Spotify Technology (SPOT)·Q4 2025 Earnings Summary
Spotify Surges 12% After Q4 Beat: Record Free Cash Flow Caps Strong 2025
February 10, 2026 · by Fintool AI Agent
Spotify delivered a strong finish to 2025, beating guidance on profitability while posting record free cash flow. The stock surged 12% in aftermarket trading to $466, rebounding from a 46% decline from its all-time high heading into the report.
Key takeaways: Operating income of €701M beat guidance by €81M (13%), gross margin hit a record 33.1%, and free cash flow reached €834M in Q4 alone — bringing full-year FCF to €2.9 billion.
This was also Daniel Ek's 30th and final earnings call as CEO — he transitions to Executive Chairman while co-CEOs Alex Norström and Gustav Söderström take the helm.
CEO Transition: Daniel Ek Steps Back
In a milestone moment for Spotify, founder Daniel Ek stepped back from the CEO role after nearly 20 years, transitioning to Executive Chairman. Co-CEOs Alex Norström and Gustav Söderström — both longtime Spotify executives who "helped build" the company — are now leading day-to-day operations.
Daniel's parting framework for evaluating Spotify:
- Consumer-Creator Intersection — "If something is good for the consumer and also good for the creator, that's where you'll find us every time"
- Technology Company Identity — "We are first and foremost a technology company... the R&D arm for the music industry"
- Long-term Orientation — "We choose growth over profitability for many years... that long-term orientation will continue to guide Spotify"
On the new leadership, Daniel said: "They didn't inherit Spotify. They really helped building it... They're not here to protect what I built. They're here to build what we haven't imagined yet."
Did Spotify Beat Earnings?
Yes — Spotify exceeded guidance on every metric except revenue (in-line).
The operating income outperformance was partially driven by €67M in Social Charges coming in below forecast due to stock price movement during the quarter (Social Charges were -€50M vs. the implied ~€17M in guidance).
Beat/Miss vs. Consensus:
*Values retrieved from S&P Global
The massive EPS beat reflects significant non-cash finance income of €320M in Q4 from investment gains.
Ask Fintool AI AgentHow Did the Stock React?
Spotify shares surged 12.3% in aftermarket trading to $466.02 from a close of $414.84.
The stock had fallen 46% from its all-time high of ~$785 heading into earnings, pressured by broader tech selling and questions about growth sustainability.
Recent Price Action:
The aftermarket rally suggests investors are relieved by the profitability beat and strong free cash flow generation after weeks of selling pressure.
What Changed From Last Quarter?
Margins continue expanding:
- Gross margin: 33.1% in Q4 vs. 31.6% in Q3 (+150 bps Q/Q)
- Operating margin: 15.5% in Q4 vs. 13.6% in Q3 (+190 bps Q/Q)
User growth accelerated:
- Record Q4 MAU net adds of 38M (vs. 17M in Q3)
- Premium subscriber net adds of 9M (vs. 5M in Q3)
Free cash flow inflected higher:
- Q4 FCF: €834M vs. €806M in Q3
- Full year 2025 FCF: €2.9B vs. €2.3B in 2024 (+26% Y/Y)
Ad-Supported turnaround:
- Ad-Supported gross margin jumped to 19.5% (+441 bps Y/Y)
- Improved contribution from podcasts and music advertising
What Did Management Guide?
Q1 2026 Outlook:
The Q1 guidance implies continued profitability expansion, with operating income guided +30% Y/Y despite significant FX headwinds. Gross margin guidance of 32.8% is slightly below Q4's 33.1% but well above Q1 2025's 31.6%.
How Are Premium and Ad-Supported Performing?
Premium Segment (89% of revenue):
- Revenue: €4.0B (+8% Y/Y, +14% constant currency)
- Gross margin: 34.8% (+10 bps Y/Y)
- Subscribers: 290M (+10% Y/Y)
- ARPU: €4.70 (-3% Y/Y, +2% FXN) — Price increases partially offset by product/market mix
Ad-Supported Segment (11% of revenue):
- Revenue: €518M (-4% Y/Y, +4% constant currency)
- Gross margin: 19.5% (+441 bps Y/Y) — significant improvement
- MAUs: 476M (+12% Y/Y)
- Music advertising growth driven by impressions; podcast gains from sponsorships
The Ad-Supported margin expansion is the standout story — from 15.1% in Q4 2024 to 19.5% in Q4 2025, driven by better podcast economics and music ad growth.
