Spotify's MAU Growth Is Set to Slow, but Co-CEO Says Free-Tier Changes Will Drive More Revenue and Paid Subscribers

Spotify Technology S.A. (NYSE: SPOT ) expects monthly active user growth to slow in the third quarter as it adjusts its free-tier strategy in emerging markets, prioritizing long-term monetization and subscriber conversion over rapid user expansion.

Spotify Shifts Focus From Growth to Monetization During Spotify’s second-quarter earnings call, Co-CEO Alex Norström said the company has outperformed its MAU growth expectations for several years, with emerging markets contributing significantly over the past four or five quarters.

Countries including India and Indonesia have helped expand Spotify’s user base because of their large populations, Norström said.

However, Spotify is now modifying its product strategy in those markets as it works to build a more profitable business. "We’ve had a few years of outperformance in MAU," Norström said, adding that Spotify is "really in a good place" after reaching 300 million subscribers.

Norström said Spotify has adjusted its sign-up process to improve the quality of users entering the platform and discontinued support for some lower-end Android devices.

The company has also introduced additional friction in the free-tier experience, including advertising changes and limits on free usage.

Read Also: Spotify Bets On Remix Economy, Audiobooks And Ads Fuel Growth Spotify Bets on Higher-Value Users Norström said the company is shifting its focus from maximizing user growth to generating more revenue from its existing and future audience. "Sometimes we pull the growth lever and sometimes we pull the monetization lever," he said. "Here we’re starting to pull the monetization lever." The strategy could weigh on MAU growth in the near term, but Spotify believes the changes will create a stronger foundation for advertising revenue and premium subscription conversions.

Spotify expects emerging markets to follow a trajectory similar to Latin America, where the company initially saw rapid user growth and low conversion rates before gradually building a larger paying subscriber base.

Norström said the company’s planning is deliberate and highlighted that the changes are not expected to affect subscriber growth in the near term.

Spotify Q2 Earnings Miss Estimates Spotify reported second-quarter earnings of $3.03 per share, falling short of the analyst consensus estimate of $3.29.

Revenue rose 14% from a year earlier to $5.554 billion, or 4.78 billion euros, missing Wall Street’s forecast of $5.600 billion.

The company continued to expand its user base, with monthly active users climbing 12% year over year to 777 million.

Spotify added 16 million net MAUs during the quarter, slightly below its guidance of 17 million.

Premium subscribers grew 9% year over year to 300 million, driven by 7 million net additions.

Average revenue per Premium user increased 7% to 4.89 euros, while revenue from the ad-supported segment rose 1%.

Price Action: Spotify closed at $478.17 on Tuesday, down 1.68%, while shares rose 0.38% to $480 in premarket trading Wednesday, according to Pro.

Edge Rankings place Spotify in the 98th percentile for Growth.

While the stock faces bearish pressure over the short and long term, its medium-term price trend remains positive.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published editors.

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