# Spotify Technology S.A. (SPOT): Business, Risks and Management's Discussion Spotify reports in euros. Every money amount below is converted to US dollars from euros: flows at the average rate for the period they cover, balances at the closing rate on their date, and the fourth-quarter 2026 guidance at the 0.8828 euros-per-dollar rate the company itself cites. Where the company states a US dollar figure itself (share repurchases, the exchangeable notes), that figure is used as printed. Growth rates are given in US dollar terms alongside the euro rates the company reports, because currency movements open a wide gap between the two in some periods. User counts and margins are as reported. ## Business *Source: Annual Report on Form 20-F for the fiscal year ended December 31, 2025, accession 0001628280-26-006874, updated with the interim report on Form 6-K for the quarter ended September 30, 2026, accession 0001628280-26-066889.* Spotify runs the world's largest audio streaming subscription service. It sells monthly subscriptions to music, podcasts and audiobooks to consumers in 184 countries and territories, and gives a free, advertising-funded tier to everyone else. Subscriptions bring in about nine-tenths of revenue: Premium made up 89% of 2025 revenue and 90% of third-quarter 2026 revenue, with advertising making up the rest. At September 30, 2026 the platform had 788 million monthly active users (MAUs), of whom 306 million were paying Premium Subscribers and 499 million used the free Ad-Supported tier. The catalog holds more than 100 million music tracks and 7 million podcast titles. In selected markets Premium also includes a monthly allowance of audiobook listening. The company reports two segments: - **Premium.** Subscription fees, mostly sold directly to consumers and partly through telecom partners that bundle the service. Plans include Individual, Family (up to six accounts), Duo, Student and a cheaper Basic plan, and prices are set market by market. Revenue depends on subscriber numbers and average revenue per user (ARPU); 2025 Premium ARPU was €4.63 a month ($5.23). Most new subscribers come from converting free users, often through discounted or free trials, which the company runs in the second, third and fourth quarters. - **Ad-Supported.** Display, audio and video advertising sold mainly per thousand impressions (CPM), both directly to agencies and advertisers and increasingly through automated channels: the Spotify Ad Exchange (announced April 2025), a self-serve platform and the Spotify Audience Network for podcasts. The free tier is also the main way the company acquires subscribers. Since January 1, 2026 some revenue-generating activities that used to be reported in Ad-Supported have been reported in Premium, and prior periods have been restated to match. **Cost structure.** Cost of revenue is mostly royalties paid to record labels, music publishers, audiobook publishers and other rights holders. Subscription music royalties are generally the greater of a percentage of revenue and a per-user amount, with lower per-user amounts for Family, Duo and Student plans. Rates can depend on targets such as subscriber counts, the ratio of free users to subscribers and churn. Some contracts require minimum guarantees or advance payments, and some include "most favored nation" clauses. Universal Music Group, Sony Music Entertainment, Warner Music Group and Merlin (which represents independent labels) accounted for about 72% of label-delivered audio streams in 2025. Their licenses run for several years, do not renew automatically, and can be terminated in some circumstances, including certain changes of control. The rest of cost of revenue is podcast and video content (including payouts under the Spotify Partner Program, launched January 2025, which pays creators for video podcast engagement), payment processing, and streaming delivery and cloud costs. Spotify runs mainly on Google Cloud Platform, under a minimum-spend agreement. **Geography and engagement.** At the end of 2025, Europe accounted for 26% of MAUs, North America 16%, Latin America 21% and the rest of the world 37%. Latin America and the rest of the world are growing fastest but are harder to monetize through advertising. The United States generated about 37% of third-quarter 2026 revenue; no other individual country accounted for 10% or more. Users streamed 211 billion hours in 2025, 11% more than in 2024. **Competition.** Spotify competes with Apple Music, YouTube Music, Amazon Music and other streamers; with radio, satellite radio (SiriusXM) and podcast platforms; with audiobook sellers such as Audible; and, for advertising budgets, with Alphabet, Meta and Amazon. Apple, Alphabet and Amazon also control app stores and devices that Spotify depends on. **Management and control.