Spotify Posts Huge EPS Beat: Shares Are Still Down Big From Highs
Spotify Technology (NYSE: SPOT) has long dominated music streaming, cementing its status as a top growth stock in digital entertainment.
After tanking by 66% in 2022, shares have risen by nearly 700% through the Nov. 4 close.
While still 19% off its all-time high from June, recent developments—including a CEO transition and an earnings beat—could reshape the company’s trajectory.
The firm recently announced that its long-term Chief Executive Officer (CEO), Daniel Ek, is stepping down.
Below, we’ll dive into this development—as well as the latest earnings results—at Spotify and decipher what they mean for investors going forward.
Spotify’s Leadership Shakeup: From Visionary Founder to Collaborative Approach
On Jan. 1, 2026, Gustav Söderström and Alex Norström will become co-CEOs of Spotify, replacing Daniel Ek, who founded Spotify and has been its leader since 2006.
It will be difficult to fill the shoes of Ek, who revolutionized the music industry through Spotify. Apple (NASDAQ: AAPL), which has the second-largest share of the U.S. music streaming market, didn’t roll out its Apple Music platform until 2015. By that time, Spotify already had more than 70 million users. This shows how Ek was a pioneering figure in music, putting Spotify well ahead of the streaming curve.
Fortunately, Ek’s departure isn’t performance-related, and with him remaining on the board as executive chairman, Spotify is positioned to navigate the transition with limited disruption. Both Söderström and Norström have been with Spotify for over 15 years, which gives them a deep understanding of the company.
It is difficult to know how the CEO change will impact Spotify. Investors reacted with caution, with shares taking a 4.2% hit on the day the firm released this news. Looking ahead, Spotify’s leadership change is something to watch, but it should not strike fear in investors.
Spotify Posts Huge EPS Beat, But Profitability Caveats and Guidance Weigh on Shares
Spotify posted strong numbers across the board with its Q3 2025 results. Revenue came in at 4.53 billion euros (approx. $5.02 billion), an increase of 7%. This moderately beat estimates of €4.23 billion (approx. $4.86 billion).
Despite this relatively small sales beat, Spotify’s diluted earnings per share (EPS) beat by a huge margin. Diluted EPS was €3.34 (approx. $3.83), a significant beat of $1.96. This greatly surpassed expectations of €1.96 (approx. $2.25), or a diluted EPS beat of $1.58. This was due to the company seeing gross and operating margin expansion. Gross margin moved up 53 basis points to 31.6%, 50 basis points ahead of the company’s guidance. Operating margin improved by a whopping 220 basis points to 13.6%.
However, there are some important caveats to these numbers. The company said that its gross margin outperformance was primarily due to changes in estimates to “rights holder liabilities." This is a one-time accounting adjustment and not particularly indicative of improved performance. Additionally, around 40% of the company’s operating margin increase came due to lower-than-expected “social charges." These are essentially taxes that the company pays based on its stock price. As shares declined during the quarter, these charges decreased, thereby boosting the operating margin. Overall, Spotify’s profitability was impressive, but not as impressive as the numbers would suggest.
These items inflated the EPS beat and muted enthusiasm. Despite beating on users by 3 million, the company’s Q4 guidance of €4.5 billion ($5.17 billion) came in lighter than expected. As a result, shares fell 3.4% following the earnings release.
SPOT’s Ad-Supported Opportunity Remains Compelling
Despite its dominance, Spotify’s ad-supported tier remains under-leveraged. Although 63% of its total user base is on the ad-supported tier, it accounted for only 10% of total revenue in Q3.
Getting more out of ad-supported users would be huge for the company.
To address this, management is revamping Spotify's ad-supported monetization strategy and believes that this part of the business will reach a healthy growth rate in the second half of 2026.
With shares down significantly from highs and considerable opportunities ahead, Spotify’s outlook remains positive.
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