According to CNBC, Spotify just reported third-quarter results that beat Wall Street expectations with total revenue climbing 12% year over year. Premium subscribers grew 12% to 281 million, though that came in slightly below expectations of 281.24 million. The streaming platform hiked subscription prices in August from 10.99 to 11.99 euros across multiple markets including Europe, Asia, and Latin America. However, ad-supported revenue dropped 6% to 446 million euros, missing StreetAccount’s forecast of 467.7 million. CEO Daniel Ek announced he’ll step down in January, transitioning to executive chairman while co-presidents Gustav Söderström and Alex Norström take over. Despite the strong user numbers, shares fell 2% on weak guidance for the current quarter.
Sponsored content — provided for informational and promotional purposes.
The Dual Reality
Here’s the thing about Spotify‘s quarter: it’s basically two different stories. On one hand, you’ve got premium subscribers growing nicely and price increases kicking in across dozens of markets. That’s the subscription engine humming along. But then there’s the advertising side, which dropped 6% year-over-year and missed expectations by a solid margin.
And that’s the real challenge Spotify faces. They’ve proven they can grow subscribers and raise prices – that’s the relatively easy part. But building a meaningful advertising business that can compete with the likes of YouTube and social platforms? That’s a much tougher hill to climb. The fact that ad revenue actually declined while the broader digital ad market has been recovering is concerning.
The Ek Exit Timing
Now, Daniel Ek stepping down as CEO in January is interesting timing, isn’t it? He’s been at the helm since the beginning, and this transition comes right after major price hikes and during this advertising slump. In the earnings release, Ek sounded optimistic about having “the tools we need” including “eventually the ads turnaround.”
But here’s what I’m wondering: is this a planned succession that’s been in the works, or is Ek handing off the tough parts to new leadership? Gustav Söderström and Alex Norström are longtime executives who’ve been running product and business respectively, so they know the company inside out. Still, taking over during a period of mixed performance and needing to fix the ads business? That’s a big ask.
The Guidance Problem
The market’s reaction – that 2% drop – tells you everything about how investors view this report. Strong past performance? Great. Weak future guidance? Not so great. When a company beats on the quarter but guides lower for the next one, it suggests they see headwinds ahead.
And honestly, that makes sense. Price increases can only carry you so far before you hit subscriber resistance. The ad business needs serious work. Plus, they’re still investing heavily in podcasts and audiobooks, which haven’t exactly been profit machines. So while Ek says the business is “healthy,” the guidance suggests there might be some turbulence ahead for the new leadership team.
