Turns out all those Instagram stories showing off your embarrassingly repetitive listening habits weren't just free marketing for Spotify Technology S.A. (SPOT)—they were a profit machine. The streaming giant's stock jumped over 13% in premarket trading Tuesday after posting fourth-quarter results that made Wall Street's expectations look downright pessimistic.
Spotify delivered earnings of $5.16 per share, absolutely crushing the analyst consensus of $2.95. That's not a modest beat—that's a 75% surprise to the upside. Revenue came in at $5.28 billion (4.53 billion euros), up 7% year-over-year and comfortably ahead of the $5.16 billion analysts were modeling.
The secret sauce? That annual Wrapped campaign, where Spotify turns your music data into shareable social media content, plus the global rollout of an enhanced free tier. Both strategies worked remarkably well at pulling in new users.
Growth Numbers That Actually Impressed
Monthly active users climbed 11% year-over-year to 751 million, with Spotify adding a record 38 million subscribers in the quarter alone. That's 6 million more users than the company itself expected—a meaningful outperformance. Premium subscribers reached 290 million, up 10% year-over-year, with gains spread across multiple regions.
Here's the catch though: while user growth looked fantastic, monetization showed some cracks. Average revenue per user for Premium memberships slipped about 3% year-over-year to 4.70 euros. Ad-supported revenue also declined 4%. More users paying slightly less per person—it's the streaming platform's eternal challenge.
Profitability Picture Brightens Despite Revenue Pressure
Spotify managed to expand its gross margin by 83 basis points to 33.1%, with improvements in both Premium and ad-supported segments. Premium gross margin hit 34.8%, up 10 basis points from last year, as revenue growth outpaced music licensing costs (after accounting for marketplace programs and audiobooks), though video podcast costs ate into some of those gains.
The ad-supported side looked even better, with gross margin jumping 441 basis points to 19.5%, helped by stronger contributions from podcasts and music advertising.
Operating income surged 47% year-over-year to 701 million euros, translating to a 15.5% operating margin. The company generated 834 million euros in free cash flow during the quarter and ended with 9.5 billion euros in cash, cash equivalents, restricted cash, and short-term investments. Spotify employed 7,323 full-time workers at quarter's end.
Looking Ahead
For Q1 2026, Spotify is guiding toward revenue of 4.50 billion euros, slightly below the analyst consensus of 4.57 billion euros. The company expects Premium subscribers to reach 293 million (roughly 3 million net additions) and total monthly active users to climb to 759 million (about 8 million net adds).
The strong quarter marks an early victory for new co-CEOs Gustav Söderström and Alex Norström, who took the reins at the start of the year from company co-founder Daniel Ek. They're also implementing price increases—U.S. users saw their individual subscription cost rise by a dollar to $13 monthly last month, which should help address that ARPU decline over time.
SPOT Price Action: Spotify Technology shares traded up 13.54% at $471 during premarket trading Tuesday.
