Spotify forecasts higher-than-anticipated fourth-quarter operating profit

Investing.com - Spotify has guided for current-quarter operating profit that was well above analyts’ estimates, as the streaming service said it is "well positioned" heading into the end of the year thanks to solid user activity and strength at its premium service.

Analysts have been keeping close tabs on Spotify’s profitability since the Swedish group attained its first full-year income in 2024 through a combination of price hikes and cost reductions. 

The platform, which offers everything from audiobooks and podcasts to albums and songs, has also been aiming to expand its slate of offerings to entice new subscribers, most recently by folding in more video content. 

This push has helped to underpin a more than 40% jump in Spotify’s share price so far this year. However, the uptick has fueled increased payroll taxes associated with employee salaries and benefits, denting profits.

Still, on a quarterly scale, movements in the share price have been more muted, leading to these charges being smaller than previous periods. The costs came in at 16 million euros, yet this was 41 million euros lower than what had been forecast by the company. A year earlier, the charge had stood at 53 million euros.

Operating expenses dropped 2% in the third quarter thanks to the decreased tax charge and favorable currency effects. Absent these factors, the figure rose by 11%, driven by higher marketing and personnel costs.

Revenue from Spotify’s premium tier, which gives users ad-free listening for a fee, rose by 9% to 3.83 billion euros, outpacing Wall Street estimates, thanks to a double-digit spike in subscribers. Ad-supported revenue, however, fell by more than expected, "the only area of disappointment versus our forecasts," analysts at BofA Securities including Jessica Reif Ehrlich and Brent Navon said in a note.

The group-wide top-line result moved up by 7.1% to 4.27 billion euros, also above forecasts.

Operating income in the quarter ended September 30 jumped to 582 million euros, versus projections of 499.1 million euros.

For the fourth quarter, Spotify, which has recently benefited from the release of mega-star Taylor Swift’s latest album, said it now anticipates both growth and improving margins in 2025 as it looks to "reinvest to support our long-term potential."

Monthly active users in the fourth quarter are tipped to be 745 million, ahead of estimates, boosted by expansion across all of its regions. Premium subscriber growth has been particularly notable in Latin America and North America, Spotify said. Meanwhile, operating income is expected to be 620 million euros. Analysts had predicted an outlook of 605.3 million euros. 

Shares of Spotify were slightly lower in early U.S. trading on Tuesday.