Spotify stock fell nearly 12% Tuesday after the audio streaming giant reported a Q2 loss, missed revenue forecasts, and issued softer guidance for revenue and operating income in the current quarter.
This decline comes after a remarkable 120% rally over the past year, driven by a major business overhaul that included price hikes, layoffs, leadership changes, and scaling back costly podcast exclusivity deals. Investor enthusiasm for AI and advertising also fueled the surge. The stock hit an all-time high of $738.45 earlier this month but closed Tuesday near $620.
Spotify posted Q2 revenue of €4.19 billion ($4.86 billion), below analyst expectations of €4.27 billion, though up from €3.81 billion a year ago. The company reported an adjusted loss of €0.42 ($0.49) per share, missing forecasts for a profit of €1.97 and down from earnings of €1.33 in the same quarter last year.
“Outsized currency movements during the quarter impacted reported revenue by €104 million vs. guidance,” Spotify said in its earnings release.
Operating income also fell short, pressured by social charges, higher payroll expenses, and an unfavorable revenue mix. Guidance for the current quarter came in below Wall Street estimates, reflecting ongoing pressure from social charges linked to the company’s share price.
On the earnings call, CEO Daniel Ek acknowledged the near-term challenges but remained confident in Spotify’s long-term prospects, stating he still expects 2025 to be a “standout year.” He attributed recent user and subscriber growth to long-term initiatives launched months or years ago and emphasized that results aren’t always immediate or fully within the company’s control.
“Our approach has always been and will continue to be the focus on creating lifetime value rather than optimizing for quarter-to-quarter performance,” Ek told investors.
Spotify guided Q3 monthly active users (MAUs) to 710 million, slightly above the 707 million analysts expected. In Q2, MAUs rose 11% year-over-year to 696 million, beating estimates of 689 million. Premium subscribers grew 12% to 276 million, and ad-supported users increased 10% to 433 million—both surpassing forecasts.
Despite strong user growth, Ek acknowledged weakness in the ads business amid rising competition.
“The one area that hasn’t yet beaten expectations is our ads business,” Ek said. “We’ve simply been moving too slowly. … It’s really an execution challenge, not a problem with the strategy.”
This softness contributed to gross margins declining from a record 32.2% in Q4 to 31.5% in Q2, with expectations for a further slip to 31.1% in Q3.
Analysts warn that margin expansion may slow this year after a 500-plus basis point gain in 2024. Additionally, recently renewed deals with major music labels could slightly weigh on future results.
Spotify executives reaffirmed their long-term focus on expanding gross margins through music, podcast, and audiobook monetization, maintaining their conservative financial guidance based on areas of certainty.
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