Spotify Technology S.A. (SPOT Quick QuoteSPOT - Free Report) reported mixed third-quarter 2026 results, with adjusted earnings missing the Zacks Consensus Estimate while revenues beat expectations.

Despite the earnings miss, the stock has gained 5.7% since the earnings release on Oct. 22.

Adjusted earnings of $2.85 per share missed the Zacks Consensus Estimate of $3.10 by 8.1%. Higher marketing, cloud infrastructure and artificial intelligence spending weighed on profitability.

Revenues rose 16% year over year in euros and 14% at constant currency to $5.72 billion. The figure surpassed the consensus estimate of $5.70 billion by 0.35%. Premium subscribers reached 306 million, exceeding management's guidance by 1 million, while advertising growth accelerated.

SPOT's User Growth Remains Strong

Monthly active users, or MAUs, increased 11% year over year and 1% sequentially to 788 million. Spotify added 11 million MAUs during the quarter, matching management's guidance. Growth was recorded across all regions, led by sequential gains in Rest of World, Latin America, Europe and North America.

Premium subscribers rose 9% year over year and 2% sequentially. Net additions totaled 6 million, supported by global promotional campaigns and partnerships. Ad-supported MAUs increased 12% year over year to 499 million, reflecting continued audience expansion.

Spotify's Premium Revenues Gain Momentum

Premium revenues increased 17% year over year to €4.49 billion, or 15% at constant currency. Growth was supported by subscriber additions and higher average revenue per user, or ARPU, reflecting benefits from pricing actions.

Premium ARPU increased 9.3% year over year to €4.95, or 7.5% excluding currency movements. Price increases supported monetization, although product and geographic mix partially offset the benefits. Premium gross margin expanded 130 basis points to 34.5%, aided by revenue growth outpacing content costs.

SPOT's Margins Expand Despite Higher Costs

Gross profit increased 21% year over year to €1.64 billion. The gross margin expanded 136 basis points to 33%, exceeding management's guidance of 32.9%. Improvements across Premium and Ad-Supported operations supported the expansion.

Operating expenses increased 26% year over year to €967 million. Excluding currency movements and social charges, expenses rose 19%, primarily reflecting elevated marketing, cloud and AI investments. Operating income increased 15% to €672 million, while the operating margin declined to 13.5% from 13.6%.

Social charges totaled €22 million, exceeding management's forecast by €13 million due to share-price movements. Lower-than-expected marketing and personnel costs, alongside gross margin outperformance, partially offset the impact.

Spotify's Advertising Business Shows Recovery

Ad-supported revenues increased 10% year over year to €482 million, representing 9% growth at constant currency. This marked an improvement from the 3% constant-currency growth recorded in each of the first two quarters of 2026.

Music advertising benefited from higher impressions sold, partially offset by softer pricing. Podcast advertising gained from stronger sponsorship activity across Spotify's owned and licensed content portfolio. Automated sales channels remained the largest contributors to advertising growth.

Management highlighted continued progress in rebuilding its advertising infrastructure. Biddable channels accounted for approximately 40% of advertising revenues, supporting the company's efforts to improve monetization and advertising efficiency.

SPOT's Cash Flow Supports Share Repurchases

The free cash flow declined 9% year over year to €735 million, reflecting unfavorable working-capital movements and cash-tax timing. Trailing 12-month free cash flow totaled €3.2 billion, demonstrating the company's sustained cash-generation capacity.

Spotify ended the quarter with €9.9 billion in cash, restricted cash and short-term investments. From the start of 2026 through Oct. 21, the company repurchased 2.2 million shares for $1.1 billion, fully offsetting dilution from employee equity programs and returning additional excess cash to shareholders.

Spotify Guides for Continued Q4 Growth

For fourth-quarter 2026, Spotify expects 818 million MAUs, implying 30 million sequential additions. Premium subscribers are projected to reach 316 million, representing 10 million net additions.

Revenues are forecast at €5.2 billion, supported by pricing actions and audiobook add-on monetization. Management expects advertising growth to continue progressing toward double-digit levels, while operating expense growth moderates.

Spotify anticipates a gross margin of 33.8% and operating income of €820 million. Management expects continued benefits from AI-driven personalization, audiobook expansion to more than 180 markets and broader podcast monetization initiatives, while maintaining expense discipline into 2027.

SPOT currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Snapshot

Equifax’s (EFX Quick QuoteEFX - Free Report) third-quarter 2026 earnings beat the Zacks Consensus Estimate, while revenues met the same.

EFX’s adjusted earnings were $2.26 per share, up 10.8% year over year. The figure topped the Zacks Consensus Estimate of $2.19 by 3.2%. Revenues increased 9.6% year over year to $1.69 billion, in line with the consensus estimate.

ManpowerGroup (MAN Quick QuoteMAN - Free Report) reported mixed third-quarter 2026 results, with adjusted earnings meeting the Zacks Consensus Estimate and revenues missing expectations.

MAN's adjusted earnings of $1.01 per share were in line with the consensus estimate and increased 22% year over year. Revenues of $4.84 billion lagged the consensus estimate of $4.91 billion by 1.4% but increased 4% year over year (5% in constant currency).