Spotify Forecasts Strong Q4 Profit

(Reuters) – Audio-streaming giant Spotify (NYSE: SPOT) forecasted a fourth-quarter profit above Wall Street estimates on Tuesday, driven by cost cuts and robust subscriber growth during the crucial holiday season, resulting in a 7.7% increase in shares after the bell.

The Swedish company has implemented layoffs, reduced podcast offerings, and decreased marketing spend over the past year to enhance profitability. They've also increased U.S. prices for plans to leverage demand for premium products.

Spotify expects an operating income of 481 million euros ($509.76 million) in Q4, surpassing the LSEG-compiled average analyst estimate of 445.7 million euros.

The company’s forecast for monthly active users (MAUs) suggests 665 million, which exceeds estimates of 661 million. Spotify anticipates adding about 8 million premium subscribers in the quarter, bringing the total to 260 million.

Spotify provides an ad-supported free service with limited features, alongside a subscription-based paid service that unlocks all premium functionalities.

To attract users, Spotify has been enhancing premium features. In September, they expanded a tool utilizing generative AI to create playlists to four new markets, including the U.S.

This contributed to a 12% rise in premium subscribers to 252 million, exceeding Visible Alpha's estimate of 251 million. MAUs rose 11% to 640 million, also slightly above expectations.

However, overall revenue rose a less-than-expected 19% to 3.99 billion euros in Q3, falling short of the 4.02 billion euro estimates, impacted by weakness in the digital advertising market.

A strong dollar is anticipated to affect its Q4 revenue, projected at 4.1 billion euros, below the estimate of 4.26 billion euros.

In Q3, gross profit surged 40% to 1.24 billion euros, compared to the estimated 1.22 billion euros, with a gross profit margin climbing to 31.1% from 29.2% in the prior quarter.

($1 = 0.9436 euros)