Quarterly figures reveal a significant drop for Spotify, with losses exceeding expectations, accompanied by a disheartening outlook for the future.
In a surprising turn of events, music streaming giant Spotify reported a net loss of €86 million ($97.5 million) in Q2 2025, despite a robust growth in operating income and revenue. The loss was primarily attributed to unexpectedly high "Social Charges", payroll taxes linked to employee salaries and benefits, which escalated due to the rise in Spotify's share price, affecting share-based compensation expenses.
Additionally, the company's Q2 results fell short of its own revenue and operating income forecasts, leading to a sharp decline in its market valuation and disappointing investors. This underperformance contributed to the loss reported in Q2.
Looking forward, Spotify has lowered its profit forecast for Q3 2025, expecting flat revenue of around €4.2 billion (no growth compared to Q2) and operating profits forecasted at about €485 million, which is higher than Q2 operating income but below previous guidance. This conservative approach reflects the company's cautious stance after the Q2 shortfall.
Despite the loss and cautious outlook, Spotify continues to expand its user base rapidly. In Q2, the company added 8 million paying subscribers, reaching a total of 276 million, and 18 million monthly active users, bringing the total to 696 million.
Spotify's revenue for the current third quarter is expected to be €4.2 billion, well below the consensus estimate of €4.48 billion. Analysts had expected the gross margin to remain stable or increase slightly, but it is expected to decrease to 31.1%, down from 31.5% in the previous quarter.
The negative result was mainly due to "social charges", or stock-based compensation expenses, which were €98 million higher than planned. Citi has a neutral view of Spotify's results, noting that revenue and operating income fell short of expectations, and the outlook was weaker.
However, the strong user growth and Spotify's new $2 billion share buyback program are seen as clear signs of confidence in its business model by KeyBanc. The number of premium subscribers also exceeded forecasts, reaching 276 million.
In response to the market dynamics, Spotify is stepping up its activities in the advertising market. New generative AI tools allow advertisers to automatically voice audio ads and produce them more cost-effectively. Strategically, Spotify is transforming into an entertainment platform, positioning itself as an alternative to YouTube with music videos, podcast clips, and exclusive concert recordings.
Despite the challenges, Bloomberg Intelligence sees the long-term story of Spotify as intact, citing planned price increases, the Superfan subscription, and AI-driven advertising technology. The stock is currently trading at around $665, about 15% below its June record high of $785. Spotify's stock is down significantly in pre-market trading, falling over 5%.
The CEO and majority shareholder of the publisher Börsenmedien AG, Mr. Bernd Förtsch, has directly and indirectly acquired positions in Spotify Technology S.A. that could potentially benefit from any price movement resulting from the publication. KeyBanc is more optimistic, describing Spotify's results as "loud and distorted" due to currency effects and unmodeled social charges. Spotify's next support zone is around the GD100, which is approximately $640.
Financial losses in Q2 2025 were experienced by Spotify, a major player in both business and technology sectors, due to unexpectedly high Social Charges, a category that includes stock-based compensation expenses that escalated because of the rise in Spotify's share price. Additionally, the company's tech-driven efforts to expand its user base and dive into the advertising market, including the use of AI for advertising and transformation into an entertainment platform, are expected to influence future business growth.
