify's shares have risen about 34% so far this year.

($1 = 0.8790 euros)

(Reporting by Jaspreet Singh in Bengaluru; Editing by Shounak Dasgupta and Arun Koyyur)