Audio streaming service Spotify (NYSE:) forecast fourth-quarter profit that beat Wall Street expectations. This optimistic forecast is based on strategic cost reductions and steady user growth during the important holiday season. Following the news, Spotify shares rose 7.7% in after-hours trading.
The Swedish company has implemented various cost-cutting measures over the past year, including staff cuts, reducing podcast investments and cutting marketing spending to increase profitability. Spotify has also adjusted its pricing strategy in the US and increased the cost of its subscriptions to take advantage of strong demand for premium offerings.
For the fourth quarter, Spotify expects operating income of 481 million euros ($509.76 million), well above the average analyst estimate of 445.7 million euros, as determined by LSEG. The monthly active user (MAU) forecast of 665 million is also higher than Visible Alpha’s expectations of 661 million. The company expects to add about 8 million premium subscribers in the quarter, which would bring its total to 260 million.
Spotify’s offering includes a free, ad-supported service with limited features and a paid subscription with full access to premium features. To attract more users, Spotify expanded its premium features and launched an AI-powered playlist tool in four new markets, including the US, in September.
These initiatives have resulted in a 12% increase in premium subscribers to 252 million, slightly above Visible Alpha’s estimates of 251 million. MAU increased by 11% to 640 million, also just above expectations.
However, Spotify’s overall revenue growth fell short of expectations. In the third quarter, sales rose by 19% to 3.99 billion euros, but missed the expected 4.02 billion euros. This backlog was caused by a sluggish digital advertising market. In addition, the strong US dollar is expected to impact fourth-quarter sales, which are forecast at 4.1 billion euros, below the estimated 4.26 billion euros.
Despite these challenges, Spotify’s gross profit rose 40% to 1.24 billion euros in the third quarter, slightly above the forecast of 1.22 billion euros. The company also saw an improvement in gross margin, which rose to 31.1% from 29.2% in the previous quarter.
Reuters contributed to this article.
This translation was created using artificial intelligence. For further information, please see our Terms of Use.
