Reduced projected profits for Spotify due to increased taxes lead to a drop in their share price
In a recent financial update, Spotify announced its forecast for the third quarter of 2025, revealing a potential dip in both profit and revenue. This prediction comes despite a strong demand for its premium music plans, with premium subscribers projected to reach 281 million in Q3, surpassing analyst expectations [1][2].
The operating income forecast for Q3 stands at €485 million ($561 million), which falls short of the €562 million consensus estimate. This shortfall is largely attributed to increased tax expenses related to employee compensation [1][2][3].
Moreover, the anticipated revenue for Q3 is €4.2 billion, falling short of the expected €4.48 billion. This shortfall was significantly impacted by unfavourable currency movements that reduced year-over-year revenue growth by about 440 basis points [1][2].
The company's Monthly Active Users (MAUs) are expected to hit around 710 million in Q3, aligning with estimates [1][2]. However, the increased operational costs, primarily due to boosted marketing efforts to compete with Apple and Amazon, resulted in an approximately 8% increase in operating expenses in Q2 [2].
In a positive development, Spotify's board has approved a $1 billion increase to its share repurchase program, bringing the total authorization to $2 billion [4]. The company achieved its first annual profit in 2024, marking a significant milestone in its financial journey [5].
Despite these positive aspects, the combined effects of higher tax costs, increased operational expenses, and adverse currency fluctuations have produced a weaker profit and revenue outlook for Q3 2025. This news has disappointed investors, causing a sharp drop in Spotify's stock price [1][2][3].
Spotify's shares fell nearly 9% in premarket trading, reflecting the market's response to the financial update. The exchange rate, with 0.8645 euros equaling one US dollar, further complicates the financial outlook for the company [6].
In summary, while Spotify’s user growth and premium subscriptions outperform forecasts, the challenges posed by higher tax costs, increased operational expenses, and adverse currency effects have combined to produce a weaker profit and revenue outlook for Q3 2025.
[1] Reuters. (2025, July 28). Spotify forecasts lower third-quarter profit and revenue. Reuters. https://www.reuters.com/business/media-telecom/spotify-forecasts-lower-third-quarter-profit-revenue-2025-07-28/
[2] CNBC. (2025, July 28). Spotify's Q3 outlook disappoints as higher taxes and currency movements weigh on earnings. CNBC. https://www.cnbc.com/2025/07/28/spotify-q3-outlook-disappoints-as-higher-taxes-and-currency-movements-weigh-on-earnings.html
[3] Bloomberg. (2025, July 28). Spotify's Q3 Revenue Falls Short of Estimates Due to Higher Taxes and Currency Fluctuations. Bloomberg. https://www.bloomberg.com/news/articles/2025-07-28/spotify-s-q3-revenue-falls-short-of-estimates-due-to-higher-taxes
[4] Spotify. (2025, July 28). Spotify Announces $1 Billion Increase to Share Repurchase Program. Spotify Investor Relations. https://investor.spotify.com/news-releases/news-release-details/spotify-announces-1-billion-increase-share-repurchase-program
[5] Spotify. (2025, February 1). Spotify Announces First Annual Profit in Company History. Spotify Investor Relations. https://investor.spotify.com/news-releases/news-release-details/spotify-announces-first-annual-profit-company-history
[6] XE. (2025). EUR/USD Exchange Rate. XE. https://www.xe.com/currencycharts/?from=EUR&to=USD&view=20Y
Traders in the finance and investing business are scrutinizing Spotify's share price given the company's weakened profit and revenue outlook for Q3 2025, partly owing to increased tax costs, unfavorable currency movements, and higher operational expenses.
In light of these challenges, the business strategy for the quarter needs to focus on countering these issues and restoring investor confidence to prevent further stock price drop.
