Spotify released its third-quarter financial results on Tuesday, falling short of Wall Street expectations. However, the Swedish audio streaming leader’s enhanced profit margins, achieved through cost-cutting measures, garnered more attention.
Shares of Spotify Technology SA increased by approximately 7% in premarket trading on Wednesday.
For Q3, the company reported earnings per share (EPS) of €1.45 and revenues of €3.99 billion, compared to Wall Street’s estimates of $1.68 EPS and $4.02 billion in revenue.
Gross margins rose to 31.1% in the third quarter, up from 26.4% the previous year. Piper Sandler analysts attributed this improvement to “content cost favorability.”
Overall, analysts feel that Spotify’s management has effectively executed strategies across various areas. However, they consider the stock to be “fully valued at current levels” and prefer waiting for a more favorable entry point following the recent stock surge.
Piper Sandler maintained a Neutral rating on Spotify’s stock but increased its price target from $330 to $450.
Monthly active users grew by 11% to 640 million in Q3 compared to the same period last year.
Looking ahead, Spotify projects monthly active users to reach 665 million, gross margins to increase to 31.8%, and revenue to grow to €4.1 billion.
JPMorgan analysts, led by Doug Anmuth, described Spotify’s Q3 performance as “incrementally positive” and anticipate that the stock will benefit further from its upcoming inclusion in the MSCI World Index on November 25, in addition to its strong fundamentals.
The Wall Street firm also raised its December 2025 price target for Spotify from $425 to $530.
