(Reuters) – Audio streaming giant Spotify (SPOT) on Tuesday forecast fourth-quarter profit above Wall Street estimates, betting on cost cuts and strong subscriber growth during the crucial holiday season, sending its shares up 7 after the bell rose .7%.
The Swedish company has laid off employees, pulled podcasts and cut marketing spend over the past year to boost profitability. It has also increased the prices of its plans in the US to capitalize on demand for its premium products.
Spotify expects operating profit of 481 million euros ($509.76 million) in the fourth quarter, compared with the LSEG composite average analyst estimate of 445.7 million euros.
The 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 this quarter, which would bring the total to 260 million.
The company offers an ad-supported free service with limited features and a subscription-based paid service that gives access to all its premium features.
It has added more premium features to attract users and in September expanded a tool that creates playlists using generative AI to four new markets, including the US.
That boosted the number of premium subscribers by 12% to 252 million, compared to Visible Alpha estimates of 251 million. MAUs rose 11% to 640 million and were also slightly above expectations.
But total revenue in the third quarter rose 19% less than expected to 3.99 billion euros, missing estimates of 4.02 billion euros, due to weakness in the digital advertising market.
That and a strong dollar are expected to weigh on fourth-quarter revenue of 4.1 billion euros, which fell below estimates of 4.26 billion euros.
In the third quarter, gross profit rose 40% to 1.24 billion euros, compared to estimates of 1.22 billion euros. The gross profit margin increased to 31.1% from 29.2% in the previous quarter.
($1 = 0.9436 euros)
(Reporting by Jaspreet Singh in Bengaluru; Editing by Arun Koyyur)
