(Reuters) – Audio streaming giant Spotify (SPOT) on Tuesday forecast fourth-quarter earnings above Wall Street estimates, betting on cost cuts and strong subscriber growth in the crucial holiday season, making its shares rose 7.7% after the bell.
The Swedish company laid off employees, retired podcasts and reduced its marketing spending over the past year to boost profitability. It has also raised the prices of its plans in the US to capitalize on demand for its premium products.
Spotify expects operating income of 481 million euros ($509.76 million) in the fourth quarter, compared to the average analyst estimate compiled by LSEG of 445.7 million euros.
Its monthly active users (MAU) forecast of 665 million was also above estimates of 661 million, according to Visible Alpha. Spotify expects to add around 8 million premium subscribers in the quarter, which would bring the total to 260 million.
The company offers a free ad-supported service with limited features and a paid subscription-based service that provides access to all of its premium features.
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 US.
That helped a 12% increase in premium subscribers to 252 million, compared to Visible Alpha’s estimates of 251 million. MAUs increased 11% to 640 million and were also slightly above expectations.
But overall revenue rose a less-than-expected 19% to €3.99 billion in the third quarter, missing estimates of €4.02 billion, driven by weakness in the digital advertising market.
That and a strong dollar are expected to hit its fourth-quarter revenue of 4.1 billion euros, which missed estimates of 4.26 billion euros.
In the third quarter, gross profit increased 40% to €1.24 billion, compared to estimates of €1.22 billion. Gross profit margin increased to 31.1% from 29.2% in the previous quarter.
(1 dollar = 0.9436 euros)
(Reporting by Jaspreet Singh in Bengaluru; Editing by Arun Koyyur)