TLDR
- Spotify Q1 revenue rose 15% YoY to €4.2B, with premium revenue up 16%.
- Subscribers grew 12% to 268M, adding 5M in the quarter.
- Gross margin hit 31.6%, up 400bps YoY and ahead of guidance.
- Free cash flow totaled €534M; cash reserves at €8B.
- Ad revenue grew just 5%, and macro risks could weigh ahead.
Spotify Technology S.A. (NYSE: SPOT) reported strong first-quarter 2025 results, fueled by solid subscriber additions and expanding gross margins. Revenue grew 15% year over year to €4.2 billion on a constant currency basis, led by 16% premium revenue growth and rising average revenue per user (ARPU).
As of writing, shares rose 3.85% to $599.18 on Wednesday morning trading, building on a stellar run. Spotify is up 34% year-to-date and 114% over the past year, vastly outperforming the S&P 500.
Subscriber Momentum Returns With Emerging Market Strength
Spotify added 5 million new subscribers in Q1, reaching 268 million paid users, up 12% year over year. Monthly active users (MAUs) grew to 678 million, increasing by 3 million in the quarter. Management noted that Q1 subscriber additions marked the strongest first quarter since 2020, with emerging markets driving much of the growth.
While subscriber gains were robust, MAU growth was slightly softer, partly due to seasonality and lower engagement from the Wrapped campaign compared to prior years.
Gross Margin Expands as Spotify Monetizes Better
The company’s gross margin improved to 31.6%, expanding by 400 basis points year over year and exceeding guidance by 10 basis points. This margin strength reflects better monetization, cost efficiencies, and ARPU improvements in premium subscriptions.
Spotify’s operating income came in at €509 million, though it was impacted by €76 million in social charges, about €58 million more than expected. Free cash flow remained strong at €534 million, with cash and short-term investments totaling €8 billion at quarter-end.
Advertising Slows, Macro Risks Linger
While Spotify’s premium business delivered double-digit growth, advertising revenue increased by a modest 5% year over year, signaling some softness in ad pricing. Management also flagged macroeconomic uncertainties that could pressure advertising and consumer demand if conditions worsen.
The company continues to face challenges in accelerating MAU growth and rolling out higher-priced subscription tiers, which depend on coordination with industry partners.
Q2 Outlook Sees Steady Growth
For Q2 2025, Spotify forecasts revenue of €4.3 billion, with gross margin expected at 31.5% and operating income projected at €539 million. The outlook suggests continued solid execution, though ad growth and subscriber trends will be closely watched in the coming quarters.
Conclusion
Spotify delivered an impressive first quarter, with subscriber momentum returning and margins expanding faster than expected. Strong premium revenue growth and cost control helped offset weaker ad performance and lingering macro risks. With shares already up over 100% in the past year, investors will now focus on Spotify’s ability to sustain user growth, expand high-margin products like audiobooks and video podcasts, and fend off macro pressures.