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Spotify (SPOT) is modestly higher after a mixed Q2 report this morning. SPOT missed EPS expectations, while revenue increased 13.9% yr/yr to €4.78 bln, roughly in line. Encouragingly, gross margin and operating income both exceeded guidance. For Q3, SPOT guided revenue to €5.0 bln, above expectations, while forecasting continued growth in MAUs to 788 mln and Premium subscribers to 305 mln.

• Subscribers: Premium subscribers increased 9% yr/yr to 300 mln, one mln above guidance, after 7 mln net additions. Premium revenue increased 15% to €4.33 bln, with ARPU rising 7% to €4.89 as price increases were partially offset by product and market mix.
• MAUs: MAUs increased 12% yr/yr to 777 mln, in line with Q1 growth, with 16 mln net additions coming in one mln below guidance. Q3 guidance implies 11 mln additions as SPOT adjusts product optimization and ad load in select emerging markets to improve free-to-paid conversion. Management does not expect the changes to pressure subscriber growth.
• Ads: Ad-supported revenue increased just 1% yr/yr, or 3% in constant currency, as higher music impressions were partially offset by softer pricing. Automated channels represented nearly 40% of ad-supported revenue, up from just over 30% in Q1, while active advertisers increased 60%. Management maintained its expectation for ad growth to accelerate toward double digits in 2H26.
• Margin and profitability: Gross margin expanded 193 bps yr/yr to a record 33.4%, while operating income rose 61% to €655 mln, both above guidance. However, OpEx increased 19% yr/yr excluding currency and social-charge movements, reflecting higher marketing, cloud, and AI spending. For Q3, SPOT expects gross margin of 32.9% and operating income of €670 mln.

Briefing.com Analyst Insight

SPOT's Q2 reinforces that its core subscription business remains healthy, with subscriber growth exceeding guidance and pricing continuing to support Premium revenue and ARPU. The combination suggests recent price increases have not disrupted subscriber momentum, while record gross margin and better-than-guided operating income show that profitability continues to improve despite heavier investment. Advertising growth remained subdued, but the growing contribution from automated channels and 60% increase in active advertisers support management's expectation for an acceleration toward double-digit growth in 2H26. The softer Q3 MAU outlook partly reflects deliberate changes to the free tier in select emerging markets intended to improve conversion and monetization, which management does not expect to pressure subscriber growth. Marketing, cloud, and AI spending will remain elevated through Q3, although management expects OpEx growth to moderate in Q4 and still anticipates full-year margin improvement. Overall, SPOT delivered solid subscription and margin execution, while advertising growth and returns from its recent investments will be the main factors determining whether growth and profitability strengthen further in the second half.