Spotify Q1'25 preview: Resilient business model amid tariff and economic turmoil

Spotify will report Q1 earnings on Tuesday, April 29, before the market opens. The company enters earnings season with strong momentum and a macro environment that, while uncertain, likely has minimal impact on its core business. With subscription revenue dominant and user engagement rising, fundamentals remain solid despite a weaker ad market and ongoing geopolitical risks, which we believe are behind the stock's relative resilience compared to the broader market. We’ve kept MAU/subscriber forecasts steady ahead of the Q1 print but made minor adjustments to ad revenue and near-term EBIT estimates, reflecting more conservative projections for advertising revenue and incremental social charges. Subscriber growth, product expansion, gross margin, and pricing strategy remain key pillars of the investment case heading into the Q1 report.

Revenue growth remains resilient despite tariff-driven turbulence

We revise Q1 ad revenue down ~5% (FY25-26: -6-9%) as we expect current tariff escalation, and the global uncertainty it brings, combined with a rapidly deteriorating consumer sentiment, to drive pullbacks in ad budgets. However, with ads representing only ~12% of Spotify’s revenue, this lowers our topline estimates by around ~1% for FY25. For Q1, we expect revenue to land in line with guidance at 4.2 BNEUR (Q1’24: 3.6 BNEUR), marking a solid 16% y/y increase, driven primarily by MAU growth.

We forecast +4m (q/q) net MAU additions in Q1, bringing the total to 679m, which is slightly above guidance (678m) and in line with Street’s expectations. These relatively modest quarter-on-quarter MAU additions reflect typical seasonality as well as some hangover effects from the stronger-than-expected net adds in Q4’24. Our Q1 premium subscriber estimate is 265m (Q1’24: 239m, Q4’24: 263m), consistent with both guidance and consensus. We model monthly premium ARPU at EUR 4.75 (Q1’24: EUR 4.55; Q4’24: EUR 4.85), showing solid year-over-year monetization, albeit with expected seasonal softness.

Although Spotify made several strides in improving its monetization in 2024, we expect growth to remain largely volume-led in early 2025. However, pricing is set to play a larger role later in the year and beyond, with Spotify expected to e.g. introduce a higher-priced tier (we estimate in H2’25). We also see broader pricing optionality supported by recent moves from peers (e.g. Amazon raising prices in early Q1). With Spotify acting as a price-setter for almost a year without any notable impact on churn, we see further price increases as likely during the year.

Gross margin variability is expected as the pace of platform improvements accelerates

Spotify’s Q4 call flagged for gross margin variability in 2025, following steady quarter-on-quarter increases shown in 2024. We attribute this to a mix of ongoing investments in video podcasting, new ad initiatives, the upcoming high-priced tier, and expanded music offerings/features on the platform, among others. For Q1’25, we forecast a gross margin of 31.6% (Q1’24: 27.6%), which is more or less in line with both company guidance (31.5%) and consensus (31.6%).

For FY25e, we project a gross margin of 32.1% (FY24a: 30.1%), reflecting a more gradual improvement versus the 4pp expansion seen in 2024. Any updates to margin outlooks or the pace of investments will be of interest in the Q1 report.

Incremental social charges drive a slight EBIT revision

Further down the P&L, we’re trimming our Q1 EBIT estimate by ~4% to 502 MEUR (prev. 523 MEUR), 5–8% below guidance and consensus, to incorporate incremental social charges. We estimate a 65 MEUR impact from these charges (prev. 45 MEUR), which are tied to share-based compensation and Spotify’s rising share price. Recall that the company only included 18 MEUR in its guidance. As these charges are non-operational and tied to share price movements, they introduce earnings noise, rather than structural weakness.

Resilience is not equal to immunity, but the growth trajectory looks solid

We believe Spotify is well positioned despite current macro uncertainty. Sticky subscriptions, a broad user base, a strong value proposition, and solid financials offer protection against economic headwinds. In a recession, we believe Spotify could even gain market share as smaller rivals struggle.

That said, resilience isn’t equal to immunity. A downturn or prolonged weak sentiment could prompt some users to downgrade or shift to the ad-supported tier, though this isn’t our base case. We expect Spotify’s focus on innovation, monetization, and cost control to drive continued strong growth and margin gains.

Reflecting our modest ad revenue revision and higher social charge assumption, we now forecast FY25 revenue at 18.4 BNEUR (prev. 18.5 BNER), up 17% year-over-year, supported by high-single-digit MAU/subscriber growth and improved monetization. We expect the EBIT margin to rise to 12.5% (prev. 12.6%, FY24: 9%), primarily driven by gross margin expansion.

Looking ahead, we anticipate Spotify’s Q2’25 guidance to include revenue of 4.4 BNEUR (+16% y/y), +12m MAU additions (incl. +4m premium subs), a gross margin of 31.9%, and EBIT of 555 MEUR (12.6% margin).