Spotify Stock Surges After Q3 Earnings Defy Expectations

On Tuesday, Spotify (SPOT) released its fiscal Q3 earnings report, posting unexpected profits amid cost-cutting and price hike initiatives.

Spotify shares soared by 10.36% to $170.63 apiece on October 24. However, analysts anticipate a slight -0.66% slide to $169.51 per share when the new session opens.

The Swedish music-streaming giant surprised stakeholders with a third-quarter operating income of €32.00 million for its 2023 fiscal year. Lower marketing spending, personnel costs, and miscellaneous expenses were the primary drivers of its first quarterly profit in 18 months.

Moreover, Spotify hiked its premium subscription rates in July, putting them in line with rivals Apple Music and Amazon Music. In addition, it expanded to include over 150,000 audiobooks and more podcasts in its streaming library.

Monthly active users (MAU) increased by 26.00% to 574.00 million, surpassing expectations by 2.00 million. The more-than-a-quarter growth is the second-largest Q3 net addition since the music streaming platform launched on October 07, 2008.

SPOT subscribers expanded by 16.00% year-over-year (YoY) to 226.00 million with 6.00 million net additions, 33.33% above estimates. Annualized total revenue grew by 11.00% to €3.40 billion and a 26.40% gross margin.

Paul Vogel, Chief Financial Officer (CFO) of Spotify, ended the earnings call by unveiling new user personalization and creator tools.

Q3 Earnings Reverse Q2 Operating Loss for Spotify

On July 25, the music streamer reported an operating loss of -€112.00 million for its second quarter. Nonetheless, total Q2 revenue of €3.20 billion indicated an 11.00% YoY increase, matching the projected gross margin of 25.50%.

Prompted by the better-than-expected quarter-two performance, Spotify CEO Daniel Ek promised profitability. As a result, the company increased its focus on profitability, aiming to reach the breakeven point within the year.

Unexpectedly, Vogel delivered his promise only a quarter later, bouncing back from the -€228.00 million loss a year ago. Now that the company is in the black, it plans to delve deeper into artificial intelligence (AI) technologies.

Earlier, Spotify introduced several AI-driven products, including an AI DJ and an AI voice translator.