Spotify Q1'26 flash comment: Solid Q1 print, but Q2 EBIT guide raises questions on OpEx trajectory

Source: Inderes & Bloomberg (consensus, 34 estimates)

Spotify's Q1 report matched our expectations on both top-line and profitability, demonstrating continued operational momentum. However, Q2 guidance was mixed. While gross margin and user metrics (MAU) came in slightly above our expectations, EBIT guidance of 630 MEUR was some 10% below our estimate, implying notably higher OpEx than we had modeled. Wall Street appears focused on the EBIT miss for Q2 and the modest 1m subscriber miss vs. consensus, with shares down ~12% in pre-market trading. Following the report, we see modest downward revisions to our short-term profitability estimates, while we view the longer-term thesis as remaining intact.

User growth and revenue came in line with expectations

MAUs reached 761m (Q4'25: 751m), 2m above our 759m estimate and the company's guidance of 759m, representing q/q net additions of 10m vs. our forecast of 8m. According to the company, growth was broad-based across regions, led by Rest of World and North America, supported by continued momentum from mobile free tier enhancements. Premium subscribers came in at 293m (Q4'25: 290m), in line with our and guidance expectations, implying +3m q/q growth, with regional strength led by Latin America and Europe and supported by strong global promotional campaigns. Ad-supported MAUs increased by 7m q/q to 483m, broadly in line with our forecast.

Premium ARPU was EUR 4.76 (Inderes: EUR 4.69), roughly flat y/y on a reported basis but +6% y/y on an FX-neutral basis, with FX headwinds of ~600 bps coming in slightly better than the ~670 bps incorporated into management’s guidance. The FX-neutral ARPU performance was driven by price increase benefits, partially offset by product/market mix. We view the +6% FX-neutral growth as an encouraging signal that pricing power remains intact, with the US price increase from mid-Q1 contributing more meaningfully than we had expected. In our view, the Q1 subscriber additions alongside this ARPU performance indicate that post-price-hike churn has remained well within historical ranges.

Q1 revenue grew 8% y/y (FX-neutral: 14%) to 4.53 BEUR, in line with our estimate. Premium revenue grew 10% y/y (15% FX-neutral) to 4.15 BEUR (Inderes estimate: 4.10 BEUR), modestly ahead of our estimate, while ad-supported revenue came in at 385 MEUR (-5% y/y, +3% y/y FX-neutral). The ad-supported number is somewhat distorted by a segment reclassification effective Q1'26, where certain revenue-generating activities previously reported within ad-supported were moved to Premium (with prior periods restated). Adjusted for this, the underlying ad-supported business showed continued FX-neutral growth, driven by impressions sold (partially offset by pricing softness) and sponsorship gains within the Owned & Licensed podcast portfolio. For Q2, the company anticipates a notable improvement in FX headwinds, with only ~80 bps FX impact to revenue growth at current rates (Q1: ~600 bps).

Gross margin strength continued, but Q2 EBIT guidance points to a step-up in operating spend

The gross margin came in at 33.0% (Q1'25: 31.6%), slightly above our 32.8% estimate and the company's guidance, driven by continued Premium margin expansion (34.8%, +129 bps Y/Y), reflecting revenue growth outpacing music costs, marketplace programs, and audiobook/video podcast costs. The company guided for Q2'26 gross margin of 33.1%, slightly above our 32.9% pre-Q1 estimate and indicating sustained Premium-driven momentum.

Operating income (EBIT) was 715 MEUR (Q1'25: 509 MEUR), corresponding to a 15.8% margin, in line with our 713 MEUR estimate while clearly beating the company's 660 MEUR guidance. Social charges came in 49 MEUR below the company's guidance of 10 MEUR, thus supporting reported EBIT by 39 MEUR. The social charges benefit was therefore broadly in line with our estimate, as we had assumed a ~45 MEUR benefit to reported EBIT based on the Q1 share price decline (-17%). Adjusting for this, EBIT was effectively in line with our expectations (+1%). Operating expenses declined 5% y/y on a reported basis but increased 17% y/y excluding currency and social charges effects, primarily driven by higher marketing spend (largely campaign timing) alongside increased cloud and AI spend.

Spotify's reported free cash flow was strong at 824 MEUR (Q1'25: 534 MEUR), equivalent to an 18.2% margin, and ~6% above our estimates. The liquidity and balance sheet remain strong, with 8.8 BEUR in cash and short-term investments. During Q1, Spotify repurchased shares worth 306 MEUR and settled 1.3 BEUR of exchangeable notes in cash.

Q2 guidance: GM and users above, but EBIT below on higher OpEx investments

Spotify guided Q2 MAUs to 778m, ahead of our 775m estimate. Premium subscriber guidance of 299m (+6m q/q) was in line with our expectations, but below the consensus estimate of 300m. Revenue guidance of 4.8 BEUR was in line with our estimate, with FX headwinds moderating to ~80 bps from Q1's ~600 bps. However, Q2 EBIT guidance of 630 MEUR, implying a 13.1% margin, came in some 10% below our 701 MEUR estimate, which implied a 14.7% margin. Since gross margin guidance was slightly above our expectations and Q2 social charges are guided at only 10 MEUR, we note that the EBIT shortfall implies a step-up in OpEx versus our modeling. We expect the upcoming earnings call to provide additional color on the magnitude, duration, and strategic rationale behind this elevated investment posture.

Prior to the Q1 print, our 2026 revenue estimate stood at 19.6 BEUR (+14% y/y) with a 15.2% EBIT margin. Following the Q1 report, we see modest downward pressure on our short-term profitability estimates, primarily reflecting the higher OpEx trajectory implied by Q2 guidance, while we expect our revenue estimates to remain broadly intact. That said, we note that the strong constant currency revenue growth (+14% y/y in Q1, accelerating from prior quarters), continued pricing flow-through, and persistent Premium gross margin expansion remain supportive of our medium-term thesis.