Spotify forecasts fourth-quarter profit above estimates on AI bets

Spotify anticipates a fourth-quarter profit exceeding Wall Street projections, attributing the outlook to its AI-driven initiatives aimed at boosting user growth during the key holiday season. The company's shares surged nearly 4% in premarket trading. Investors have closely monitored Spotify's profitability as it invests in AI to enhance music discovery and user engagement, positioning itself against emerging competitors like Suno and Udio.

Spotify projects operating income of €820 million, surpassing analysts' average estimate of €813.4 million, according to LSEG data. Key AI-powered features include the AI DJ, which delivers personalized music mixes with voice commentary, and prompt-based playlists that generate tailored selections based on user preferences. "We've built a strong business that keeps compounding, we invest when we see a path for growth, our costs are moderating, and there is more runway ahead," commented co-CEO Alex Norstrom.

In Q3, Spotify's operating income aligned with analysts' average forecast of €671.8 million, while revenue totaled €4.97 billion, slightly below the estimated €4.98 billion. Earnings per share were €2.48, compared to the estimated €2.80. Spotify anticipates 818 million monthly active users for Q4, marginally below the 819 million estimate, yet it expects a 10 million boost in premium subscribers to 316 million, surpassing the projected 314.7 million.

The company's monthly active users increased by 1% sequentially in Q3 to 788 million. Spotify recently secured a licensing agreement with music distributor Believe for its upcoming paid tool facilitating fan-made AI covers and remixes, in addition to licensing deals with Universal Music Group, Merlin, and Kobalt.