Spotify Q1 Earnings: Revenue Up 15%, Subscriber Growth Exceeds Forecast, Operating Income Misses

Rhea-AI Summary

Spotify reported Q1 2025 results with 678 million monthly active users (up 10% year-over-year) and 268 million premium subscribers (up 12% year-over-year). Total revenue reached €4.19 billion (up 15%), with premium revenue of €3.77 billion and ad-supported revenue of €419 million.

The company achieved significant profitability improvements with:

• Gross profit of €1.326 billion (up 32%)
• Gross margin of 31.6% (up from 27.6% in Q1 2024)
• Record operating income of €509 million (up from €168 million)
• Free cash flow of €534 million (up from €207 million)

Operating income fell below guidance due to higher social charges (€76 million) related to share price appreciation. For Q2 2025, Spotify forecasts 689 million MAUs, 273 million subscribers, revenue of €4.3 billion, and operating income of €539 million. The company expanded its Partner Program to nine new markets and introduced new advertising technologies.

Positive

• 15% increase in total revenue to €4.19 billion, meeting company guidance
• 32% year-over-year increase in gross profit to €1.326 billion
• Gross margin improved to 31.6%, up 403 basis points from previous year
• Premium subscribers grew 12% to 268 million, exceeding guidance by 3 million
• Monthly Active Users increased 10% to 678 million
• Record operating income of €509 million, up from €168 million in Q1 2024
• Operating margin improved to 12.1%, up from 4.6% year-over-year
• Free Cash Flow increased to €534 million from €207 million in Q1 2024
• Strong liquidity position with €8.0 billion in cash and investments
• Average Revenue Per User increased 4% year-over-year to €4.73
• Operating expenses declined 2% year-over-year to €817 million

Negative

• Operating income fell below guidance of €548 million due to higher social charges
• Ad-Supported revenue decreased 22% quarter-over-quarter
• Ad-Supported MAUs slightly decreased from 425 million in Q4 2024 to 423 million
• Currency movements negatively impacted total revenue compared to initial forecasts

Insights

Financial Analyst

Spotify's Q1 shows robust growth with 15% revenue increase and significant margin expansion, though operating income missed guidance due to social charges.

Spotify delivered a solid first quarter with financial metrics generally meeting or exceeding guidance. Revenue grew 15% year-over-year to €4.19 billion, aligning with company projections despite currency headwinds. The significant improvement in gross margin to 31.6% (up 403 basis points Y/Y) demonstrates the company's increasing operational efficiency and validates its strategy in audiobooks and podcasts.

While user growth was steady at 10% for MAUs (reaching 678 million), the Premium subscriber growth of 12% (to 268 million) exceeded expectations by 3 million subscribers. This outperformance in high-value Premium users is particularly meaningful as it drives recurring revenue and indicates strong monetization potential.

The record operating income of €509 million represents impressive Y/Y growth, but fell short of guidance by €39 million due to €58 million in higher-than-expected social charges tied to share price appreciation. This shortfall is less concerning as it stems from stock performance rather than operational issues.

Free cash flow generation continues to strengthen substantially, reaching €534 million for Q1 and €2.6 billion over the last twelve months. With €8.0 billion in liquidity, Spotify maintains significant financial flexibility.

The Q2 2025 outlook projects continued growth across all key metrics, with expectations for 11 million new MAUs and 5 million new Premium subscribers. The projected gross margin of 31.5% indicates sustained profitability, while expected revenue of €4.3 billion represents sequential growth despite anticipated currency headwinds of approximately 170 basis points.

Spotify (NYSE: SPOT) announced its financial results for the first quarter of 2025 on April 29, 2025, revealing performance that met or exceeded the company's guidance on several key metrics, although operating income fell short due to higher-than-anticipated social charges linked to share price appreciation.

The company reported continued double-digit growth in its user base and improvements in profitability compared to the previous year.

User Growth Highlights

Spotify ended Q1 2025 with 678 million Monthly Active Users (MAUs), representing a 10% increase year-over-year (Y/Y). This result was in line with the company's forecast. The growth was driven by performance across all regions, particularly led by Rest of World and Latin America, according to the company. The net addition of 3 million MAUs during the quarter aligned with expectations for a seasonally slower period.

Premium Subscribers saw stronger growth, increasing by 12% Y/Y to reach 268 million. The net addition of 5 million subscribers in Q1 surpassed the company's guidance of 265 million (an expected 2 million net adds) by 3 million. Spotify attributed this outperformance to Y/Y and quarter-over-quarter (Q/Q) growth across all regions, successful regional promotions, and noted it was the highest Q1 net subscriber additions since 2020.

Ad-Supported MAUs reached 423 million, up 9% Y/Y but slightly down from 425 million in Q4 2024.

