Spotify forecasts strong profit as AI features start to pay off, shares surge (updated)

Spotify Technology

Today 11:10

Spotify expects to add 10 million net new subscribers in fourth quarter
Almost 40 million premium users now listen to mixed playlists
Third-quarter revenue of €4.97 billion narrowly misses estimates
Adds details from conference call in paragraphs 6 and 10, updates shares in paragraph 2
By Jaspreet Singh
Oct 22 (Reuters) - Spotify SPOT.N forecast fourth-quarter profit above Wall Street estimates on Thursday, banking on its AI-powered features to drive user growth ahead of the crucial holiday season.
Shares of the Swedish music streaming company rose more than 9% in early trading, hitting their highest since January. 
New features such as AI DJ, which curates personalized music mixes with spoken commentary, and prompt-based playlists that let users describe a mood or listening preference to generate tailored selections have helped the company attract users amid the rise of music-generation rivals such as Suno and Udio. 
The "About the Song" feature that allows listeners to check out facts and stories about the song was on its way to 100 million users and almost 40 million premium users now listen to mixed playlists, Co-CEO Gustav Soderstrom said on a post-earnings call. 
Spotify expects operating income of €820 million ($920.53 million) for the fourth quarter, compared with analysts' average estimate of €813.4 million, according to data compiled by LSEG.
"We have admittedly been too cautious on AI's near-term impact, and the results show no damage so far," Pivotal Research Group analyst Jeff Wlodarczak said in a note to clients.
Spotify's forecast for an increase of about 10 million in premium subscribers for the fourth quarter to 316 million was above expectations of 314.7 million, even as its monthly active users expectation of 818 million was marginally below Visible Alpha estimates of 819 million.
The company's monthly active users ticked up 1% sequentially in the third quarter to reach 788 million.
Earlier this week, Spotify announced a licensing deal with music distributor Believe for its upcoming paid tool for fan-made AI covers and remixes. It has signed similar deals with Universal Music Group UMG.AS, Merlin and Kobalt for the tool. 
In the third quarter, Spotify's operating income of €672 million came in line with Visible Alpha-compiled analysts' average estimate of €671.8 million.
Spotify has said growth in operating expense will peak in the third quarter and moderate from the fourth quarter, continuing into 2027.
Investors have closely watched the company's profitability as it spends on AI to improve discovery and engagement.     
It posted revenue of €4.97 billion in the three months ended September 30, compared with an LSEG-compiled estimate of €4.98 billion. It reported earnings per share of €2.48, compared with estimates of €2.80.
     
     
($1 = 0.8908 euros)

 (Reporting by Jaspreet Singh in Bengaluru; Editing by Sriraj Kalluvila)
 ((Jaspreet.Singh@thomsonreuters.com; on X @i_jass;))