Spotify Stock Down 12% After Q1 Earnings Report: Here’s Why

Spotify’s stock price fell more than 12% on Tuesday (April 28) following guidance from executives that the company expects lower operating income in the second quarter as they invest in technology, AI and marketing.

The streaming giant’s stock was trading around $434 after reporting first-quarter earnings that beat company guidance on nearly all metrics. Monthly active users (MAUs) rose by 10 million in the quarter to a total of 761 million, driven by a 14% increase in ad-supported MAUs and a 9% increase in premium subscribers. Revenue topped 4.5 billion euros ($5.3 billion) on 10% growth in subscriber revenue, and operating income of 715 million euros ($821 million) beat guidance by 55 million euros ($63.2 million) due to lower-than-expected social charges, giving the company an operating margin of 15.8%.

Investors reacted negatively to a piece of the company’s forward-looking guidance that called for 630 million euros ($723.4 million) of operating income in the second quarter, with 10 million euros ($11.5 million) in expected social charges and elevated operating expenses for the next two quarters as Spotify invests in technology, AI and marketing. While that figure is down from the first quarter, Spotify executives said they expect second-quarter revenue of 4.8 billion euros from an additional 17 million monthly active users, for a total of 778 million MAUs.

“Based on the … operating income outlook, we’re not surprised to see shares trading down,” analysts at Citi Research wrote in a note to investors.

Here is how Spotify’s executives explained the outlook on a call discussing their quarterly financial results with analysts and investors.

Operating Income

Spotify CFO Christian Luiga said the company’s forecast for 630 million euros ($723.4 million) in operating income in the second quarter takes into account plans for marketing new features and research and development related to strategic AI initiatives.

“We continue to expect to improve in 2026 on a full-year basis, with quarterly progression being variable depending on the timing of our investments,” Luiga said. “As we continue to reinvest in our future growth potential, we remain really well positioned to continue compounding growth and profitability.”

Spotify co-CEO Alex Norström also struck a note of optimism, describing how investments in tech are allowing the company to issue updates and fixes to Spotify’s platform faster than before.

“We are spending more compute per employee, and that is because we’re seeing tremendous return in terms of productivity,” Norström said.

Advertising

Ad-supported MAUs rose by 14%, but overall ad-supported revenue fell 5% in the first quarter compared to a year ago. Excluding the effects of foreign exchange rates, the company says ad-supported revenue rose by 3%.

Ad revenue was hurt in part because several million euros in revenue previously accounted for in the ad-supported segment was shifted into Spotify’s premium segment. However, Norström also acknowledged Spotify’s ad revenue business has been a “work in progress,” saying the company rebuilt the foundation of that division’s technology over the past 18 months.

“We had to essentially rebuild the entire stack, and we did that knowing that we would face a bunch of short-term pressure, but that it would unlock meaningfully much bigger market for us in the long term,” Norström said.

Spotify’s updates focused on automated sales, so-called biddable exchanges and programmatic advertising. Automated sales contributed a third of all ad revenue in the first quarter, and executives said it will offset the uneven pace of other revenue from legacy direct channels.

These sales channels produce more revenue when Spotify ad-supported users spend more time there listening to and watching content, which Norström said is happening.

“Since the global rollout of our more personalized free experience, users in key markets like the U.S. are listening and watching more days per month,” Norström said.