Financial Performance

Spotify's financial results for Q1 2025 showed significant year-over-year improvement:

• Total Revenue: Reached €4.19 billion, up 15% Y/Y (also 15% on a constant currency basis), meeting company guidance. Premium revenue grew 16% Y/Y to €3.77 billion, driven by subscriber gains and a 4% Y/Y increase in Average Revenue Per User (ARPU) to €4.73. Ad-Supported revenue grew 8% Y/Y (5% constant currency) to €419 million, although it decreased 22% Q/Q. Unfavorable currency movements negatively impacted total revenue compared to initial forecasts, the company stated.
• Gross Profit: Increased 32% Y/Y to €1.326 billion.
• Gross Margin: Improved significantly to 31.6%, up from 27.6% in Q1 2024 and slightly above guidance of 31.5%. This represented a Y/Y expansion of 403 basis points, attributed to gains in both Premium (driven by audiobooks and music) and Ad-Supported segments (driven by podcasts, music, and other cost efficiencies).
• Operating Income: Reached a record €509 million, a substantial increase from €168 million in Q1 2024. The operating margin was 12.1%, up from 4.6% Y/Y. However, this result was below the company's guidance of €548 million. Spotify explained that stronger gross profit and lower personnel and marketing costs were more than offset by €76 million in Social Charges, which were €58 million higher than forecast due to share price appreciation during the quarter. The company noted it does not forecast share price movements.
• Operating Expenses: Declined 2% Y/Y to €817 million (3% decline on a constant currency basis, excluding social charges). The decrease was primarily driven by lower personnel and related costs (due to shifted timing of equity grants from Q1 to Q2) and reduced marketing spend.
• Free Cash Flow: Reached €534 million for the quarter, a significant increase from €207 million in Q1 2024. Last Twelve Months (LTM) Free Cash Flow generation reached €2.6 billion.
• Liquidity: The company ended the quarter with €8.0 billion in cash & cash equivalents, restricted cash, and short-term investments.

Product and Platform Developments

Spotify highlighted several initiatives aimed at enhancing value for creators, advertisers, and users:

• Spotify Partner Program: Expanded to nine new markets (France, Belgium, Luxembourg, Netherlands, Ireland, New Zealand, Germany, Austria, Switzerland) following its initial launch in the US, UK, Canada, and Australia. This program supports video podcast creators.
• Advertising Technology: Introduced automated ad solutions including Spotify Ad Exchange, Gen AI Ads, and Spotify Ads Manager. Expanded Ad Exchange partnerships beyond The Trade Desk to include Google's DV360 and LiveRamp.
• Content Discovery: Rolled out "Concerts Near You," a personalized playlist for concert discovery based on listening habits.
• Audiobooks: Expanded AI-narrated audiobooks through a partnership with ElevenLabs, enabling creation in 29 languages.
• Podcast Recognition: Launched the first Spotify Creator Milestone Award for podcasts achieving significant streaming milestones.

Q2 2025 Outlook

Spotify provided the following guidance for the second quarter of 2025:

• Total MAUs: Expected to reach 689 million (implying 11 million net additions).
• Total Premium Subscribers: Expected to reach 273 million (implying 5 million net additions).
• Total Revenue: Projected at €4.3 billion. This forecast assumes an approximate 170 basis point headwind to Y/Y growth from foreign exchange rates based on Q1 closing rates.
• Gross Margin: Forecasted at 31.5%, driven primarily by Y/Y favorability in both Premium and Ad-Supported segments.
• Operating Income: Expected to be €539 million. This incorporates €18 million in Social Charges based on the Q1 closing share price of $550.03.

Spotify stated it continues to view the business as well-positioned for growth and margin improvement in 2025 while reinvesting for long-term potential.

This article is based solely on information provided in Spotify's press release dated April 29, 2025. The content is for informational purposes only and does not constitute financial, investment, legal, or tax advice. Stock Titan and its writers make no representations as to the accuracy, completeness, or timeliness of the information. Investors should conduct their own due diligence before making any investment decisions.

Source: Spotify

FAQ

When is Spotify (SPOT) Q1 2025 earnings call and how can investors join?

Spotify's Q1 2025 earnings call is scheduled for Tuesday, April 29, 2025, at 8:00 a.m. Eastern Time. Investors can join via webcast at investors.spotify.com or through the direct link https://app.webinar.net/0l8dJlMgAEV. Questions can be submitted using code #SpotifyEarningsQ125 on slido.com.

How can investors submit questions for Spotify's Q1 2025 earnings call?

Investors can submit questions for Spotify's Q1 2025 earnings call by visiting slido.com and using the event code #SpotifyEarningsQ125.

Who will lead Spotify's (SPOT) Q1 2025 earnings discussion?

Spotify's Q1 2025 earnings discussion will be led by Co-Founder and CEO Daniel Ek and CFO Christian Luiga.

Where can I find Spotify's (SPOT) Q1 2025 financial results and shareholder materials?

Spotify's Q1 2025 financial results, Shareholder Deck, and other supplemental materials can be accessed at investors.spotify.com.

Will there be a recording of Spotify's Q1 2025 earnings webcast?

Yes, a recording of Spotify's Q1 2025 earnings webcast will be available at investors.spotify.com following the live session.