Spotify (SPOT, Financial) experienced a setback as it missed 1Q25 EPS expectations and issued lower-than-expected Q2 revenue guidance of €4.3 billion, disrupting its bullish momentum. The premium subscription business, however, performed well, with subscriber gains and price hikes driving a 16% year-over-year increase in premium revenue to €3.77 billion. These price hikes boosted ARPU and, along with favorable music content costs, increased the gross margin by 400 basis points year-over-year to 31.6%.

Unexpected social charges of €76.0 million, which are payroll taxes related to employee salaries and benefits, offset reduced personnel and marketing costs, leading to the EPS miss. These charges were higher than expected due to share appreciation during the quarter. More concerning is SPOT's soft Q2 revenue guidance, indicating a slowdown in advertising spending and a downside MAU forecast of 689 million, a 10% year-over-year increase.

• Spotify has missed EPS expectations for three consecutive quarters, putting its execution under scrutiny. The strengthening Euro is also creating a top-line headwind, affecting the income statement.
• Premium subscriber growth remains strong, with a 12% year-over-year increase to 268 million, marking SPOT's second-highest Q1 net addition in history. Despite price hikes, churn is minimal, indicating strong pricing power. Future premium subscriber growth and churn rates will be monitored as consumer budgets tighten.
• Total MAUs grew by 10% year-over-year to 678 million, meeting SPOT's expectations and demonstrating the platform's stickiness and ability to attract new users. The freemium model continues to effectively convert users to premium subscribers.

SPOT's Q1 report highlights strong performance in premium subscriber growth and gross margin expansion, indicating a successful focus on profitability. However, the lower Q2 revenue guidance reflects the impact of macroeconomic challenges and currency fluctuations.