Source: Inderes & Bloomberg (consensus)

Overall, Spotify's Q3 report was solid. Revenue was in line with our expectations, and EBIT was slightly better, with stronger gross margin and lower cost growth than we expected. Equally importantly, the subscriber beat suggests that the friction introduced in the free tier passed its first test without hurting subscriber growth. The EPS miss was driven entirely below the operating line and, in our view, does not detract from the quality of the quarter. In our view, the most encouraging part of the report was the Q4 guidance. The EBIT guide of 820 MEUR is clearly above our pre-Q3 estimate (785 MEUR) and implies a return to year-on-year margin expansion, supporting management's message that cost growth is moderating. Q4 revenue guidance, however, was slightly below our estimate. Following the report, we expect our 2026 revenue estimates to stay largely unchanged and our profitability estimates to rise. We continue to view the long-term thesis as intact.

Subscribers slightly ahead of guidance, MAUs in line

MAUs reached 788 million (Q2'26: 777m), in line with the company's guidance and 1 million below our 789 million estimate. This represents 11 million net additions in the quarter and 11% y/y growth. Growth came from all regions, with Rest of World, Latin America, Europe, and North America all adding users q/q. Premium subscribers came in at 306 million (Q2'26: 300m), 1 million above both our estimate and guidance. That implies 6 million net additions (+9% y/y), with growth in all regions, supported by intake from a global promotional campaign and strong partnerships. In our view, Q3 was the first real test of management's argument that added friction in the free tier would not come at the expense of subscriber growth, so we see the subscriber beat as the most important takeaway from the user metrics. However, we will continue to monitor this development as the effects of added friction could unfold over time.

Premium ARPU was EUR 4.95 (Inderes: EUR 4.92), up 9.3% y/y on a reported basis and 7.5% y/y at constant currency. FX-neutral growth was driven by recent price increases, partly offset by product and market mix. Currency movements added ~190 bps to total revenue growth, broadly in line with the ~200 bps the company had guided. We view the continued strength in ARPU as further support for our pricing-power thesis.

Q3 revenue grew 16% y/y (14% at constant currency) to 4.97 BEUR, in line with our 4.95 BEUR estimate and the ~5.0 BEUR guidance. Premium revenue grew 17% y/y (15% at constant currency) to 4.49 BEUR (Inderes: ~4.47 BEUR). Ad-supported revenue grew 10% y/y (9% at constant currency) to 482 MEUR, slightly below our 488 MEUR estimate but a clear step-up from Q2's +1%. Growth was driven by an increased number of impressions sold, but partly offset by softer pricing. Podcast growth was led by sponsorships in the Owned & Licensed portfolio, and automated sales channels remained the largest contributor to growth. After a long period of soft growth, we see the return to double-digit growth as an important proof point for the rebuilt advertising infrastructure.

Gross margin and EBIT slightly ahead despite higher social charges

Gross margin came in at 33.0% (Q3'25: 31.6%), slightly above both our estimate and the company's guidance (both 32.9%). The Premium gross margin rose to 34.5% (+130 bps y/y; Inderes: 34.7%) as revenue growth outpaced music costs (net of marketplace programs), audiobook costs, and video podcast costs. The ad-supported gross margin improved to 18.7% (+105 bps y/y; Inderes: 17.0%), helped by revenue growth and a more favorable podcast cost structure. Overall gross margin dipped from Q2's record 33.4% quarter-on-quarter, but the y/y trend remains clearly positive in both segments.

Operating income (EBIT) was 672 MEUR (Q3'25: 582 MEUR), a 13.5% margin. This was slightly ahead of our 662 MEUR estimate and the company's 670 MEUR guidance. Social charges* were 22 MEUR, 13 MEUR above the guidance assumption because the share price rose during the quarter. Excluding the social charges above guidance, EBIT would have been ~685 MEUR. According to the company, the beat came from lower-than-expected marketing and personnel costs and a stronger gross margin. Reported operating expenses grew 26% y/y, but excluding currency and social charges, underlying growth was 19%, driven by marketing as well as cloud and AI spend for growth initiatives.

Free cash flow was 735 MEUR (Q3'25: 806 MEUR, -9% y/y), which was below our estimate of 814 MEUR, primarily due to a less favorable change in working capital (especially receivables) and higher income taxes paid. LTM free cash flow amounted to ~3.2 BEUR. The balance sheet remains very strong, with 9.9 BEUR in cash, cash equivalents, restricted cash, and short-term investments. Spotify bought back 313 MEUR of its own shares in Q3 and has repurchased shares worth 1.1 BUSD year-to-date. According to the company, this fully offsets dilution from the 2026 employee equity programs and also returns excess cash.

Q4 guidance: EBIT clearly ahead, revenue slightly below our estimate

Spotify guided Q4 MAUs to 818 million (+~30m q/q) and Premium subscribers to 316 million (+~10m q/q), both in line with our estimates. Revenue guidance of ~5.2 BEUR (~+15% y/y) was slightly below our 5.25 BEUR estimate, even though it assumes a larger FX tailwind of ~230 bps. Gross margin guidance of 33.8% (Q4'25: 33.1%) reflects y/y improvement in both segments. The Q4 EBIT guidance of 820 MEUR includes 6 MEUR of social charges and implies a ~15.8% margin. That is clearly above our pre-Q3 estimate (785 MEUR, 15.0%) and above Q4'25's 15.5%. We believe this suggests that the elevated cost growth of Q2–Q3 is easing and that operating margins will expand year-on-year again from Q4, in line with management's plan to moderate spending in Q4'26 and 2027. On the call, we will look for further color on the 2027 OpEx trajectory, the effect of expanding audiobooks from 22 to more than 180 markets on gross margin, and how sustainable the ARPU momentum is once last year's price increases are lapped. In addition, we will look for any updates on the rollout of other strategic initiatives, such as the AI music creation tool.

Before the report, our 2026 revenue estimate stood at ~19.5 BEUR (+13.5% y/y) with a 14.4% EBIT margin. Following the report, we expect our revenue estimates to stay largely unchanged and our profitability estimates to rise somewhat, reflecting the Q3 EBIT beat and the stronger-than-expected Q4 EBIT guidance. The subscriber beat, the return to double-digit growth in advertising, continued gross margin expansion and the guided return to operating leverage in Q4 all support our medium-term thesis.

* Social charges are payroll taxes that vary with Spotify's share price due to their link to share-based compensation in certain countries.