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Spotify flags higher marketing, AI costs and softer Q3 user growth
Spotify projected third-quarter monthly active users of 788 million, below Wall Street estimates, while expecting about €200 million of incremental operating expense from marketing and AI for the full year.
Spotify said higher marketing and development costs will weigh on profit in the current quarter as it leans into AI-powered features to attract and retain users, according to Reuters. The Swedish music-streaming company also forecast third-quarter monthly active users below Wall Street estimates, citing weakness linked to product changes in emerging markets such as India and Indonesia. Spotify attributed the slowdown to adjustments including sign-up changes, deprecation of older lower-end Android devices, and changes to how it manages ad load and limits within its free tier, with Co-CEO Alex Norström describing the approach. Spotify said price increases remain central to its efforts to translate its large user base into greater profitability. Reuters also reported that Spotify has been using AI to compete with startups built on the technology, including by unveiling a deal with independent-label group Merlin for a coming paid tool for fan-made covers and remixes that will be opt-in for Merlin-affiliated labels. The company expects operating income of €670 million for the third quarter, below estimates of €677.8 million, and guided premium subscriber growth of 5 million to 305 million, according to Reuters. Spotify also said marketing and AI-related investments are expected to add approximately €200 million in incremental operating expense for the full year, with CFO Christian Luiga expecting expense growth to moderate in the fourth quarter.