Spotify’s AI Bet Comes at a Cost as Marketing Spending Drags on Profit
Spotify’s second-quarter growth remained strong, with premium subscribers reaching 300 million and monthly active users climbing to 777 million. However, increased spending on marketing, cloud infrastructure and artificial-intelligence features weighed on earnings and clouded the company’s near-term outlook. Spotify’s third-quarter profit and user forecasts fell short of Wall Street expectations.
Key takeaways
Second-quarter earnings were $3.03 per share, below the $3.27 consensus estimate.
Revenue rose 14% year over year to about €4.78 billion, or roughly $5.55 billion.
Premium subscribers reached 300 million, while monthly active users rose to 777 million.
Spotify expects about €200 million in incremental marketing and AI-related expenses during 2026.
Third-quarter operating income is forecast at €670 million, below analyst expectations.
The results show Spotify expanding its audience and improving margins while accepting higher costs to develop products, strengthen advertising and compete in the rapidly evolving AI-driven audio market.
Earnings miss despite stronger operating performance
Spotify reported second-quarter earnings of $3.03 per share, missing the consensus estimate by 7.3%. The company had posted a loss in the same period a year earlier. Revenue increased 14% on a reported basis and 15% in constant currency, slightly exceeding some analyst estimates.
Operating income climbed 61% to €655 million, ahead of the approximately €639 million analysts expected. Gross margin also reached a record 33.4%, supported by revenue growth outpacing music-related costs and other content expenses.
Still, operating expenses rose sharply when adjusted for currency movements and social charges. Temporary investments in marketing, cloud capacity and AI initiatives were the main drivers.
User growth remains a central strength
Spotify added 16 million monthly active users during the quarter, bringing the total to 777 million. Premium subscribers increased by 7 million from the previous quarter to 300 million, one million above management’s target.
Ad-supported monthly active users rose 14% year over year to 494 million. Premium revenue increased 15% to €4.33 billion, helped by subscriber growth and price increases, while premium average revenue per user rose 7% to €4.89.
The advertising business grew more slowly, with revenue up 1% to €446 million. Spotify said automated sales channels represented nearly 40% of advertising revenue, and active advertisers increased 60% from a year earlier.
AI investments and product changes shape the outlook
Spotify expects marketing and AI-related initiatives to add approximately €200 million to operating expenses during 2026. The company says about one-quarter of its users already interact with AI-powered tools, including conversational audio discovery and experimental creation products.
It is also developing paid tools for fan-made covers and remixes and has reached licensing arrangements with independent-label group Merlin and Universal Music. Other initiatives, such as its Reserved concert-ticket feature, are intended to deepen engagement and create additional value for subscribers.
Third-quarter forecast falls short on profit and users
For the third quarter, Spotify forecasts 788 million monthly active users, below the 793.6 million analyst estimate. The company expects premium subscribers to reach 305 million, in line with expectations, and revenue of approximately €5 billion, above the consensus forecast.
Operating income is projected at €670 million, slightly below the €677.8 million expected by analysts. Spotify attributed the more cautious user outlook partly to product changes in emerging markets, including tighter controls on lower-end devices, advertising and free-tier access.
Despite the near-term pressure, Spotify generated record second-quarter free cash flow of €797 million and held €9.4 billion in cash, restricted cash and short-term investments. The company also repurchased $662 million of shares through Aug. 3, underscoring its confidence in longer-term cash generation.
Sources
Spotify Q2 Earnings Miss on Higher Marketing and AI Costs, Yahoo Finance.
Spotify's higher spending on marketing, AI features to hit profit, Euronext Markets: Real-time Stock Market Data | live.