Spotify’s Q1 print was broadly in line with our expectations. However, the Q2’25 guidance came in a bit shy of both our and Street’s estimates, particularly on MAUs, revenue, and operating income. That said, the guided premium subscriber additions were a notable bright spot at +5m q/q, ahead of both our and Street’s expectations. Still, Wall Street appears focused on the softer overall Q2 outlook versus pre-Q1 expectations, with shares down 6% in pre-market trading. Following the report, we see modest downward revisions to our estimates, mainly on revenue and margins.

Modest user growth in line with guidance and estimate

MAUs reached 678m (Q1’24: 615m), in line with company guidance but 1m below both our and Street’s estimate of 679m. Premium subs came in at 268m (Q1’24: 239m), beating our and Street’s estimates by 3m and ahead of guidance. Ad-supported users declined by 2m q/q, compared to our forecast of +2m (Street: +1m). Premium ARPU was EUR 4.73 (Inderes: EUR 4.75, Street: EUR 4.79), down 2% q/q but up 4% y/y (Q1’24: EUR 4.55), supported by 2024’s price hikes. The figure was broadly in line with our expectations.

Q1 revenue grew 15% y/y (FX-neutral: 15%) to 4.2 BNEUR, in line with our forecast. Premium revenue rose 16% to 3.8 BNEUR (Inderes est: 3.8 BNEUR), while ad-supported revenue came in a bit below our revised estimate at 419 MEUR (vs. 447 MEUR), mainly due to weaker pricing trends. For Q2, the company anticipates a 170 bps FX headwind to revenue growth at current currency rates.

GM and operating profit matched our expectations

The gross margin continued to improve year-on-year and printed 31.6% (Q1’24: 27.6%), matching our estimate of 31.6% (Street 31.6%, guide: 31.5%). Spotify reiterated that GM will show variability throughout the year but remain above FY24’s level and guided for 31.5% in Q2’25, below our estimates of 31.9% (Street’s: 31.6%) heading into the Q1 report.

Operating income (EBIT) was 509 MEUR (Q1’24: 168 MEUR), and equivalent to a 12% margin, which was in line with our estimate of 502 MEUR but below consensus and guidance (Street’s: 527 MEUR, guide: 548 MEUR). Social charges pressured EBIT with 75 MEUR (guidance: 18 MEUR), which was a bit higher than our revised estimate of 65 MEUR (prev. 45 MEUR). Hence, if social charges had been in line with the company’s estimate, Spotify would have beaten its guidance by 3%. Overall, operating expenses (as a percentage of revenue) were about 20 bps lower than our estimates and 350 bps lower than Q1’24, showcasing continued operational efficiency.

Spotify’s reported free cash flow reached 534 MEUR, equivalent to a 12.7% margin, and was in line with our estimated ~540 MEUR*. The liquidity and balance sheet remain very strong, with a net cash position of 5.8 BNEUR (incl. leases). 

Q2 guidance included mixed signals, modest revisions likely

Spotify guided to Q2 MAUs of 689m, slightly below Street (694m) but close to our 690m. Premium subs guidance of 273m came in ahead of our 269m and Street’s 271m, implying strong +5m q/q growth. However, revenue guidance of 4.3 BNEUR (13% y/y) was below our and Street’s 4.4 BNEUR, largely due to FX effects. Q2 EBIT guidance of 539 MEUR implies a 12.5% margin, slightly below our and Street’s 12.6%.

On the earnings call, Spotify reiterated that MAU growth is expected to remain within its historical four-year range and confirmed expectations for a higher y/y gross margin in Q4’25. Despite the softer MAU guide, the company sees no need for incremental marketing spend and instead highlights platform enhancements as the main driver of user intake. No new capital allocation updates were provided.

Prior to the Q1 print, our revenue estimate for 2025 stood at 18.4 BNEUR (+17% y-y) with a 12.5 % EBIT margin. Following the Q1 report, we see some small downward pressure on our estimates, primarily on the gross margin, EBIT, and revenue. 

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