Spotify’s Growth Slows as Revenue Misses Targets

Spotify continues to grow its user base, but its financial results for the third quarter fell slightly short of analyst expectations, Bloomberg reports.

Monthly active users increased by 1% from the previous quarter, reaching 788 million. Paid subscribers grew by 2% to 306 million. The company met overall user forecasts but slightly exceeded expectations for paid subscribers, which were projected at 305 million.

Total revenue for the three months ending in September reached €4.97 billion, a 16% year-over-year increase. However, this result fell just below analyst forecasts of €4.98 billion.

Advertising revenue also missed expectations, coming in at €482 million compared to the projected €484.8 million. The advertising business remains a challenge for Spotify, which is still struggling to turn this segment into a more significant revenue source despite having more free users than paid subscribers.

During the quarter, Spotify announced plans to expand its business with audiobooks. The company sees this segment as an additional opportunity to increase revenue, particularly through its most active users, who are willing to pay more for additional listening hours. The service will be expanded to new markets, including Spain, Mexico, and Norway.

Spotify is also continuing to develop its podcast business, focusing increasingly on a limited number of popular shows. The company renewed its agreement with Joe Rogan, which effectively grants it the rights to sell advertising in his podcast. Spotify is also working with Amy Poehler on her podcast and has a separate agreement with Netflix to distribute certain shows on the streaming platform.

The company’s gross margin for the third quarter reached 33%, exactly as analysts had predicted.

Spotify continues to sign agreements with record labels and music publishers in preparation for a new tool that will allow users to create and personalize remixes using artificial intelligence (AI). This feature is expected to enable users to modify songs according to their personal preferences for an additional fee. However, the company faces increasing competition from a number of startups developing similar technologies.

For the fourth quarter, Spotify forecasts revenue of €5.2 billion and an increase in monthly active users to 818 million. Both projections largely align with analyst expectations.