Spotify's shares experienced a significant decline, falling by 12% to 14% after the company provided a second-quarter 2026 operating income forecast of €630 million ($736 million). This figure was substantially lower than analysts' average expectations of €684 million (nearly $800 million). The reduced outlook is attributed to heavy spending on expansion and rising operating costs, particularly in marketing, cloud services, and AI.
Despite a strong performance in Q1 2026, where operating income reached €715 million, exceeding guidance due to lower social charges and strong gross margin, the company's Q2 forecast disappointed investors. Q1 revenue was €4.53 billion, an 8% year-over-year increase, with a gross margin of 33.0%. The company ended Q1 with 761 million monthly active users (MAUs) and 293 million premium subscribers.
For Q2 2026, Spotify projects total MAUs to reach 778 million and premium subscribers to hit 299 million. The subscriber forecast is also below analysts' expectations of approximately 302 million. Revenue is expected to be €4.8 billion, with a gross margin of 33.1%. The company noted that social charges, which are payroll taxes tied to share-based compensation, came in €49 million below forecast in Q1, favorably impacting operating income.
Growth in established markets like Europe and North America has been lagging, prompting the company to increase investments in other regions and new features. This increased expenditure, combined with a slowdown in key markets, has negatively impacted the short-term profit outlook, leading to investor concerns about the pace of return on these investments.
At the end of Q1 2026, Spotify held €8.8 billion in cash and equivalents. The company repurchased €306 million ($361 million) in shares and retired €1.3 billion ($1.5 billion) in exchangeable notes during the quarter, indicating a strong balance sheet despite the challenges in profit outlook.