** Spotify Technology S.A. is incorporated in Luxembourg and runs its main operations from Stockholm and New York. Since January 1, 2026 it has been led by Co-Chief Executive Officers Alex Norström and Gustav Söderström, with founder Daniel Ek as Executive Chairman. Through their ordinary shares and beneficiary certificates (which carry votes but no economic rights), founders Daniel Ek and Martin Lorentzon controlled 69.3% of the combined voting power at December 31, 2025. The company had 7,284 full-time employees at September 30, 2026. ## Risk factors *Source: Item 3.D of the 2025 Form 20-F (accession 0001628280-26-006874). The first-quarter 2026 interim report (Form 6-K, accession 0001628280-26-027951) withdrew the exchangeable-note risks after the notes were repaid. The third-quarter report (accession 0001628280-26-066889) reports no further material changes.* The risks below are the ones most specific to Spotify's economics. - **Dependence on a few content owners.** Three major label groups and Merlin supply most of the music streamed. Any one of them could withhold content or use its market power, including through affiliated music publishers, to demand tougher terms. Publishers' fractional ownership of songs means losing a single major publisher catalog could force a large share of popular repertoire off the service in a territory. - **Fixed content commitments against cancellable subscriptions.** At December 31, 2025 the company had about €2.7 billion ($3.17 billion) of future commitments under content licenses. These are not always tied to subscriber or revenue growth, and they typically run one to three years, while subscribers can cancel at any time. If subscriber or advertising growth falls short, margins suffer. - **Royalty disputes and estimation.** Royalty calculations are complex and partly estimated, and rights holders can audit them. The Mechanical Licensing Collective (MLC) is suing Spotify USA Inc. over how royalties are calculated on Premium, which Spotify treats as a bundle including audiobook access. The original suit was dismissed with prejudice in January 2025 and the MLC filed an amended complaint in October 2025. If the MLC ultimately won its claim that Premium is not a bundle, the company estimates the liability for March 1, 2024 to September 30, 2026 at about €538 million ($609.42 million), plus penalties and interest, partly offset by direct deals with publishers. The estimate was €358 million ($420.15 million) through December 31, 2025. - **Platform gatekeepers.** Apple, Alphabet and Amazon control app stores and devices, charge in-app fees their own services may not pay, and preload their own audio services. In March 2024 the European Commission fined Apple €1.84 billion ($2 billion) after a complaint Spotify filed in 2019. Apple is appealing, and Spotify says it cannot be sure Apple will comply in ways that help its business, or that Apple will not introduce new fees on links to Spotify's website offers. - **Advertising execution.** Ad-Supported revenue fell 1% in euros in 2025. Growth depends on measurement standards, automated buying, third-party ad-tech platforms and access to user data, all of which privacy rules and operating-system policies have limited. - **New formats and AI.** Podcasts, audiobooks and video require content spending that may not pay back. AI is both a product tool (AI DJ, AI Playlist) and a competitive threat from larger rivals, and it brings regulatory exposure under rules such as the EU AI Act. Under the EU Digital Services Act, fines can reach 6% of worldwide turnover, and GDPR penalties can reach 4%. - **Security, misuse and metric integrity.** The company has had cyberattacks before. In December 2025 it found outside parties unlawfully scraping content and metadata from the platform. Artificial stream manipulation, botnets and unauthorized ad-blocking apps can distort royalties and key metrics, and cleaning them up can reduce reported MAUs. MAUs and ARPU are calculated internally and are not independently verified. - **Currency.** Results are reported in euros, but revenue is earned mostly in local currencies (chiefly the US dollar, Swedish krona, Australian dollar and British pound) and royalties are paid mainly in dollars and euros. In 2025, currency movements cut reported Premium revenue by about €502 million ($567.57 million). - **Share-price-driven costs.** Swedish and other payroll "social costs" on employee equity rise and fall with the share price. They were €125 million ($141.33 million) in 2025, against €291 million ($314.86 million) in 2024. In Sweden, where about 17% of employees work, the company pays a 31.42% tax on employees' option and RSU gains. - **Tax.** The company faces transfer-pricing audits in several countries, digital services taxes, the OECD Pillar Two minimum tax (in force in Sweden and Luxembourg from 2024) and the 2025 US tax law changes. Net operating loss carry-forwards may be limited after an ownership change. - **Governance.** The founders' voting control, the beneficiary-certificate structure, Luxembourg law and foreign-private-issuer exemptions limit minority shareholders' influence and the information available to them. The company has never paid a dividend and does not expect to pay one. ## Management's discussion: fiscal year 2025 *Source: Item 5 of the 2025 Form 20-F, accession 0001628280-26-006874.