SPOT: Muted print; story priced in, waiting for the next catalyst

$Spotify(SPOT.US) Q2 was mixed and broadly in line. Guidance for Q3 points to a slight beat on revenue and monetization, but platform traffic and profitability are set to lag expectations.

Here are the details. Key takeaways follow.

1. Price hikes are kicking in: Early-year increases in core Europe/US markets began to flow through, with ARPPU up 6% YoY. User pushback was milder than feared, and paid subs still added 7 mn in Q2, driving subscription revenue up 16% with an acceleration vs. Q1.

From Q3 guidance, the virtuous price lift should keep supporting revenue. The company guides +6 mn paid net adds in Q3, and we estimate ARPPU growth of 7%+.

2. Ads are stabilizing: Q2 ad revenue was €450 mn, up 1% YoY, and the trend suggests limited downside from here. FX headwinds have cycled, and the ad tech stack build (c.18 months) is largely complete.

As outlined on Investor Day, management will pursue a two-pronged approach of brand partnerships plus automation, targeting a gradual shift to double-digit growth in H2.

In addition, from this year, the ad revenue definition excludes non-direct ad items such as podcast subscription bundles, which are reclassified under subscriptions. This creates a small measurement gap that can skew directionality when ad revenue is hovering near the inflection line.

3. GPM lags the pace of price hikes: Q2 GPM rose slightly QoQ, with margin improvement in both subscriptions and ads; the latter outperformed vs. expectations/guidance, helped by execution in the ad biz.

However, management guides Q3 GPM to decline by about 30bps QoQ. We think this reflects ad seasonality plus revenue-sharing terms for the AI covers feature in subscriptions, which offsets more of the price lift and caps margin.

4. Operating spend steady: Q2 cost control remained concentrated in R&D, likely from staff efficiency gains. Sales and marketing grew at a low-single-digit rate, mainly tied to late-Q2 product launches and anniversary events.

Overall operating efficiency improved slightly, but multiple new initiatives and features require investment. Near-term room for further opex optimization therefore looks limited.

All in, near-term catalysts were scarce this quarter, and after the May 21 Investor Day roadmap, sentiment has cooled as investors watch for delivery against strategy. Expect more color on short-term plans during the call.

5. Cash flow steady: With steady growth and investment, Q2 FCF held around €800 mn. Cash plus short-term investments reached about €9.3 bn at quarter-end, up €500 mn QoQ.

Buybacks totaled €230 mn in Q2, €70 mn less QoQ. On an annualized basis the return is modest, offering limited valuation support during choppy periods.

6. Results snapshot

Dolphin Research View

Unlike last quarter, when the post-selloff setup had clearer short-term catalysts, this print leaves less to pitch on its own. Especially after the May 21 Investor Day five-year roadmap, sentiment is normalizing and focus is shifting to execution milestones, such as ad tool launches and monetization ramp in H2.

We expect management to add detail on near-term plans during the call. It is worth listening in.

On valuation using GAAP P/E, higher investment this year has pulled down full-year profit vs. last quarter. At yesterday's ~$100 bn market cap, the multiple is still near 40x.

Given gaps in the long-term thesis, the historical premium should compress, so the stock is not cheap. That said, delivery can change the calculus.

Looking longer term, management targets mid-teens revenue growth over the next few years, a 35–40% GPM by 2030, and 20%+ OPM. Near term into next year, if they can tell two stories — 1) price increases enabled by catalog and AI features, and 2) monetization from podcasts, short video and live events — then 15%+ revenue growth and 30%+ profit growth are achievable.

In that case, a forward P/E around 30x would have firmer support. The pathway matters as much as the endpoint.

Pure multiple upside looks limited; opportunity lies in EPS upside from outperformance in new businesses. For comfort, we still prefer entry at sub-30x P/E (~$80 bn market cap) for better risk-reward.

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Dolphin Research articles on 'Spotify':

Earnings (last quarter only)

Apr 29, 2026 Q1 Trans: Spotify (Trans): No abnormal churn after price hikes; GPM disrupted by new investments

Apr 29, 2026 Q1 Earnings Take: Spotify: A miss on expectations triggered a plunge; streaming is no longer the hot story

Feb 10, 2026 Q4 Trans: Spotify (Trans): AI expands content supply, strengthening recommendations and stickiness

Feb 10, 2026 Q4 Earnings Take: Multiple narratives breaking? Spotify is still a 'small but beautiful' story

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