Spotify Q4’24 flash comment: Strong performance across the board

Spotify reported an overall very strong, better-than-expected Q4 print. The report had many bright spots, most notably an impressive MAU and subscriber beat. In addition, the profitability exceeded our and Street’s estimates by a wide margin, showcasing strong operational efficiency. The guidance for Q1’25 topped consensus and our estimate, especially on operating income. However, despite robust user growth in Q4, the guidance suggests a modest sequential increase of +3m MAUs and +2m subscribers. Nonetheless, Wall Street appears focused on the strong Q4 results, with shares up 8% in pre-market trading. Following the better-than-expected report, we see some upward pressure on our estimates, primarily on margins and FCFF.

The user growth exceeded our estimates

Spotify Q4’24 MAUs of 675m were 2% above our estimate of 664 (Q4’24: 602m). This was also ahead of Street’s estimates and company guidance (665m). Premium subscribers of 263m were +3m ahead of both our and consensus estimate. Hence, the delta in MAU was driven by a strong inflow of ad-supported users (+23m y-y vs Inderes est: 14m). Premium ARPU continued its steady acceleration and printed EUR 4.85, corresponding to a 5% increase y-y (Q4’23: EUR 4.60), as previous price hikes followed through the whole quarter. This was higher than our expected EUR 4.75.

Putting these variables together, Q4 revenue of 4.2 BNEUR was slightly ahead of the guided 4.1 BNEUR (Inderes est: 4.1 BNEUR), representing a 16% y-y growth. Favorable FX effects reduced expected headwinds, pushing constant currency revenue growth to 17%. Premium revenue grew 17% y-y to 3.7 BNEUR (Inderes est: 3.6 BNEUR), while ad revenue came in at 537 MEUR, reflecting a 7% increase y-y. Despite pricing softness affecting ad growth, ad-supported revenue still exceeded both consensus and our estimate (Inderes estimate: 479 MEUR).

Showcasing strong operational efficiency execution

Spotify exceeded its own gross margin guidance of 31.8% (Q4’24: 26.7%) yet again, reaching a 32.3% gross margin in Q4’24 (~560 bps increase y-y), which was ahead of our and consensus estimate (31.8%). 2024 has really been a GM story, where actions taken (price hikes, bundled subscriptions) combined with general content cost favorability has borne fruit. The Q1’25 gross margin guidance of 31.5% was slightly ahead of our and Street’s estimate (31.4%/31.2%).

Moving down the income statement, the operating income came in at 477 MEUR (Q4’24: -75 MEUR), reflecting an 11% EBIT margin, which was +1% vs Street’s est and 10% vs our updated estimates (434 MEUR). Before the Q4 report, we had lowered our EBIT estimate from 474 MEUR to account for higher social charges (60 MEUR vs. the company’s guided 16 MEUR) due to strong share price appreciation in Q4. These costs ultimately came in at 96 MEUR, significantly above our expectations. Yet, despite this headwind, Spotify still exceeded our EBIT estimate by 10%, thanks to gross margin outperformance and further cost efficiencies. Overall, operating expenses (as a percentage of revenue) were about 100 bps lower than our estimates.

Spotify’s reported free cash flow reached 877 MEUR, equivalent to a 20.7% margin and was supported by favorable working capital changes and improved net income. The outcome was well above our estimated ~600 MEUR*. In 2024, Spotify’s reported FCFF amounted to 2.3 BNEUR, translating to a 14.6% FCFF margin. The liquidity and balance sheet remain very strong, with a net cash position of 5.4 BNEUR (incl. leases).

The story of 2025 will be “Accelerated execution”

Spotify’s Q1’25 guidance for MAUs and subscribers (678m/265m) suggests a notable deceleration from previous quarters. However, the MAU-guidance was slightly above our pre-Q4 estimate of 677m and aligned with Street’s estimate, whereas the subscriber-guidance was ahead of our estimate of 263m and Street’s est. of 259m. The company’s Q1’25 revenue guidance of 4.2 BNEUR (16% y-y) was in line with Street’s estimate but slightly higher than our 4.1 BNEUR estimate. Q1’25 operating income guidance of 548 MEUR was strong, implying 13% EBIT margin vs Street’s 11% and our 11% estimate.

During the earnings call, CEO Daniel Ek emphasized that 2025 will be defined by “Accelerated Execution,” focusing on new functionalities at a faster pace while maintaining a balance between growth and profitability. While Spotify did not provide specific details on capital allocation, the company reiterated that business priorities come first, with shareholder interests also considered. As expected, no full-year guidance was provided, but management indicated that MAU growth should remain consistent with previous years.

Before Spotify Q4 print, our revenue estimate for 2025 was at 18.2 BNEUR (+16% y-y) with an 11 % EBIT margin. Following the better-than-expected report, we see some upward pressure on our estimates, primarily on the margins and FCFF.

*Adding back SCB and excluding lease payments to make it easier to compare to reported figures.