Source: Inderes & Bloomberg (consensus, 34 estimates)

Spotify's Q4 results demonstrated strong operational execution, with profitability exceeding our estimates. User growth also surpassed our forecast, driven primarily by robust momentum in ad-supported users. While Q1 revenue guidance came in slightly below expectations due to FX headwinds, the subscriber outlook remained on track. More importantly, the profitability outlook was notably stronger than anticipated, supported by better-than-expected operational efficiency and a smaller-than-expected impact from renewed licensing agreements throughout 2025. Wall Street appears to focus on the profitability and user beat, with shares rallying ~10% in pre-market trading following several weeks of declines. Following the report, we primarily see upward pressure on our profitability estimates.

User growth exceeded our expectations

MAUs reached 751m (Q3'25: 713m), which was 6m above our estimate of 745m and company guidance (Street: 745m), representing q/q net additions of 38m. The outperformance was broad-based across all regions, with particularly strong growth in Rest of World, Latin America, and Europe. The global launch of mobile free tier enhancements continued to drive freemium user acquisition and was further supported by strong holiday and Wrapped campaigns. Premium subs came in at 290m (Q3'25: 281m), beating our and Street's estimates by 1m and exceeding guidance, implying +9m q/q growth compared to our forecast of +8m. Ad-supported users increased by 30m q/q, compared to our forecast of +24m (Street: +25m), driven by successful product enhancements on the free tier and strong engagement trends.

Premium ARPU was EUR 4.70 (Inderes: EUR 4.70), up 4% q/q but down -3% y/y, with FX headwinds of roughly 580 bps, which was better than the company's guided 620 bps impact. As such, premium ARPU, on a FX neutral basis, was up 2% y/y (Q4'24: EUR 4.85), in line with our estimate and demonstrating early benefits from recent price increases. Importantly, we believe the stronger-than-expected subscriber growth suggests that subsequent churn following the price increases remained low and within historical ranges, which is encouraging. That said, the relatively faster subscriber growth in emerging markets continues to have a dilutive impact on ARPU in the short term, given lower pricing in these regions.

Q4 revenue grew 8% y/y (FX-neutral: 13%) to 4.53 BNEUR, which was relatively in line with our 4.55 BNEUR forecast (Street's 4.52 BNEUR). Premium revenue grew 8% (14% FX neutral) to 4.01 BNEUR, in line with our estimates (Inderes est: 4.02 BNEUR). However, Ad-supported revenue came in at 518 MEUR (-4% y/y, +4% y/y FX neutral) and below our estimate (535 MEUR). This was mainly due to, and like the previous quarters, continued softness in pricing and podcast inventory optimization. For Q1, the company anticipates a 670 bps FX headwind to revenue growth at current currency rates.

Gross margin beat, lower social charges, and continued strong cost discipline behind stronger-than-expected EBIT

Gross margin came in above guidance and our estimate (32.9%), reaching 33.1% (Q4'24: 32.2%). The year-over-year improvement continued to be driven by favorable development in the ad-supported segment, content mix, and overall scaling benefits. Spotify guided for a gross margin of 32.8% in Q1’26, well above our estimates of 32.1% (Street’s: 32.3%) heading into the Q4 report and, thus, indicates notably lower seasonal effect than we had anticipated. We hope to get a clearer picture of this strong gross margin guidance during the upcoming earnings call, especially considering the higher royalty costs that should have emerged from signed licensing agreements throughout 2025.

Operating income (EBIT) was 701 MEUR (Q4'24: 477 MEUR), corresponding to a 15.5% margin. This was a clear beat relative to our estimate of 659 MEUR, the company's guidance of 620 MEUR, and Street's 638 MEUR estimate. Social charges* were 67 MEUR below the company’s guidance (17 MEUR) and therefore benefited reported EBIT by 50 MEUR. As such, the positive impact from social charges was ~25 MEUR higher than our estimate, as we had assumed these would reduce costs by ~40 MEUR. Adjusted for this, EBIT still exceeded our estimates by ~2-3%. Operating expenses decreased by -10% y/y (+13% FX neutral and excl. social charges) and in relation to revenue, these were about ~190 bps below our forecast (adjusted for social charges), primarily driven by lower-than-expected R&D and G&A expenses, which, in our view, reflects continued strong cost discipline and benefits of AI-driven efficiency improvements across the organization.

Spotify's reported free cash flow reached 834 MEUR (Q4'24: 877 MEUR), equivalent to a 18% margin, and was slightly below our estimates, mainly due to less favorable working capital than expected. The liquidity and balance sheet continued to strengthen, with the net cash position improving to 7.6 BNEUR (incl. leases). During Q4, Spotify continued its share repurchase program, buying shares worth ~433 MEUR, leaving around 1.4-5 BNEUR of remaining authorization under its upsized 2 BNEUR share repurchase program, which runs through April 2026.

Q1 Guidance below estimates on revenue, but above on EBIT and MAU growth

Spotify guided to Q1 MAUs of 759m, above both Street’s estimate (753m) as well as ours (752m). However, Premium subs guidance of 293m (+4m q/q) was in line with our and Street’s 293m, indicating that the beat in user guidance is driven by ad-supported users. Revenue guidance of 4.5 BNEUR (7% y/y) was below our and Street’s 4.6 BNEUR, largely due to FX effects (~670bps expected headwind vs 580 bps in Q4). However, Q1 EBIT guidance of 660 MEUR, implying a 14.7% margin, clearly exceeded our 13.5% and Street’s 14%.

Prior to the Q4 print, our revenue estimate for 2026 stood at 19.9 BNEUR (+15% y-y) with a 14.3% EBIT margin. Following the Q4 report, we expect our estimate revisions to focus on the profitability, where we see upward pressure following the Q4 outcome and Q1 guidance. Our view on the company's medium-term trajectory remains intact, and we continue to see Spotify as well-positioned to deliver strong earnings growth in 2026-2027 driven by pricing actions, user growth, and margin expansion.

* Social Charges are payroll taxes that vary with Spotify's stock price due to their link to share-based compensation in certain countries.