Spotify(SPOT.US) 3Q25 earnings meeting: It is expected that the revenue will continue to grow steadily in 2026, and the gross profit margin and cash flow will continue to improve.

Spotify (SPOT.US) held a performance conference call for the third quarter of 2025. The company's total revenue for the third quarter reached 4.3 billion euros, a 12% year-over-year growth at fixed exchange rates. Subscription revenue increased by 13% year-over-year at fixed exchange rates, mainly due to the growth in the number of users. Operating profit was 582 million euros, 97 million euros higher than expected. Due to stock price fluctuations, social costs contributed positively by 410 million euros. In the third quarter, monthly active users increased by 17 million, reaching a total of 713 million, exceeding the target by 3 million. Additionally, 5 million net subscription users were added, bringing the total subscription user base to 281 million, a 12% year-over-year growth, in line with expectations. Looking ahead, the company expects the monthly active users to reach 745 million in the fourth quarter, an increase of 32 million from the third quarter; meanwhile, subscription users are expected to reach 289 million. According to forecasts, the net increase in subscription users will be 8 million, slightly lower than the same period last year, mainly due to an expected slight increase in user churn rate after a price hike. This year, new pricing plans have been introduced in over 150 markets, compared to only 6 markets implementing new pricing policies in the same period last year. Furthermore, the company recently launched an upgraded version of its free plan globally, which has positively impacted user growth. With these advantages, the business is fully capable of achieving user conversion by 2026 and continuing its healthy user growth momentum. Total revenue for the fourth quarter is expected to reach 4.5 billion euros; calculated at a constant rate, the year-over-year growth rate will increase to around 13%, compared to the 12% growth rate in the third quarter. Also, the year-over-year growth rate of average revenue per user (ARPU) is expected to reach approximately 2% calculated at a constant rate. The gross profit margin for the fourth quarter is forecasted to be 32.9%, with an operating profit of 620 million euros. Regarding 2026, although it is too early to provide specific forecasts, it is worth mentioning that the company is confident about the future. The first quarter of 2026 may see a decrease in gross profit margin compared to the fourth quarter. However, the company is optimistic about the prospects for steady revenue growth, cautious investment behavior, continuous improvement in gross profit margin, and cash flow in 2026. Analyst Q&A Q1: Could you please elaborate on the gross profit margin situation in the Premium and ad business in the third quarter? How should we view the gross profit margin for the fourth quarter and 2026? A: This year, the gross profit margin of the company is steadily increasing. Currently, the pressure faced by the company in the premium business is greater than in the advertising business. However, this is not a major concern. We announced at the beginning of the year our new plan: to launch the SPP program and transfer some podcast videos and content to the premium subscription product business to enhance the quality of high-end products. As a result, costs associated with the transfer will be shifted from the advertising business to the premium product business. Although this adjustment does not have a significant impact on the overall operation of the company, it will slightly reduce the profit margin of the premium product business while increasing the profit margin of the advertising business. Since we started implementing this plan in the first quarter, this change will continue throughout the year, which will also have a similar impact on the fourth quarter. Q2: Major record companies have indicated their plans to introduce exclusive services for high-end super fans. Will these services be jointly developed by all major record companies for all digital music platforms? Or are they designed specifically for Spotify as an exclusive product? A: We will only launch new products when they are truly ready for the market. However, I can tell you that we are in deep cooperation with most of the relevant copyright vendors. We will provide users with additional Spotify additional services based on their Premium subscription service. A few months ago, we launched a new service called "Audiobooks+" which is a subscription option tailored for users who have consumed 15 hours of audio content. This additional service subscription is very popular, and users have responded very positively. In addition, users are also purchasing additional service content. Therefore, we are currently seeing an unprecedented level of ARPU. This is very encouraging for us - because we have been continuously launching new additional services that cover more industry areas. Q3: What impact do you think artificial intelligence will have on the music industry? How does the integration of ChatGPT align with this trend? In your cooperation with major record companies, you have mentioned developing new products that can generate new revenue sources for the music industry. Could you further explain how these new products will affect royalty income? A: With the music industry and the entire industry moving towards so-called "generative recommendation systems, the recommendations we receive will be significantly improved. These systems utilize generative artificial intelligence to better understand consumer behavior and needs on a deeper level. Today's recommendation systems no longer rely solely on passive user clicks or data records; we truly understand the content itself and the personalized needs of the users. It excites us the most that these systems can even understand user language and emote with the users. Therefore, you can communicate with Spotify's "DJ" in English, and it can truly understand you and provide you with personalized recommendations. If this technology continues to evolve, users will likely experience richer interactive experiences in the future - we internally refer to this technology as "personalization 2.0." Eventually, users will be able to interact with Spotify like they would with a human, and Spotify will genuinely understand your personalized demands. You can tell Spotify that you are fed up with a certain type of music and now you want to listen to something entirely new - something that has never appeared in our listening data. Therefore, we cannot predict your taste. However, you can tell us what kind of personalized experience you want and how much user control you want. ChatGPT's real advantage lies in its ability to not only understand the world and various usage scenarios but to combine Spotify's understanding of user preferences to tailor personalized content for you. Now, you can request a music playlist based on a specific event happening in the world, and this playlist won't be the same for all ChatGPT users; it will adjust the content based on your personal Spotify