* In 2025 profit grew much faster than revenue. Revenue rose 10% in euros to €17,186 million ($19.43 billion, up 14.6% in US dollar terms), and operating income rose 61% in euros to €2,198 million ($2.49 billion, up 68.3% in dollars) as gross margin widened and operating expenses fell. - **Premium revenue** was $17.36 billion, up 11% in euros. Subscriber growth drove it: Premium Subscribers rose 10% to 290 million and MAUs rose 11% to 751 million. Premium ARPU slipped 1% in euros to €4.63 ($5.23), because currency movements and product and market mix more than offset price increases. Without currency movements, Premium revenue would have been about €502 million ($567.57 million) higher. - **Ad-Supported revenue** was $2.08 billion, down 1% in euros but up 3.5% in dollar terms. Direct music and podcast advertising fell on lower fixed CPM rates and fewer music impressions sold. Automated, mostly auction-based channels grew but did not fully make up the gap. - **Gross margin** reached 32%, up from 30%. Premium gross margin rose to 34% from 33% as revenue outpaced music royalties (net of marketplace programs) and audiobook costs, partly offset by the new Spotify Partner Program. Ad-Supported gross margin rose to 18% from 12%, mainly because podcast costs fell by €83 million ($93.84 million) as the company optimized podcast inventory and moved video podcast costs for subscribers to Premium. - **Operating expenses** fell 2% in euros. Research and development fell 6%, mainly from a €108 million ($122.11 million) drop in share-price-driven social costs. Sales and marketing rose 2% as campaign spending increased, and general and administrative expense was flat. - **Net income** nearly doubled to €2,212 million ($2.50 billion). Income tax was only €12 million ($13.57 million), against €203 million ($219.65 million) in 2024, because the company recognized additional deferred tax assets (a benefit of about €159 million, or $179.77 million) and faster US deductions for research costs reduced its current tax. - **Cash.** Operating cash flow was $3.32 billion and free cash flow (operating cash flow less capital expenditure and the change in restricted cash, a non-IFRS measure) was €2,874 million ($3.25 billion), up 25.8% in euros. Cash and short-term investments reached €9,467 million ($11.11 billion) at year end. The company repurchased 768,223 shares for $510 million in 2025, under a program the board enlarged by $1.0 billion in July 2025. Its debt apart from leases consisted primarily of $1.5 billion of 0% exchangeable notes due March 15, 2026. Management attributes quarter-to-quarter patterns to trial campaigns, which boost subscriber additions, and to advertising seasonality: advertising is strongest in the fourth quarter and weakest in the first. ## Current quarter: three months ended September 30, 2026 *Source: interim report on Form 6-K filed October 22, 2026, accession 0001628280-26-066889 (interim financial statements, notes and management's discussion), and the Q3 2026 Update furnished the same day, accession 0001140361-26-040435.* The third quarter combined faster revenue growth with lower net income. Revenue rose 16% in euros (14.5% in US dollar terms, 14% at constant currency) and operating income rose 15% in euros. Net income fell to €518 million ($596.00 million) from €899 million ($1.05 billion), because the prior-year quarter had two one-off benefits that did not recur. **What drove revenue.** - Premium revenue rose 17% in euros to $5.16 billion, on 9% subscriber growth and higher ARPU. ARPU rose 9% in euros to €4.95 ($5.70). Price increases added about $0.55 and currency $0.09, partly offset by a $0.16 drag from product and market mix. Currency movements added about €74 million ($85.14 million) to Premium revenue. - Ad-Supported revenue rose 10% in euros to $554.58 million, well ahead of the 2% growth for the nine months as a whole. Auction-based selling of music impressions added €91 million ($104.70 million) in automated channels, while the direct channel lost €53 million ($60.98 million) on fewer music impressions sold there. The company noted softer music ad pricing, and sponsorship gains in its owned and licensed podcasts. **Margins.** Gross margin was 33.0%, against 31.6% a year earlier. Premium cost of revenue fell to 65% of Premium revenue from 67%, as revenue outgrew music royalties (net of marketplace programs), audiobook licensing and Spotify Partner Program costs. Content costs still rose by €353 million ($406.15 million). Ad-Supported gross margin rose to 19% from 18% on a better podcast cost structure, although a prior-year benefit from revised royalty estimates did not recur. **Operating expenses** rose 26% in euros to €967 million ($1.11 billion). Excluding currency and social charges, the increase was 19%. The company describes the drivers as temporarily elevated marketing and cloud and AI spending. - Research and development was up 35%. Information technology costs, mainly cloud and AI, rose by €58 million ($66.73 million), and share-price-driven social costs rose by €21 million ($24.16 million). - Sales and marketing was up 16%, with campaigns up €36 million ($41.42 million) and free-trial costs up €12 million ($13.81 million). - General and administrative expense was up 30%. Since January 1, 2026, all Co-CEO personnel costs have been recorded there, which added share-based compensation, and legal fees rose by €9 million ($10.36 million). **Below operating income.