Spotify: Spotify Technology SA (SPOT) Q1 2025 Earnings Call Highlights: Strong Subscriber Growth and ...

In This Article: Total Revenue: EUR4.2 billion, 15% year-on-year growth on a constant currency basis. Premium Revenue: 16% year-on-year growth on a constant currency basis. Advertising Revenue Growth: 5% year-on-year on a currency-neutral basis. Gross Margin: 31.6%, surpassing guidance by approximately 10 basis points and expanding about 400 basis points year-on-year. Operating Income: EUR509 million, impacted by EUR76 million in social charges. Free Cash Flow: EUR534 million. Cash and Short-term Investments: EUR8 billion. Monthly Active Users (MAU): 678 million, an increase of 3 million. Subscribers: 268 million, up 12% year-on-year with a net addition of 5 million. Q2 Revenue Forecast: EUR4.3 billion. Q2 Gross Margin Forecast: 31.5%. Q2 Operating Income Forecast: EUR539 million. Warning! GuruFocus has detected 4 Warning Signs with TER. Release Date: April 29, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript . Positive Points Spotify Technology SA ( NYSE:SPOT ) reported strong subscriber growth, with the highest Q1 net adds since 2020, driven significantly by emerging markets. The company achieved a 15% year-on-year revenue growth on a constant currency basis, with premium revenue rising 16% due to subscriber growth and ARPU gains. Spotify's gross margin improved to 31.6%, surpassing guidance and expanding by 400 basis points year-on-year. The Spotify Partner Program has been successful, paying out over $100 million to podcast creators in Q1, and expanding to nine new markets. Spotify continues to innovate rapidly, reducing the time to roll out new features across devices and expanding its offerings in video podcasts and audiobooks. Negative Points The macroeconomic environment remains uncertain, which could potentially impact Spotify Technology SA ( NYSE:SPOT ) if extreme conditions arise. Advertising revenue growth was modest at 5% year-on-year, with some softness in advertising pricing noted. Operating income was impacted by higher-than-forecasted social charges, which were EUR 58 million above expectations. The company faces challenges in maintaining MAU growth, with Q1 growth being softer due to seasonality and the impact of Wrapped. There is a need for alignment and support from industry partners to offer new experiences, which could delay the introduction of higher-tier subscription offerings. Q & A Highlights Q : Do you still expect fourth quarter 2025 gross margin to be up year-over-year and the high point for 2025? And do you expect 2025 MAU net adds to be within the range of the past four years? A : Christian Luiga, CFO: We expect Q4 2025 to be seasonally stronger and the full year to be better than 2024. We anticipate 2025 MAU adds to be in the range of the last four years, with a stronger second half typical of Spotify's seasonality. No additional marketing investment is required beyond previous years. Q : Can you share more details about the Superfan product and when it may be available in the market? A : Alex Norstrom, Co-President, Chief Business Officer: We see potential in higher tiers and are working towards creating new offerings that delight users. This requires alignment with industry partners. Daniel Ek, CEO: We're in the early stages of segmenting the market, and while we're not dependent on this for growth, it's an upside opportunity. Q : How are you thinking about AI as a means of enabling both product velocity and introducing more efficiencies throughout the organization? A : Gustav Soederstroem, Co-President, Chief Product and Technology Officer: AI is the next evolution of our machine learning efforts, allowing for real-time interactivity and reasoning. We're using AI to enhance product development, coding, and planning processes, which accelerates product development and improves efficiency. Q : Can you provide color on the economics of the podcast business and the KPIs to monitor? A : Daniel Ek, CEO: The economics are in line with expectations. The key KPI is engagement, as new formats like video expand user time spent on Spotify, leading to higher retention and lower churn. Alex Norstrom, Co-President, Chief Business Officer: The EUR100 million payout includes both SPP payout and advertising revenue, aligning with our margin expansion expectations. Q : How are you adding more subscribers while spending less on marketing? A : Alex Norstrom, Co-President, Chief Business Officer: The strong value-to-price ratio drives growth. We're taking a larger market share in developed markets, even with price increases. Daniel Ek, CEO: Improved organic media strategies and AI tools for targeting and efficiency are enhancing our marketing efforts. For the complete transcript of the earnings call, please refer to the full earnings call transcript . This article first appeared on GuruFocus .