usage, thus truly meeting your needs. This kind of integration was previously impossible. Regarding your last point about the new products we are developing in cooperation with the music industry - our view is that just as with combating piracy, we believe that someone must work with the music industry and artists in a legitimate way to utilise this technology. We aren't looking for anyone's forgiveness, but we hope the artists can truly be involved in this process and benefit from it. This is why we are doing what we are doing. Q4: Can you discuss the impact of the collaboration with Netflix in producing video podcasts on the platform? How does this partnership affect your overall strategy of increasing video viewership on the platform? A: We believe that when the creators succeed, we also succeed. As creators focus on creating the best content, they naturally want their work to be seen on as many platforms as possible. Of course, we are also willing to help them distribute these works to as many audiences as possible, which not only aligns with our core principle of "innovation at the core" but also helps them realize the maximum commercial value. Regarding your second question, specifically: generally, when our programs are initially released on Spotify, we simultaneously upload these programs to YouTube. As experience has shown in the past, this has indeed increased public awareness of these programs. Additionally, we often find that the pool of listeners on Spotify grows along with the spread of these programs on YouTube. Thus, seeing Netflix now establishing this new partnership with us, we are very excited and grateful. Q5: In a post you recently made on Instagram, Gustav mentioned that the free users were very satisfied with the recent upgrades of the free features. With these upgrades, have there been any changes in the conversion rate from free to paid users? A: From our data, we have seen an increase in user engagement. For Spotify, there are several key metrics to measure user retention and subscription value. One of the key metrics is user engagement - specifically, how many active days a user has per month, which we refer to as "Active Days." Therefore, our goal is to increase users' daily activity and the number of active days per month. We know that over time, this approach will inevitably lead to more user conversions. As we mentioned years ago, the more frequent a user uses the service, the higher the cost eventually becomes. Therefore, we are committed to maximizing user engagement in both the free and premium services. We are confident that as people use our service more, we will receive more positive feedback, whether in the free or premium service. Q6: Regarding the leadership transition. Gustav and Alex, since you both will assume the roles of co-CEOs in January, what excites you the most in your respective areas of responsibility? A: Our excitement stems from aiming for higher goals, as we have mentioned before, currently only about 3% of the global population regularly subscribes to Spotify's services - these people are the ones who use our services regularly every month. With these three core business areas, we actually have a very broad potential market. We believe that most people in the world are interested in music; in addition, they are also passionate about reading books, listening to podcasts, and watching videos. Therefore, these factors put us in a very favorable position to help us achieve our new goal of having 1 billion subscribers. My passion for Spotify has been going on for more than 17 years. And the reason why I maintain this passion for Spotify has not changed to this day - just as Daniel initially mentioned: just look at the market opportunity and you will understand that the music industry, especially the podcast and book-related content, may be the most potential market area. I think the potential of this market even surpasses other areas like social networking. I believe that there is no one in the world who completely dislikes music. We are in the midst of a major macro change - the macro change of AR technology. I've previously mentioned that this change is undoubtedly the most exciting for me, as its importance is comparable to the advent of smartphones. When you combine these two views, when such a macro change comes, from the product's perspective - and I am a person who focuses on product development - you will find many opportunities to drive product innovation and change various situations. In such cases, it is best to be in an environment with a large market, a strong company, and a wealth of talent backing it up. And right now, I am in that position, which is why I am excited. Q7: In your recent press release, you mentioned reaching billions of Total Active Users (TAM). Considering the emergence of new types of content such as audiobooks, what opportunities do you think music and non-music content have in user engagement and usage time? A: When looking at this phenomenon from the perspective of user engagement (TAM) - not necessarily measured by the number of users, but by the time users actually spend using the platform - you will find that there are a plethora of fantastic content and experiences on the market. However, for various reasons, these contents or experiences may not have reached the level to attract users, or their price threshold may be too high, making it difficult for ordinary users to enjoy them. Take Spotify, for example, it is positioned in such a key innovative moment. We are innovating not only in the music sector but in the podcast sector as well; and in the audiobook sector, we are putting in a lot of effort. It is known that there is actually a greater number of people interested in audiobooks, a number that far exceeds the data shown in the market. This is about user experience as well as business models. Now, there are indeed more people interested in audiobooks than what the market is currently showing. This number is related to both user experience and business models. As we all know, there is more room for growth and potential beyond what we are currently seeing. When artificial intelligence is introduced into these areas, this foundational technology will help create new user experiences and business models. We are very excited about this prospect. However, we have yet to see many new AI applications that can achieve broad consumer recognition. We believe this situation will change in the next few years, and we have the opportunity to benefit from it. Q8: Looking at the data on the growth of advertising revenue over the past two years (excluding the impact of exchange rates), the growth rate of advertising revenue has decreased from 31% in the third quarter of 2024 to 7% in the third quarter of 2025. You have also mentioned that there have been some recent signs of weakness in advertising pricing. How do you plan to achieve robust advertising revenue growth again? A: The growth rate of our business has slowed down to single-digit levels. We have developed a new long-term development strategy, and we are confident in our ability to achieve this strategy. We announced the progress of the company in the second