According to CNBC, Spotify just reported third-quarter results that beat Wall Street expectations with total revenue climbing 12% year-over-year. The streaming platform grew premium subscribers by 12% to 281 million, though that came in slightly below expectations of 281.24 million. Premium revenue grew 9% following price hikes in August that increased subscription costs from 10.99 to 11.99 euros across multiple markets. However, ad-supported revenue disappointed at 446 million euros, down 6% from last year and missing StreetAccount’s 467.7 million euro expectation. CEO Daniel Ek called the business “healthy” while announcing he’ll step down in January to become executive chairman, with co-presidents Gustav Söderström and Alex Norström taking over. Shares fell 2% on the mixed results and weak guidance for the current quarter.
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The Ad Problem
Here’s the thing that really stands out: Spotify‘s ad business is struggling. A 6% drop in ad-supported revenue when premium’s growing? That’s a concerning gap. Basically, they’re becoming more dependent on subscription revenue just as they’re facing increased competition from Apple Music, YouTube Music, and even TikTok’s music ambitions. The ad market’s been tough for everyone, but Spotify’s particular challenge is making their free tier profitable enough to matter.
Leadership Shift
Daniel Ek stepping down as CEO feels significant. He’s been the face of Spotify since the beginning. Now he’s moving to executive chairman while longtime executives take the reins. Is this a planned succession or a response to recent challenges? Probably a bit of both. Ek says they have the tools needed – pricing power, product innovation, and eventually an “ads turnaround.” But handing over daily operations suggests he might be focusing on bigger strategic questions while his team handles execution.
What’s Next
Looking ahead, Spotify’s guidance for the current quarter seems cautious. They’re warning about both revenue and subscriber growth slowing down. And yet they just raised prices across multiple markets. So either they’re being conservative, or they’re seeing some pushback from those price increases. The big question is whether they can maintain subscriber growth while charging more in an increasingly crowded streaming market. Their recent price changes might give them some breathing room, but the ad business needs to turn around for real profitability to materialize.
