Is Spotify Technology SA a Buy After Its Latest Earnings Report?

Spotify Technology (NYSE:SPOT) not only saw its third-quarter headline net income fall, but it also whiffed on the consensus analyst estimate. Given that, you'd imagine that investors would have reacted by aggressively selling the music streamer's stock. Well, you'd be very wrong.

The opposite occurred on Thursday after the company published its earnings release -- market players couldn't wait to buy its stock, and it handily beat the S&P 500 index, rising nearly 4%. On Friday, it ticked higher. Let's look at the company's numbers and tease out why it scored such a big win from an ostensibly losing quarter.

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Music to their ears

Spotify's quarter was headed by a revenue line that hit almost 5 billion euros ($5.6 billion), for robust year-over-year growth of 16%. By far the bulk of the company's top line comes from its premium services; the take from these rose by 17% to nearly 4.5 billion euros ($5 billion). The remainder came from ad-supported offerings, which collectively rose 10% to 482 million euros ($540 million).

Spotify also managed to grow both its total user base and the crucial segment of that population, premium-service subscribers. The company's total monthly active user (MAU) count rose 11% to 788 million, while the premium subscriber tally increased 9% to 306 million.

Attributable net income, however, went in the opposite direction. It fell to 518 million euros ($580 million) from the year-ago profit of 899 million euros ($1 billion). On a per-share basis, the former result was 2.48 euros ($2.78).

While that revenue number was essentially in line with the consensus analyst estimate, Spotify fell short on profitability. Analysts tracking the stock were modeling net income of 2.84 euros ($3.18) for the quarter.

That bottom-line swoon looked ugly on paper, but it wasn't as grim as it appeared. In the third quarter of 2025, the company benefited enormously from significant finance income derived from share, bond, and warrant valuations, which affected the accounting. It also recorded a 72 million euro ($81 million) tax benefit during that period.

Spotify watchers are aware that these items distorted the 2025 frame's profitability, so the year-over-year drop wasn't particularly concerning to them. They were also impressed that the company topped its guidance for operating income, which came in at 672 million euros ($753 million), and notched a new record for gross margin at 33%. And for a stock increasingly evaluated on free cash flow (FCF), the 735 million euros ($823 million) in FCF it generated during the quarter was heartening.

Streaming forward

Spotify has an enviably high number of growth opportunities. Management ticked off several major ones, including a major expansion of its relatively recent audiobook business, from the current 22 countries to over 180. Meanwhile, artificial intelligence (AI) is at a relatively early stage of deployment for the company; it plans to harness it to offer subscribers more and increasingly varied custom services -- AI playlists, anyone? -- to enhance the listening and music-curating experiences.

It's confident that this will keep those subscriber and fundamental numbers rising. It proffered guidance for its current (fourth) quarter of 818 million MAUs, which, if achieved, would be nearly 9% higher than in the same period of 2025. It's also counting on a sub-9% increase in premium subscribers (to 316 million). As for key financials, management is expecting another pop in revenue, by almost 15% to 5.2 billion euros ($5.8 billion). Operating income is projected to surge 17% to 820 million euros ($919 million). It did not provide a net income forecast.

I feel that, if anything, Mr. Market's reaction to Spotify's third quarter was muted and conservative. The company has established itself as the clear king of streaming music and, increasingly, other aural entertainment options like audiobooks. I feel it's building quite the imposing moat, which more than justifies the valuations that likely moderated investors' reaction to the earnings release (its forward P/E is approaching 52). Yet this company is becoming ever more powerful, and it clearly aims to tap into the numerous, high-potential growth opportunities before it. I'd be a buyer of this stock, even at its seemingly lofty level.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Spotify Technology. The Motley Fool has a disclosure policy.