Spotify's spending plan hurts profit outlook as Europe, North America growth lags
By Jaspreet Singh
Spotify's Financial Performance and Strategic Investments
April 28 (Reuters) - Spotify forecast second-quarter earnings below estimates on Tuesday, citing more spending on marketing for new features as growth in major markets of Europe and North America slowed, sending its shares down 11%.
Increased Spending and AI Investments
Co-CEO Gustav Soderstrom told Reuters that Spotify was investing heavily in new features, including marketing efforts and the computing power needed for artificial intelligence, rather than expanding its workforce.
Spotify has in recent years tried to boost profitability through price hikes, as well as added AI-powered features that improve discovery and engagement on its platform to ward off competition from Apple and Amazon's products.
Operating Income and Analyst Expectations
The company expects operating income of 630 million euros ($736.41 million) for the second quarter, below LSEG-compiled analysts' average estimate of 684 million euros.
That contrasted sharply with Spotify's record operating income of 715 million euros in the first quarter, which beat estimates of 681.6 million euros, driven by lower payroll taxes.
Impact of Payroll Taxes and Share Price
Such taxes, called social charges, are tied to the value of the company's share price, as lower stock prices can lead to a decline in charges. Spotify shares have fallen around 15% this year after rising about 30% in 2025.
Feature Rollouts and Operating Expenses
CFO Christian Luiga said Spotify is going to ship "a lot of features" during the middle of this year, driving up operating expenses over the next couple of quarters.
AI-Driven Features and User Experience
AI features Spotify has rolled out include adding voice interaction to its personalized music tool AI DJ and introducing AI Playlist for generating playlists using natural-language prompts.
Earlier this month, the company also expanded its Prompted Playlist feature, which lets users create playlists based on their listening habits, to include podcasts.
User Growth and Revenue Forecasts
Its monthly active users forecast of 778 million exceeded estimates of 773 million, while its prediction for a 6 million increase in premium subscribers to 299 million was below estimates of 302 million.
Premium subscribers rose 9% to 293 million in the first quarter. Its MAU net additions of 10 million brought the total to 761 million.
Revenue rose 8% to 4.53 billion euros for the quarter ended March 31. Its forecast of 4.8 billion euros for the current-quarter came in-line with estimates.
($1 = 0.8555 euros)
(Reporting by Jaspreet Singh in Bengaluru; Editing by Maju Samuel)
