SPOT Q2 Earnings Call Focuses on Monetization and AI Costs

SPOT Turns User Scale Into a Monetization Push

Co-CEO Alex Norström said Spotify is adjusting product design, ad load and free-tier limits in selected emerging markets. The goal is to improve user quality, conversion and revenue rather than maximize monthly active user additions.

Those changes will reduce near-term MAU growth, but Norström said they should not weaken subscriber growth. Management described the move as shifting from growth toward monetization after several quarters of emerging-market MAU outperformance.

Spotify ended the second quarter with 777 million MAUs, up 12% year over year but 1 million below guidance. Premium subscribers reached 300 million, 1 million above guidance, after 7 million quarterly net additions.

Spotify Builds an Add-On Revenue Engine

Co-CEO Norström highlighted products that raise Premium’s value and create revenue beyond standard pricing. Audiobooks+ has surpassed $100 million in annual recurring revenue, while Reserved has facilitated nearly 100,000 concert-ticket reservations since its U.S. launch.

Co-CEO Gustav Söderström said Spotify designed its platform to match usage, inference costs and monetization. Highly engaged listeners can purchase credits or add-ons instead of leaving the company to absorb unlimited AI costs.

AI-powered experiences reach about one-quarter of active users. Prompted Playlist has attracted roughly 14 million users among the first 100 million receiving it, while the Large Taste Model has improved active days, saves and listening behavior.

SPOT Rebuilds Advertising Around Automation

Norström said automated channels generated nearly 40% of ad-supported revenues, up from just over 30% in the first quarter. Active advertisers increased 60% year over year to 33,000 as Spotify expanded self-service and biddable buying.

Management said the migration to Spotify’s proprietary ad server is complete and pricing optimization in direct sales has finished. CFO Christian Luiga maintained the expectation that advertising growth will reach double digits during the second half of 2026.

Ad-supported revenues grew 3% at constant currency. Luiga said greater automation should improve profitability, supporting the longer-term objective of moving advertising margins from around 20% toward 40%.

Spotify Keeps AI Spending Under Direct Control

Söderström said Spotify’s AI investment is concentrated in compute rather than headcount. The workforce has remained broadly flat, while revenue per employee is on track to double over three years.

The company expects about €200 million of incremental 2026 operating expense tied to marketing and AI. Management stressed that these costs are variable and should moderate in the fourth quarter.

Second-quarter gross margin reached a record 33.4%, while operating income of €655 million exceeded guidance by €25 million. Free cash flow was €797 million, bringing trailing-12-month free cash flow to €3.3 billion.

SPOT Guides for Slower Adds and Continued Profit

Spotify expects third-quarter MAUs of 788 million, implying 11 million net additions, and Premium subscribers of 305 million, implying 5 million additions. The MAU forecast incorporates the emerging-market changes.

Revenues are expected at about €5 billion, with foreign exchange providing an estimated 200-basis-point year-over-year growth tailwind. Management guided gross margin to 32.9% and operating income to €670 million.

Luiga said quarterly margins will vary with investment timing, but Spotify still expects full-year gross margin and operating margin to improve in 2026.

Spotify Leaves the Call Focused on Value Creation

Management’s central message was that Spotify’s scale supports a wider monetization model built around Premium differentiation, add-ons, advertising automation and AI-driven engagement.

The company is accepting slower near-term MAU additions in selected markets while protecting subscriber growth, controlling investment intensity and managing continued margin expansion.

SPOT Rank and Style Scores Offer a Mixed Signal

SPOT carries a Zacks Rank #3 (Hold). Its Growth Score of A, Momentum Score of B and VGM Score of B provide favorable growth, trading and blended-style signals, while the Value Score of D points to weaker valuation characteristics. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Style Scores complement the Zacks Rank, with A or B scores carrying the strongest significance alongside Zacks Rank #1 or 2 (Buy) stocks. The current Zacks Rank can change as earnings estimates are revised following the latest results.

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