Spotify Q2 Earnings Miss on Higher Marketing and AI Costs

Spotify Technology S.A. SPOT reported second-quarter 2026 earnings of $3.03 per share, missing the Zacks Consensus Estimate of $3.27 by 7.3%. The company had incurred a loss in the year-ago quarter. Higher marketing, cloud and artificial intelligence spending weighed on the bottom line.

Revenues of $5.55 billion increased 14% year over year on a reported basis and 15% at constant currency. The figure beat the consensus estimate by a slight margin. Premium subscribers reached 300 million, exceeding management’s guidance by 1 million.

SPOT's User Growth Reaches New Highs

Monthly active users, or MAUs, increased 12% year over year and 2% sequentially to 777 million. Spotify added 16 million MAUs during the quarter, one million below its guidance. Growth was recorded across all regions, with notable strength in Europe and North America.

Premium subscribers rose 9% year over year and 2% from the prior quarter. Net additions totaled 7 million, exceeding the company’s forecast by one million. Ad-supported MAUs advanced 14% year over year to 494 million, reflecting continued expansion of Spotify’s global audience.

Spotify's Premium Revenues Gain Momentum

Premium revenues increased 15% year over year to €4.33 billion. On a constant-currency basis, revenues grew 16%, supported by subscriber gains and higher pricing. Premium average revenue per user increased 7% to €4.89, or 7.4% excluding currency effects.

The benefits of price increases were partly offset by product and geographic mix. Management also highlighted improving engagement, with active days among global subscribers increasing. The company continues to add value through services such as Reserved concert-ticket access, personalized podcasts and additional audiobook offerings.

SPOT's Margins Expand Despite Spending

Gross profit increased 21% year over year to €1.60 billion. Gross margin expanded 193 basis points to a record 33.4%, topping management’s forecast of 33.1%. Premium gross margin reached 34.9%, helped by revenue growth outpacing music costs, net of marketplace programs, audiobook expenses and video-podcast costs.

Operating expenses increased 3% to €941 million. Excluding currency movements and social charges, expenses rose 19%, mainly because of temporary investments in marketing, cloud infrastructure and AI initiatives. Operating income climbed 61% to €655 million, while operating margin expanded to 13.7% from 9.7%.

Spotify's Ad Business Starts to Stabilize

Ad-supported revenues increased 1% year over year to €446 million, or 3% at constant currency. Growth in music-advertising impressions was partially offset by softer pricing. Podcast advertising benefited from sponsorship gains across Spotify’s owned and licensed portfolio.

Automated sales channels represented nearly 40% of ad-supported revenues, up from slightly more than 30% in the first quarter. Active advertisers increased 60% year over year. Management completed its price-optimization work and migrated ad inventory to an in-house ad server, supporting its expectation for double-digit advertising growth in the second half of 2026.

SPOT's Cash Flow Supports Buybacks

Free cash flow increased 14% year over year to €797 million, marking a record second-quarter performance. The improvement reflected higher net income adjusted for noncash items, partly offset by working-capital movements. Trailing 12-month free cash flow reached €3.3 billion.

Spotify ended the quarter with €9.4 billion in cash, restricted cash and short-term investments. The company repurchased $662 million of shares through Aug. 3, 30% more than during the comparable 2025 period. It has bought back nearly 2.2 million shares since resuming repurchases in 2025.

Spotify Guides for Continued Q3 Growth

For the third quarter of 2026, Spotify expects MAUs of 788 million, implying 11 million sequential additions. The outlook incorporates product optimization in emerging markets that is intended to improve free-to-paid conversion. Premium subscribers are projected to reach 305 million, representing 5 million net additions.

Revenues are forecast at approximately €5 billion, indicating 14% year-over-year growth. Spotify expects gross margin of 32.9% and operating income of €670 million. Management continues to anticipate about €200 million of incremental marketing and AI-related operating expenses in 2026, while expecting full-year gross and operating margins to improve.

SPOT currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recent Earnings Snapshots

Trane Technologies TT reported impressive second-quarter 2026 results. TT’s adjusted earnings of $4.31 per share outpaced the consensus mark by 0.9% and rose 11.1% from the year-ago quarter’s actual. TT’s total revenues of $6.35 billion surpassed the consensus mark by 2.9% and increased 6.4% year over year.

Rollins ROL posted unimpressive second-quarter 2026 results. ROL’s adjusted earnings of 32 cents per share missed the Zacks Consensus Estimate by 5.9% but rose 6.7% year over year. Total revenues of $1.08 billion fell short of the consensus estimate by 1.7% but increased 7.9% from the year-ago quarter.

Verisk VRSK reported second-quarter 2026 diluted adjusted earnings of $1.98 per share, beating the Zacks Consensus Estimate of $1.94 by 2.1%. The figure increased 5.3% from the year-ago quarter. Revenues of $806.3 million topped the consensus mark of $802.4 million by 0.5% and rose 4.3% year over year.

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