Ask Fintool AI AgentKey Product & Strategic Updates
Record-Breaking Wrapped 2025:
- 300M+ users engaged globally (+20% Y/Y)
- 630M+ shares across social media (+42% Y/Y)
- Day one of Wrapped marked the highest single day of subscriber intake in Spotify history
AI-Powered Experiences:
- Interactive DJ: 90M+ subscribers have used it, driving 4B+ hours of time spent
- Prompted Playlist: New "deep research mode" lets users describe complex playlist rules using natural language — taps into full listening history and real-time culture from the internet
- Management vision: "Delivering the world's most intelligent, agentic media platform, one that you can literally talk to"
Music videos expansion:
- Music videos now available in 111 markets for Premium users
- Video podcast consumption up 90%+ since Spotify Partner Program launch
- 530,000+ video podcast shows on platform
Record payouts to creators:
- Paid $11B to music industry in 2025 — largest annual payment from a single source in history
- Cumulative payouts now approaching $70B since founding
- Golden Globes: Spotify/The Ringer's "Good Hang with Amy Poehler" won first-ever Best Podcast award
Audiobooks & Physical Books:
- Expanded audiobooks to Nordic markets (Sweden, Denmark, Finland, Iceland, Monaco)
- New partnership with Bookshop for physical book sales — "This is really a consumer-led innovation"
- Launched Page Match feature to sync between audiobook and physical book
- Catalog tripled to 500,000+ titles across 14 global markets
AI Strategy: Why Management Says It's an Opportunity, Not a Threat
The stock had fallen ~33% in three months heading into earnings, with the market pricing in AI disruption fears. Management pushed back forcefully.
Gustav Söderström on why AI benefits Spotify:
"Significant disruption happens when new technologies enable new asymmetric business models... In the consumer space that we are in, we believe the dominant business model will continue to be ads plus subscription, both places where Spotify excels. This puts Spotify in an outstanding position because we already have the right business model."
Unique Data Moat:
Spotify is building a "language-to-music" dataset that has never existed — and Gustav argues it can't be commoditized:
"Taste is not a fact, it's an opinion. On average, for an American, workout music is usually hip hop. For a European, it's usually EDM. For many Scandinavians, it's heavy metal or even death metal. You can't just have an LLM commoditize it as a fact. You actually need to have hundreds of millions of listeners across the world constantly telling you what it means for that specific person."
On AI-Generated Music:
Management sees two categories:
- Net new AI music — Good for Spotify: more catalog drives engagement, and "the cultural moment always happens on Spotify"
- Derivatives (covers, remixes) — Untapped opportunity for artists to monetize existing IP
"We have the technology and capabilities ready to unlock this in a way that is additive for both IP rights holders and Spotify."
Internal AI Productivity ("Honk"):
Spotify has built an internal system called "Honk" for agentic coding:
"An engineer at Spotify on their morning commute can tell Claude to fix a bug or add a feature to the iOS app. Claude finishes that work, pushes a new version of the app to them on Slack, and they can merge it to production — all before arriving at the office."
Gustav noted that since December 2024, "the best developers we had say they haven't written a single line of code... they only generate code and supervise it."
Ask Fintool AI AgentEight-Quarter Financial Trend
The margin trajectory tells the story: gross margin expanded ~550 bps from Q1 2024 to Q4 2025, while operating margin went from 4.6% to 15.5% — a transformation in profitability.
Balance Sheet & Capital Allocation
Strong liquidity position:
- Cash & investments: €9.5B (vs. €7.5B at Q4 2024)
- Exchangeable Notes: €1.46B (moved to current liabilities)
- Total equity: €8.3B
Share repurchases:
- Q4 2025: $433M repurchased
- Full year 2025: $510M repurchased
- First significant buyback program in company history
Employee count: 7,323 FTEs globally at end of Q4
Risks & Concerns
FX headwinds intensifying:
- Q4 2025: ~580 bps headwind to Y/Y revenue growth
- Q1 2026 guide: ~670 bps headwind expected
Ad-Supported revenue pressure:
- Still down 4% Y/Y on reported basis
- Pricing softness in music advertising
Social Charges volatility:
- Stock price movements create unpredictable OpEx swings
- Q4 Social Charges €67M below forecast due to stock decline
Content cost pressures:
- Video podcast costs partially offsetting Premium margin gains
- Music licensing costs continue to rise with subscriber growth
Q&A Highlights
On Pricing Power: Alex Norström on the January 2026 US price increase: "There have been really no surprises at all. Churn is low and came in according to our expectations... What we strive to do is always create more value than price."
On Advertising Progress: After 1.5 years re-engineering the ad stack: "We now have record levels of advertisers on the platform, and that increased density means much better yield... We're definitely making good progress."
On Capital Allocation: CFO Christian Luiga: "Our primary goal is to reinvest in the business... In 2025, we did €510M in buybacks. That is still an option going forward. We have €1.5B+ in convertible notes falling due in March, which we will settle in cash."
On Co-CEO Structure: Gustav on how they're operating: "We decided to run this as a single direct reporting group... We have the entire VP, SVP layer in one room, three hours every week, deciding and unblocking the entire company."
On Physical Books: Why sell physical books? "From the consumer, it's the same book whether it's physical, Kindle, or audiobook... If you find the book on Spotify, don't say 'I'm not going to listen because I also want to read it.' Click buy, it arrives at your home, sync it back and forth."
What's Next?
Investor Day: May 21, 2026 in New York Management will share more on their "year of raising ambition" and longer-term vision.
Near-term catalysts:
- Q1 2026 results (late April 2026)
- Investor Day May 21, 2026 in NYC
- Further price increases expected in additional markets
- AI music derivatives product launches with label partners
- Prompted Playlist broader launch
Key metrics to watch:
- Ad-Supported margin sustainability above 15%
- ARPU trajectory as price increases roll through (5-6% Q1 guidance)
- FX-adjusted revenue growth staying in double digits
- FCF to "meaningfully exceed" 2025's €2.9B
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