Spotify Swings to a Second-Quarter Loss

- Spotify Technology SA swung to a loss in the second quarter, missing analysts’ estimates after the music-streaming service recorded higher-than-expected expenses related to employee compensation.

Earnings dropped to a loss of 42 euro cents per share, the company said in a statement Tuesday, missing analysts projections for a profit of €1.97. Revenue increased about 10% to €4.19 billion ($4.8 billion), compared with Wall Street estimates of €4.27 billion. The Stockholm-based company also gave a forecast for the current quarter that was weaker than analysts had expected.

Spotify’s shares tumbled as much as 11% to on Tuesday in New York to $626, the biggest intraday decline since April 4. The stock had gained 57% this year through Monday, boosted by efforts to reduce costs, which led the company to its first full year of profit in 2024.  Bloomberg Geetha Ranganathan reports.

So-called social charges, which it has defined as payroll taxes associated with employee salaries and benefits, were €98 million higher than the company forecast because of its share price growth in the quarter, Spotify said. The company also blamed a change in its revenue mix for lowering operating income.

The disappointing financial results “are short-term noise that shouldn’t overshadow the tailwinds,” Bloomberg Intelligence analyst Geetha Ranganathan wrote in a note. “Premium subscriber and monthly active user growth was strong in 2Q, and that momentum should continue.”

The platform has spent the past half year focused on expanding its video and advertising business, while also raising prices to increase profitability. While Spotify is more commonly thought of as a music service, it’s trying to compete more directly with Alphabet Inc.’s YouTube by including videos on the service, including for podcasts, music videos and recorded concerts.

Paying subscribers grew to 276 million from the prior quarter, Spotify said, beating projections of 273.2 million. Monthly active users increased to 696 million, compared with analysts’ projections of 689.2 million.

The company said it expects to add users in the third quarter to bring its premium subscribers up to 281 million and overall users to 710 million. Revenue is expected to rise to €4.2 billion in the third quarter and will likely be hit by a weaker dollar, it said. Spotify forecast operating income of €485 million.

Analysts were anticipating €4.48 billion in revenue and €569.5 million in operating income in the third quarter, on average.

Earlier this year, Spotify hosted an event for advertisers, pitching them to spend more money with the service. It launched a feature with generative artificial intelligence that can provide the voice for audio ads to make them more affordable.

The company is rejiggering the ads business to “move faster” and contribute more to the bottom line, executives said on a call with analysts. Global advertising head Lee Brown announced Monday he’s joining DoorDash Inc. as chief revenue officer.

Spotify executives said the company is run to “optimize for long-term, not short-term gains,” and it puts subscribers “on a pedestal.” Chief Executive Officer Daniel Ek said “the business is solid, and our model holds up.” The company expects 2025 “to be a standout year for Spotify. Our approach has always been and will always be creating lifetime value.”

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