** Finance income fell to €62 million ($71.34 million) from €262 million ($306.16 million). The prior-year quarter included a €197 million ($230.20 million) fair-value gain on the exchangeable notes, which have now been repaid. Income tax was an expense of €187 million ($215.16 million), a 26.5% effective rate, against a €72 million ($84.14 million) benefit a year earlier. The prior-year quarter had a €202 million ($236.05 million) benefit from accelerating US research-cost deductions, and this quarter added €24 million ($27.61 million) to provisions for uncertain tax positions. Those provisions stood at €128 million ($144.99 million) at September 30, 2026, up from €62 million ($72.76 million) at the start of the year. **Cash and capital.** - Quarterly operating cash flow and free cash flow fell from a year earlier despite higher operating income, because working capital moved unfavorably and income tax payments rose. Capital expenditure was €6 million ($6.90 million). - Over nine months, free cash flow was €2,356 million ($2.74 billion), up 15.5% in euros (19.8% in dollar terms). The company repaid the exchangeable notes at maturity on March 15, 2026 for €1,304 million ($1.499 billion), and now has no debt other than lease liabilities. - Spotify repurchased 700,318 shares in the quarter for €318 million ($367 million), and 2,049,534 shares for $1.005 billion over the nine months. On August 20, 2026 the board added $1.5 billion to the repurchase program. About $1.88 billion of authorization remained at September 30. **Balance sheet changes.** - The roughly 9% stake in Tencent Music Entertainment, carried at fair value through other comprehensive income, fell from €2,111 million ($2.48 billion) at December 31, 2025 to €990 million ($1.12 billion) at September 30, 2026. The decline did not pass through net income. - In the quarter the company sold part of its stake in DistroKid (Dream HoldCo LLC), the independent music distributor, for €60 million ($69.03 million) in cash. The gain was taken through other comprehensive income and moved to retained earnings. - A new €120 million ($135.93 million) non-current asset for advances to rights holders appeared. - Content minimum guarantees, mostly minimum royalty payments, fell to €1,740 million ($1.97 billion) from €2,613 million ($3.07 billion) at year end. Other purchase and service commitments, including Google Cloud and content and marketing, rose to €1,996 million ($2.26 billion). **Legal and tax matters.** In the MLC case, the district court denied the MLC's request to appeal immediately the earlier ruling that Premium is a bundle. Separately, the company is contesting €43 million ($48.71 million) of non-income tax assessments for the fourth quarter of 2019 through 2020 and has not booked a provision for them. **Products.** During the quarter Spotify introduced or expanded Taste Profile, Playlist Notes and Managed Accounts (for listeners 13 and under) for subscribers in selected markets. The Q3 update also reports an integration with the Muse AI agent and the launch of Creator Memberships, paid fan memberships for podcast creators, in 34 markets. **Changes ahead.** IFRS 18 takes effect on January 1, 2027. It will move certain foreign-exchange differences into operating income and reclassify interest paid and received in the cash flow statement, but will not change revenue or net income. **Outlook.** For the fourth quarter of 2026 the company guided to 818 million MAUs, 316 million Premium Subscribers, revenue of €5.2 billion ($5.89 billion), a 33.8% gross margin and operating income of €820 million ($928.86 million). The guidance assumes a currency tailwind to revenue growth of about 230 basis points. ## Subsequent events *Source: Form 6-K accession 0001628280-26-066889 (Note 13 and management's discussion), Q3 2026 Update accession 0001140361-26-040435, and Note 27 of the 2025 Form 20-F accession 0001628280-26-006874.* The interim financial statements contain no separate note on events after the reporting period. The post-quarter developments they and the Q3 update disclose are: - **Share repurchases.** From October 1 through the close of business on October 21, 2026, the company bought back another 181,622 shares for €80 million ($89 million) under its existing program. - **Audiobooks go global (announced October 7, 2026).** Audiobook access will expand from 22 markets to more than 180 by the end of 2026, offering more than 350,000 titles in over 120 languages. - **Spotify Partner Program expansion (October 20, 2026).** The creator payout program extended to more than 35 new markets, including Italy, Spain, Brazil, Mexico, Poland and Colombia. The interim report and the Q3 update disclose no acquisitions, divestitures, new borrowings or litigation outcomes after September 30, 2026. For the annual period, Note 27 of the 2025 Form 20-F reports that after December 31, 2025 the company signed several content license agreements with minimum guarantee and spend commitments of about €202 million ($237.07 million) over the following three years.