quarter, acknowledging that we are currently slightly behind schedule and need more time to make up for this gap. However, significant progress has indeed been made in programmatic advertising. The question is: when will programmatic advertising revenue grow to the point where it can offset the revenue gap from direct sales? For this, we need to establish more partnerships with diverse DSP platforms. Currently, Amazon.com, Inc., and Yahoo have decided to join our partnership system in the third quarter, bringing more value to our business; and our clients are gradually shifting towards programmatic advertising. Overall, the progress is good, but reaching the inflection point will actually take more time than we expected before the second quarter. However, as mentioned in my remarks, we expect to return to the ideal growth trajectory in the second half of 2026. Alex, do you have anything to add on this? Q9: In terms of the market situation in countries like Australia, where there has been a slightly higher inflation rate, could you discuss the changes in consumer buying behavior and price elasticity in such situations? What insights do these phenomena provide us about market conditions in countries like the United States? A: Increasing prices is part of our strategy, and our pricing decisions are always based on a variety of factors. The most important thing is that we are committed to pricing strategies that reflect the value of our products. We aim to maintain a balance and take appropriate action in each specific market when the time is ripe; it also depends on the actual market situation to determine the right pricing. Q10: What achievements have you gained from completing cooperation agreements with all major record companies? What additional rights or flexibility do these cooperation agreements bring to you? Do you still have enough flexibility to implement your diversified cooperation strategies unrelated to music? A: As you may have heard, we are about to complete a new round of contract negotiations with all our partners. This is a key moment for us. Historically, we have reached new, modernized cooperation agreements with the top five ranked record companies in the US. These agreements are truly beneficial for both parties. For our publishing partners, these agreements further recognize the value composers bring to our various products. These collaborations allow us to obtain the broader video rights we have long desired. This is a critical strategic goal for us - because these rights allow us to remain innovative and introduce more new products and features. The launch of these new products not only grows our own business but also provides more opportunities for the entire music industry's development. Moreover, these collaborations allow us to continue moving closer to our long-term business goals. I am very excited to establish more collaborations with the entire music industry and create a better future for the music industry. Q11: Could you discuss the future prospects of the advertising business, revenue growth, and the trend of gross profit margins? How much did the current advertising environment impact the revenue growth in your third-quarter report? Furthermore, how will the new cooperation in the digital advertising platform lay the foundation for the company to achieve growth in 2026? A: First of all, in terms of profit margins, as I detailed in the first question of todays conference, the advertising business does benefit from the SPP's transition to high-end markets, a trend that will continue into the fourth quarter. Starting in the first quarter, the advertising business's profit margin will not have the advantage of year-over-year growth compared to the direct sales business. In terms of revenue, this year we have taken multiple measures to boost advertising revenue, one of which is to increase auction-based advertising revenue. As mentioned by Alex, from our data reports, we see that this income is indeed steadily growing. The real turning point will occur at some point - at that time, the growth rate will exceed the stagnation or slight decline trend in the direct sales business. We are currently not too concerned about the current advertising market environment, as we already have the momentum for this transformation. Therefore, we are very optimistic about the current situation and believe that our revenue will experience healthy growth in the second half of 2026. Q12: You recently made updates to the Apple TV application, focusing more on video content. How does this partnership with Netflix in licensing your 16 video podcast channels help you achieve your video business development goals? Are there risks that over time, Spotify's user activity will decline, or Netflix will develop its own competitors? A: We believe that the energy created by us is indeed gaining momentum. This is a shining point for us. Q13: We recently noticed that you raised prices in some markets, but the price difference between Spotify and competitors varies by country. What are your thoughts on the price adjustments? In particular, what indicators give you the confidence to set service prices significantly higher than those of competitors? A: We do pay attention to the market competition situation, but the most important issue is our own products. We place a strong emphasis on the value proposition of our product. Our product development speed has increased significantly in the previous quarter - with more than 30 new features added to our product and users responding positively to these changes. Therefore, for us, it is important to continue to improve the value proposition of our product - to increase the value of the product and to strive to produce the highest quality product. The best products usually fare well in the market. When we examine our products and the value they embody, we then decide whether price adjustments are necessary based on the specific market conditions. As I have mentioned many times, these decisions are shaped by the dynamics of the specific market. I think this question implies a viewpoint: people might compare Spotify with other music service providers. However, in many markets where we are currently present, Spotify is no longer just a music service platform - it also offers music podcasts and audiobook services. In some markets where we have not yet launched audiobook services, our product pricing strategy is not only about the value of music itself but also includes the value we provide in various other business areas. I think this additional value is crucial, as people's perceptions of Spotify can vary significantly from market to market. Q14: You have recently adjusted prices in some markets, but the price gap between Spotify and competitors varies by market. Why is the price increase in Australia greater than in the UK? Do you expect future price adjustments to be closer to the Australian increase or the UK increase? A: When we adjust market prices, we consider many different factors. We focus on household incomes, market maturity, and the proportion between specific products and prices - if there are products in a market that offer unique value. We consider all