Spotify Technology (SPOT Quick QuoteSPOT - Free Report) shares climbed 11% on Thursday after the music-streaming giant reported third-quarter results, highlighted by steady subscriber growth, record gross margins and an increasing focus on artificial intelligence (AI).

Revenue Growth and Record Gross Margin

Spotify reported revenue of nearly €5 billion (about $5.6 billion), broadly in line with market expectations. Premium subscription revenue grew 17% year over year, while ad-supported revenue increased 10%.

Spotify came out with quarterly earnings of $2.85 per share, missing the Zacks Consensus Estimate of $3.1 per share while it fell from the year-ago level of $3.83 per share. Spotify posted revenues of $5.72 billion in September 2026, surpassing the Zacks Consensus Estimate of $5.70 billion.

However, gross margin reached a record 33%, slightly exceeding Wall Street's estimate of 32.9%. The stock surged 11% during Thursday's trading session. SPOT is now up by only 1.5% for the year 2026.

Subscriber Growth Remains Strong

Spotify continued to expand its user base, with monthly active users rising 11% year over year to 788 million. The company expects monthly active users to reach 818 million in the fourth quarter, while revenue is projected to grow about 15%.

AI Becomes a Bigger Part of Spotify's Strategy

Artificial intelligence (AI) is increasingly shaping Spotify's efforts to improve user engagement and personalization. During the quarter, the company introduced a taste profile feature for U.S. premium subscribers, offering insights into their musical preferences. It also integrated its service with Meta's Muse (read: Should You Tap Meta ETFs on Muse's Success or Wait on the Sidelines?).

However, investors questioned whether AI assistants could weaken Spotify's direct relationship with customers by comparing prices, services and usage across platforms.

Spotify co-CEO Gustav Söderström dismissed these concerns, drawing a parallel with Spotify's existing integrations with Google Maps and Waze. He noted that users have accessed Spotify through these services during their commutes for years without undermining its business model, as mentioned on Yahoo Finance.

Upbeat Outlook

Spotify guided for €820 million of fourth-quarter operating income. The company’s fourth-quarter guidance is expected to be 33.8%, up from 33.1% a year earlier.

For the fourth quarter, Spotify expects 316 million subscribers and €5.2 billion of revenue. The revenue figure is a bit below the €5.24 billion analysts expected, according to Bloomberg's consensus, but the subscriber target is above it, per Tikr, as reported by Yahoo Finance.

Management also expects operating-expense growth to moderate, with that moderation continuing into 2027.

Spotify’s Premium Valuation

Shares are trading at a forward price-to-earnings (P/E) ratio of 38.45X, compared with 20.59X for the underlying Internet – Software industry. Its price-to-book and price-to-sales ratios are also elevated at 11.09X and 5.12X, respectively, compared with industry averages of 3.36X and 3.10X.

Price Target

Before the earnings release, Spotify's average price target stood at $603.66, based on short-term forecasts from 32 analysts. The targets ranged from $420 to $720. Spotify shares closed at $583.66 on Oct. 22, 2026.

ETFs in Focus

Spotify delivered mixed Q3 results, with strong subscriber growth and solid gross margins offset by an earnings miss. However, its AI-driven personalization strategy and improving profitability outlook could support future growth, making ETFs with SPOT exposure worth watching for investors seeking an entry point through a basket approach.

Spotify-heavy ETFs include the iShares MSCI Sweden ETF (EWD Quick QuoteEWD - Free Report) , First Trust Dow Jones International Internet ETF (FDNI Quick QuoteFDNI - Free Report) and Global X Social Media ETF (SOCL Quick QuoteSOCL - Free Report) .