Spotify set to report earnings as investors weigh profit margin pressures and potential US price hike

Spotify (SPOT) is set to report third quarter results on Tuesday before the bell as investors weigh signs of improving profitability against looming cost pressures tied to new music-label deals.

The stock has climbed roughly 70% in the past year, driven by price hikes, a leaner cost structure, and optimism surrounding AI-driven product innovation. Shares currently trade near $650, off their record closing high of about $775 earlier this year.

Here’s what Wall Street expects from the upcoming results, according to Bloomberg consensus estimates:

• Revenue: 4.23 billion euros (vs. 3.99 billion euros last year; Spotify guidance: 4.2 billion euros)

• Adjusted earnings per share (EPS): 2.00 euros (vs. 1.45 euros last year)

• Monthly active users (MAUs): 711 million (vs. 640 million last year; Spotify guidance: 710 million)

• Premium subscribers: 281 million (vs. 252 million last year; Spotify guidance: 281 million)

• Ad-supported users: 442 million (vs. 402 million last year)

• Gross margin: 31.1% (flat year over year; in line with Spotify guidance)

The upcoming report follows a disappointing second quarter when Spotify posted a quarterly loss, missed revenue expectations, and issued softer guidance for Q3. Shares fell nearly 12% after the results, even as user growth remained strong.

At the time, CEO Daniel Ek acknowledged the near-term weakness but reiterated confidence in Spotify’s long-term trajectory, saying he still expects 2025 to be a “standout year.”

The report also comes as Ek, who founded the company, prepares to step down as CEO at the end of the year, transitioning to executive chairman effective Jan. 1, 2026.

Longtime lieutenants Gustav Söderström and Alex Norström will take over as co-CEOs, formalizing a structure that Spotify says has already been in place since 2023. Wall Street has largely welcomed the move, viewing it as a sign of leadership continuity.

At the company’s 2022 Investor Day, Spotify set seemingly lofty objectives that included long-term gross margin targets between 30% and 35%. At the time, the company had been struggling to turn a profit, with its gross margin stuck at around 25%.

Those trends began to reverse in 2024 as the company raised prices for the second time in less than a year and introduced a higher-priced audio “bundle” that includes music, podcasts, and audiobooks. It also rolled out an audiobooks-only plan and a music-only streaming tier in an effort to cater to a variety of consumers.

Read more: Live coverage of corporate earnings

Margins hit a record 32.2% in Q4 before easing to 31.6% in Q1 and 31.5% in Q2, weighed down by ad seasonality and higher content costs. Spotify expects margins to have dipped again last quarter to around 31.1%, reflecting a regulatory charge in its Premium segment that was partially offset by stronger ad performance.

The slowdown in gross margins was largely anticipated, with analysts noting margin gains would naturally moderate after last year’s 500-plus basis point jump.

Recently renewed deals with major labels are also adding pressure to content costs for Spotify, though Wall Street remains bullish on the audio giant’s long-term profitability story heading into 2026.

“Investors continue to expect a US price increase [in the fourth quarter of 2025 or first quarter of 2026],” Citi analyst Jason Bazinet wrote in a recent note, adding that Spotify’s margins could expand in 2026 if wholesale music costs rise less than expected.

Although a potential US price hike could cost Spotify a few points of market share if competitors don’t follow suit, it would still lift margins as long as label costs remain contained next year, according to Bazinet, who maintained a Neutral rating and $750 price target on the shares.

Morgan Stanley, meanwhile, remains more bullish, arguing Spotify still has meaningful pricing power and sees roughly 20% upside to its $800 price target as margin improvement resumes next year and new AI-driven features drive engagement and discovery.

Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com

Click here for the latest stock market news and in-depth analysis, including events that move stocks

Read the latest financial and business news from Yahoo Finance