Spotify Technology S.A. (NYSE: SPOT) delivered a stronger-than-expected third-quarter performance, reaffirming investor confidence in its turnaround strategy after years of profitability struggles. The audio streaming giant exceeded expectations on revenue, user growth, and margins — signaling that its price hikes, leaner operations, and new AI integrations are starting to pay off.

Shares, however, reversed early gains to fall about 6% after Tuesday’s open as investors weighed upbeat results against cautious fourth-quarter guidance. Despite the dip, Spotify’s stock remains up roughly 70% year-to-date, underscoring optimism that the company has finally struck a sustainable balance between expansion and efficiency.

Revenue Growth and Margin Recovery Take Center Stage

Spotify reported third-quarter revenue of €4.27 billion ($4.9 billion), slightly surpassing Bloomberg consensus estimates of €4.23 billion. Adjusted earnings came in at €3.28 ($3.77) per share — far ahead of analyst projections — marking one of the company’s most profitable quarters in recent years.

Monthly active users reached 713 million, beating expectations, while premium subscribers rose to 281 million, up from 252 million a year ago. Ad-supported listeners jumped 11% to 446 million, reflecting a rebound in digital advertising that has benefited major streaming and media platforms in 2025.

Profitability, however, remained the story of the quarter. Gross margins rebounded to 31.6%, exceeding Spotify’s guidance and topping consensus forecasts of 31.1%. Stronger ad performance and a disciplined cost structure offset rising content expenses, paving the way for management’s projected margin climb to 32.9% in Q4.

Spotify’s leadership highlighted that continued efficiency gains — including tighter content spend, automation, and operational restructuring — are driving incremental profitability. “We’re very pleased with our performance heading into year-end,” the company stated, emphasizing that the business is “well positioned to deliver growth and improving margins in 2025.”

Price Strategy and Leadership Transition Shape the Outlook

Spotify’s margin improvements also reflect the success of its 2024 global price increases and the rollout of new subscription tiers — including audiobook-only and premium audio bundles. Analysts expect the company to pursue another round of U.S. price hikes in late 2025 or early 2026, potentially adding hundreds of millions in annual recurring revenue.

“Price increases are part of our strategy,” co-president Alex Norström said. “We’ll continue to do so thoughtfully and in ways that reflect the value we provide.”

Spotify’s long-term vision remains anchored around profitability targets of 30%–35% gross margins, a goal first outlined at its 2022 Investor Day. Although renewed licensing deals with major record labels have tightened near-term margins, Wall Street remains confident in Spotify’s ability to deliver sustained double-digit growth.

The upcoming leadership transition — with founder Daniel Ek stepping into the executive chairman role and co-CEOs Gustav Söderström and Alex Norström taking over — is seen as a move toward continuity rather than disruption. Analysts believe the new leadership duo will focus on refining the company’s operational execution while Ek concentrates on strategic partnerships and innovation.

AI Innovation Expands the Ecosystem

Spotify is also doubling down on AI and multimedia integration to deepen engagement and diversify revenue. The company recently unveiled a ChatGPT-powered playlist creation feature, allowing users to generate customized playlists through conversational prompts.

In addition, Spotify announced a partnership with Netflix to stream select video podcasts from Spotify Studios and The Ringer, bringing its content to new audiences across streaming platforms. The company’s redesigned Apple TV app, built with AI-enhanced development tools, signals a broader effort to unify its product ecosystem across devices.

These moves reflect Spotify’s “ubiquity” strategy — expanding beyond music to become a cross-platform entertainment hub integrating audio, video, and AI-driven personalization.

What Lies Ahead

While short-term currency headwinds and content costs may temper Q4 growth, Spotify’s margin rebound and strategic reinvestment in AI and media partnerships suggest its long-term trajectory remains strong. Investors will be watching closely to see whether the company’s planned price adjustments and new subscription offerings can sustain momentum into 2026 — particularly as competition from Apple Music, YouTube Music, and Amazon intensifies.

For now, Spotify’s transformation appears to be striking the right note: a profitable, AI-enabled streaming powerhouse entering its next phase of evolution.