Spotify Technology experienced a notable increase in premium subscribers during the third quarter, exceeding expectations and leading to an uptick in stock value early Wednesday, despite financial results falling short of analysts' predictions. The audio streaming platform announced a net income of 1.45 euros ($1.54) per share for the September quarter, a significant rise from 0.33 euros in the same period the previous year.
However, the consensus estimate on Capital IQ predicted earnings of 1.67 euros per share. Revenue saw a 19% increase, reaching 3.99 billion euros, yet this figure was shy of the anticipated 4.03 billion euros. Premium revenue surged by 21% to 3.52 billion euros, fueled by growth in average revenue per user and a 12% rise in premium subscribers, totaling 252 million, which surpassed the estimate of 251.2 million from Visible Alpha.
Spotify added an impressive 6 million more premium subscribers compared to the previous quarter. Additionally, ad-supported revenue increased by 6%, totaling 472 million euros. As a result, Spotify's shares on the New York Stock Exchange rose over 7% during Wednesday's premarket trading. The total number of monthly active users (MAUs) climbed by 11% to 640 million, demonstrating growth in all regions.
This count exceeded the company’s guidance by 1 million, while the consensus from Visible Alpha stood at 639.3 million. Chief Executive Daniel Ek expressed optimism, stating, "We are on track for our first full year of profitability. We outperformed on both subscriber and MAU metrics, revenues aligned with expectations, and we achieved significant improvements in gross margin and operating income." In the latest quarter, gross margin expanded by 473 basis points to 31.1%, primarily attributed to favorable content costs, as noted by Chief Financial Officer Christian Luiga.
Operating expenses decreased to 786 million euros, down from 853 million euros in 2023, aided by currency fluctuations, lower personnel costs, and reduced marketing expenditures. Looking ahead, the music streaming service anticipates revenue of 4.1 billion euros for the ongoing quarter, accounting for a foreign exchange headwind of approximately 350 basis points.
Analysts expect revenues to reach 4.17 billion euros. The company is set to add roughly 25 million net new monthly active users in the fourth quarter, which would raise the total MAUs to 665 million and add around 8 million premium subscribers, increasing the total to 260 million. The consensus estimate from Visible Alpha indicates 662.1 million MAUs and 260 million subscribers.
Luiga commented, "Regarding subscriber net additions, the very low levels of churn expected in the six markets where price increases have recently been announced are factored into our outlook for the fourth quarter. Although the new pricing will enhance average revenue per user growth in the fourth quarter, we foresee that the 2023 price increases in 63 markets will lead to an estimated 400 basis point moderation in year-over-year ARPU growth on a constant currency basis in our revenue forecast.".