Spotify Technology SA Q3 FY2025 earnings call

• User Fundamentals: Surpassed 700 million MAU, beating guidance; strong subscriber growth and revenue beat. Focus on lifetime value over quarterly results.
• Product Innovation: Accelerated execution with over 30 new core features launched recently; enhancements to free tier, launch of Lossless audio for Premium users, in-app messaging, Apple TV app update, integration with ChatGPT, Jam feature, and increased car listening.
• Content Vertical Highlights:
  • Music: Artists breaking streaming records, immersive fan activations, in-app experiences, partnership with FC Barcelona.
  • Podcasts: Over 390 million users streamed video podcasts, 500,000 video podcast shows, time spent doubled year-over-year, partnership with Netflix for video podcasts.
  • Audiobooks: Introduced tens of millions of new younger listeners, over 500,000 titles in English markets, launch of Audiobooks+ add-on.
• Partnerships: Strong collaboration with music labels and publishers, new licensing deals, and creator-first strategy.

In Q3 2025, Spotify achieved significant results. Monthly Active Users (MAU) reached 713 million, a 17 million increase from the previous quarter. Subscribers totaled 281 million, up 12% year-on-year. Total revenue was EUR 4.3 billion, up 12% on a constant currency basis, with premium revenue rising 13% year-on-year. Gross margin was 31.6%, 50 basis points ahead of guidance and expanding ~50 basis points year-on-year. Operating income was EUR 582 million, EUR 97 million above forecast. Free cash flow was EUR 806 million in Q3. Revenue contribution: Premium revenue drove growth, while advertising business was consistent on a currency-neutral basis with strong growth in automated ad sales channels.

Q4 2025: Forecasts 745 million MAU, 289 million subscribers, EUR 4.5 billion total revenue, gross margin of 32.9%, and operating income of EUR 620 million. 2026: Confident in healthy revenue growth, disciplined reinvestments, and margin/cash flow improvement; first quarter gross margin may see sequential step down due to advertising seasonality.

• Market and Competitive Risks: Intense competition in streaming and advertising could impact market share and revenue.
• Licensing and Partnership Risks: Changes in licensing agreements with labels and publishers could affect content availability and costs.
• Economic and Regulatory Risks: Economic downturns or regulatory changes could impact consumer spending and business operations.

Q: What impact do you believe AI will have on the music ecosystem and how does the ChatGPT integration fit into that?

A: Gustav Söderström mentioned AI will improve recommendations with generative recommender systems, and ChatGPT integration is part of ubiquity strategy, combining ChatGPT's understanding of the world with Spotify's user taste to create personalized playlists.

Q: Can you discuss the potential implications of your partnership with Netflix for video podcasts of the Ringer?

A: Alex Norström said it's a creator-first strategy, helping creators reach audiences everywhere, and leads to net incremental usage on Spotify.

Q: In your Instagram post, Gustav mentioned that free users liked the recent upgrades to their free functionality. Have you seen any changes to the rate of upgrade from free to premium as a result?

A: Gustav Söderström said more usage, and more usage leads to more conversion over time, as more usage drives retention and subscription value.