Spotify Technology S.A. (NYSE:SPOT) shares declined Tuesday after the company reported mixed first-quarter 2026 results, with revenue missing expectations even as earnings and user growth topped forecasts.

Earnings Beat, Revenue Misses

Spotify reported quarterly earnings of $4.04 per share, beating the analyst consensus estimate of $3.72 per share. Revenue rose 8% year over year to $5.308 billion (4.53 billion euros) but fell short of the $5.36 billion Street estimate.

A Reuters report said the shortfall was driven by slowing growth in key markets, including Europe and North America.

Spotify User Growth Remains Strong

The company posted solid user gains during the quarter. Monthly active users increased 12% year over year to 761 million, with net additions of 10 million, exceeding guidance of 8 million.

Premium subscribers grew 9% to 293 million, with net additions of 3 million. However, average revenue per user for Premium remained flat at 4.76 euros, while ad-supported revenue declined 5%.

In January, Spotify raised the price of its Premium subscription in the U.S., Estonia, and Latvia to $12.99 per month from $11.99, effective in February billing cycles.

Margins Mixed as Ad Segment Weakens

Gross margin expanded 133 basis points to 33.0%, exceeding company guidance. Premium gross margin rose 129 basis points to 34.8%, supported by revenue growth.

However, ad-supported gross margin declined 102 basis points to 13.0%, pressured by higher music costs and other expenses tied to increased engagement.

Operating income climbed 40% year over year to 715 million euros, translating to an operating margin of 15.8%.

Spotify ended the quarter with 8.8 billion euros in cash, cash equivalents, and short-term investments, and generated 824 million euros in free cash flow. The company reported 7,258 full-time employees.

Spotify Q2 Outlook

For the second quarter of 2026, Spotify expects revenue of 4.80 billion euros, or about $5.545 billion, below the consensus estimate of $5.650 billion.

The company projects Premium subscribers to reach 299 million, implying roughly 6 million net additions, while monthly active users are expected to grow to 778 million, representing about 17 million net new users.

Spotify expects second-quarter gross margin of about 33.1%, driven primarily by strength in its Premium segment.

Operating income is projected at approximately 630 million euros, including around 10 million euros in social charges tied to share price assumptions at the end of the first quarter.

Spotify Price Action

SPOT Price Action: Spotify Technology shares were down 11.82% at $437.20 during premarket trading on Tuesday, according to Benzinga Pro data.

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