By Jaspreet Singh
(Reuters) -Audio-streaming giant Spotify (NYSE:SPOT) forecast fourth-quarter profit above Wall Street estimates on Tuesday, betting on cost cuts and strong subscriber growth in the crucial holiday season.
Its shares that have more than doubled in value this year rose 7% in extended trading.
The Swedish company has laid off employees, pulled back podcasts and cut its marketing spend over the past year to boost profitability. It has also raised prices of its plans in the U.S. to capitalize on demand for its premium products.
Spotify expects operating income of 481 million euros ($509.76 million) in the fourth quarter, compared with the LSEG-compiled average analysts’ estimate of 445.7 million euros.
The company forecast for monthly active users (MAUs) of 665 million was also above estimates of 661 million, according to Visible Alpha. Spotify expects to add about 8 million premium subscribers in the quarter, which would take the total to 260 million.
“The company is on track for its full-year profitability, which is a very important milestone that investors have been waiting on for us for a long time,” CEO Daniel Ek told Reuters.
Spotify offers an ad-supported free service with limited features and a subscription-based paid service that gives access to all its premium functions.
It has been adding more premium features to attract users and in September expanded a tool that creates playlists using generative AI to four new markets, including the U.S.
That helped a 12% rise in premium subscribers to 252 million, compared with Visible Alpha estimates of 251 million. MAUs rose 11% to 640 million and were also slightly above expectations.
But overall revenue rose a less-than-expected 19% to 3.99 billion euros in the third quarter, missing estimates of 4.02 billion euros, driven by weakness in digital advertising market.
That and a strong dollar are expected to weigh on its fourth-quarter revenue of 4.1 billion euros, which fell short of estimates of 4.26 billion euros.
“We have been seeing pressure across the ad industry, where the industry is going from more of a brand spend to more of an automation and direct spend. This is an area we’re investing in quite heavily,” Ek said.
In the third quarter, gross profit jumped 40% to 1.24 billion euros, compared with estimates of 1.22 billion euros. Gross profit margin increased to 31.1% from 29.2% in prior quarter.
($1 = 0.9436 euros)