Spotify (SPOT) is set to report second quarter earnings on Tuesday before the bell as investors weigh the music streamer’s long-term monetization potential against softer near-term guidance.
Shares have climbed roughly 120% over the past 12 months — a sharp rebound from record lows of 2022, driven by price hikes, a leaner cost structure, and growing investor enthusiasm around artificial intelligence and advertising.
The stock hit a record high of $738.45 earlier this month, though it has since come off those levels ahead of Tuesday’s report.
Spotify’s massive rally has followed a sweeping business overhaul, including layoffs, leadership changes, and a pullback from costly podcast exclusivity. After spending $1 billion to build out its podcast business, the company has since scaled back and narrowed its focus. Still, it remains committed to the medium, paying over $100 million to creators in Q1 alone, including high-profile names like Joe Rogan and Alex Cooper.
Here’s what Wall Street expects from the upcoming results, according to Bloomberg consensus estimates:
Revenue: €4.27 billion versus €3.81 billion in Q2 2024
Adjusted earnings per share: €1.97 versus €1.33 in Q2 2024
Total monthly active users (MAUs): 689 million versus 626 million in Q2 2024
Premium subscribers: 273 million versus 246 million in Q2 2024
Ad-supported users: 428 million versus 393 million in Q2 2024
Gross margin: 31.5%, in line with Spotify’s guidance
In April, Spotify reported first quarter MAUs of 678 million, narrowly missing consensus estimates.
Premium subscribers rose 12% to 268 million, the strongest Q1 increase since 2020. However, its second quarter guidance for MAUs, operating income, and gross margins fell short of analyst expectations.
“The short term may bring some noise,” Spotify CEO Daniel Ek said in the earnings release. “But we remain confident in the long-term story, and the direction we’re heading in feels clearer than ever.”
At the company’s 2022 Investor Day, Spotify set seemingly lofty objectives that included long-term gross margin targets between 30% and 35%. At the time, the company had been struggling to turn a profit, with its gross margin stuck at around 25%.
Those trends began to reverse in 2024 as the company raised prices for the second time in less than a year and introduced a higher-priced audio “bundle” that includes music, podcasts, and audiobooks. It also rolled out an audiobooks-only plan and a music-only streaming tier in an effort to cater to a variety of consumers.
Margins hit a record 32.2% in Q4 but slipped to 31.6% in Q1, with the company guiding to 31.5% for Q2 due to ad seasonality and higher content costs.
Analysts have cautioned that margin expansion may slow this year following a 500-plus basis point gain in 2024. Additionally, the company’s recently renewed deals with several of the largest music labels are expected to slightly weigh on future results.
Citi analyst Jason Bazinet maintained a Neutral rating heading into the print, cautioning that third quarter guidance may disappoint after the stock’s massive 30% run since Q1. Bazinet did raise his price target from $690 to $780 “to better align with streaming peers.”
Others on the Street are more optimistic. Oppenheimer analyst Jason Helfstein upgraded Spotify to Outperform ahead of the report and established an $800 price target, citing “many tailwinds ahead.” He pointed to a long runway for user growth, improved free-tier monetization, App Store-driven conversion gains, a potential Superfan tier, and stronger free cash flow.
Morgan Stanley analyst Ben Swinburne echoed the bullish tone, naming Spotify among his top AI beneficiaries alongside Netflix (NFLX) and YouTube (GOOGL, GOOG).
“Gen AI’s long-term impact on the creation, distribution, and monetization of content is likely profound,” Swinburne wrote in a July 10 client note. “AI and machine learning have left Spotify a leader in music discovery. Gen AI could help it take discovery to new levels and across new content verticals.”
He maintained his Overweight rating and raised his base case price target to $850 and bull case to $1,200.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
