Spotify Technology (NYSE:SPOT) saw its stock drop sharply on Tuesday after it released its second-quarter 2025 results. Despite strong user growth, the company missed earnings and revenue expectations and issued a cautious forecast, which shook investor confidence.
Wall Street analysts rerated the stock after the quarterly results. JP Morgan analyst Doug Anmuth reiterated an Overweight rating on Spotify, suggesting continued confidence in the company’s long-term prospects despite the near-term headwinds.
Similarly, Goldman Sachs analyst Eric Sheridan maintained a Buy rating, underscoring his positive outlook with a reaffirmed price forecast of $775.
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While these endorsements from analysts indicate underlying belief in Spotify’s business model, the immediate market reaction highlights the Street’s sensitivity to financial performance deviations.
JP Morgan’s Perspective
Anmuth noted Spotify is executing well on its medium-term financial targets of achieving 30-40% gross margins and 10%+ operating margin.
The analyst credited product optimizations and effective marketing for driving solid growth in both users and premium subscribers, while Spotify continues to invest in its core offerings, including audiobooks, video podcasts, and music.
However, second-quarter results and third-quarter guidance were mixed, he noted. Spotify delivered stronger-than-expected MAUs and premium subscriber growth, but foreign exchange (FX) headwinds and social charges weighed on revenue, gross margin, and operating income, Anmuth said.
The analyst said the company posted a second-quarter gross margin of 31.5%, which was in line with both guidance and consensus. But he noted that its third-quarter gross margin forecast of 31.1% came in slightly below JPMorgan’s 31.3% estimate, factoring in a ~40bps regulatory charge.
Spotify guided for third-quarter FX-neutral revenue growth of 10%, signaling a ~500bps deceleration, though that figure may not reflect potential price increases, Anmuth noted. Notably, Spotify doubled its share buyback authorization to $2 billion. He will watch to see whether this marks a shift toward more consistent capital returns or remains opportunistic.
In the second quarter, Spotify generated 700 million euros in free cash flow, beating JPMorgan’s 641 million euros estimate, and delivered operating income of 406 million euros. This included 116 million euros in social charges but still fell short of management’s 539 million euros forecast. JPMorgan and consensus estimates stood at 457 million euros and 490 million euros, respectively.
On the user side, Spotify added 18 million MAUs in the second quarter, bringing the total to 696 million, above the 689 million guidance. Strong marketing campaigns and favorable competitive dynamics supported this growth across all regions. Premium subscribers rose to 276 million, 8 million net additions, beating the company’s guidance of 273 million.
Revenue for the quarter came in at 4.19 billion euros, up 15% FX-neutral year-over-year, but below both management’s guidance of 4.3 billion euros and JPMorgan’s 4.27 billion euros estimate. FX headwinds were much stronger than expected, around 440bps compared to the 170bps the company had projected. Premium revenue grew 16% FX-neutral, driven by a 12% increase in subscribers and a 3% rise in ARPU. Advertising revenue increased 5% FX-neutral, slightly below the 6% JPMorgan had expected.
Spotify guided for third-quarter MAUs of 710 million and premium subscribers of 281 million, ahead of JPMorgan and consensus estimates. However, revenue guidance of 4.2 billion euros fell short of the 4.5 billion euros estimate, again reflecting significant FX pressure (~490bps) and indicating another ~500bps slowdown in FX-neutral revenue growth.
Spotify expects a third-quarter gross margin of 31.1% and operating income of 485 million euros, below JPMorgan’s forecasts of 31.3% and 524 million euros, respectively. The outlook embeds another 25 million euros of headwind from social charges. Overall, while user growth remains a strength, Anmuth closely watched for improvements in revenue momentum, cost structure, and long-term margin execution.
Goldman Sachs’ Take
Sheridan expects a mixed to slightly negative market reaction to Spotify’s second-quarter 2025 results. The analyst noted that the company reported revenue and operating profit below its prior guidance, while gross margin landed in line with expectations.
He attributed the shortfall to an unfavorable revenue mix, higher-than-expected FX headwinds, and elevated social charges, driven in part by stock price appreciation. Despite these headwinds, Spotify continued to show strong user growth, signaling that external factors had more impact than weak business fundamentals, Sheridan noted.
The analyst noted that this quarter’s results reflect a continuation of Spotify’s 2025 strategy, prioritizing long-term growth investments over margin expansion after a strong margin performance in 2024.
He also highlighted Spotify’s newly authorized $1 billion share buyback, on top of the remaining $896 million from a previous program.
On the earnings call, Sheridan will watch for clarity on pricing strategy, gross margin outlook, and Spotify’s ability to balance growth investments with operating efficiency.
Price Action: SPOT stock is trading lower by 11.6% to $619.96 at last check Tuesday.
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