By Anne Steele

Spotify continued to add subscribers during the first quarter, which is usually a softer period for the audio streaming company, and expects growth to accelerate through the rest of the year despite a choppy macroeconomic environment.

"We still feel like there's plenty of growth left," said Chief Executive Daniel Ek.

Shares fell about 7% in morning trading Tuesday as the company guided for second-quarter user growth below analyst expectations.

The results

For the first quarter, monthly active users grew 10% to 678 million, in line with the company's prior guidance. Premium subscribers, Spotify's most lucrative type of customer, rose 12% to 268 million, topping its expectations and driven by emerging markets including Latin America and the Asia-Pacific region.

The company posted a profit of 225 million euros -- equivalent to about $256 million -- or EUR1.07 a share, up from EUR197 million, or 97 euro cents a share, a year earlier.

Revenue rose 15% to EUR4.19 billion, in line with its expectations. Average revenue per user for its subscription business climbed 4% to EUR4.73, helped by price increases. Ad-supported revenue, an area Spotify has been focused on making a bigger part of its business, grew 8%, driven by both music and podcasts.

Spotify's gross margin of 31.6% was slightly above its prior guidance.

The context

After reporting its first ever full year of profitability in 2024, Spotify continues to make good on its promise of margin growth by building its user base and pulling back from heavy spending in areas such as podcasts. The company has worked to become a one-stop shop for all things audio, including audiobooks, and implemented price increases around the world that are helping to pay for those initiatives without frustrating customers so much that they leave.

"Spotify is generally a very resilient business," Ek said in an interview, adding that investments in offerings across music, podcasts and audiobooks have made for sticky users. "Consumers think you are offering a great service at a great value."

The company missed on operating income due to social charges, payroll taxes that go up with stock-price appreciation. The company's share price has more than doubled over the past year and is up more than 30% so far in 2025.

The outlook

Music subscriptions are seen as a relatively cheap utility, making Spotify's business somewhat recession-proof, compared with its tech and media peers.

"The underlying data at the moment is very healthy," Ek said in announcing the quarter's results, pointing to strong engagement and retention -- and the option of Spotify's free tier for customers who may feel the squeeze. "So yes, the short term may bring some noise, but we remain confident in the long-term story," he said.

For the current quarter, Spotify forecast user numbers would grow to 689 million -- below Wall Street expectations -- and premium subscribers would grow to 273 million, ahead of analyst estimates, according to FactSet. It said it expects revenue of EUR4.3 billion and gross margin of 31.5%.

Write to Anne Steele at anne.steele@wsj.com

(END) Dow Jones Newswires

April 29, 2025 09:52 ET (13:52 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.