Spotify (SPOT) Q3 2025: Video Podcast Users Jump 54% as Multi-Format Flywheel Accelerates
Spotify’s Q3 revealed a business compounding user growth and engagement across music, podcasts, video, and audiobooks, with video podcast consumption up 54% year-over-year. Leadership is doubling down on product velocity and multi-format expansion, setting the stage for margin improvement and new monetization levers. As Spotify enters a major leadership transition, execution focus and content innovation remain central to the long-term strategy.
Summary
- Multi-Format Engagement Surge: Video podcast usage and audiobook listening both posted double-digit growth, reinforcing the multi-vertical content strategy.
- Product Velocity Drives Funnel Strength: Over 30 new features shipped, boosting free tier engagement and setting up future premium conversion.
- Leadership Transition Signals Continuity: Incoming co-CEOs inherit a platform with accelerating user fundamentals and a clear path to margin expansion.
Performance Analysis
Spotify’s Q3 2025 results highlight robust execution on user and product expansion: Monthly active users (MAUs) exceeded 700 million, with net subscriber additions in line with guidance. Premium revenue growth outpaced the broader business, driven by subscriber gains and price increases in over 150 markets. The advertising segment remained flat year-over-year on a currency-neutral basis, but underlying programmatic ad sales showed healthy momentum as traditional direct sales lagged. Gross margin expanded 50 basis points year-over-year, aided by favorable rights holder liability adjustments and disciplined content cost management.
Operational leverage was evident in the outperformance of operating income, which beat forecast by a wide margin due to lower-than-expected marketing and personnel costs. Free cash flow reached $806 million, and the company continued share repurchases, offsetting dilution from equity programs. Notably, the enhanced free tier rollout and price increases led to steady retention and improved funnel metrics, supporting management’s confidence in sustainable premium conversion ahead.
- Content Vertical Diversification: Music, podcasts, and audiobooks all contributed to engagement gains, with video podcasts and audiobooks showing especially strong growth.
- Advertising Transformation Underway: Programmatic channels grew, but the shift is still in progress with direct sales weighing on near-term ad revenue growth.
- Margin Expansion Supported by Cost Discipline: Rights holder liability adjustments and content cost favorability drove gross margin improvement.
Spotify’s business model scale enables compounding effects: User engagement improvements directly fuel retention, conversion, and long-term monetization, creating a self-reinforcing growth flywheel.
Executive Commentary
"Our multi-format strategy is working exactly as we hoped. And with that foundation in mind, let me talk about how we think about building the business. We don't optimize for quarterly results. We optimize for lifetime value because at our scale, very few metrics shift quickly."
Daniel Ek, Chief Executive Officer
"We ended the quarter with $9.1 billion in cash and short-term investments, and we repurchased $77 million in shares in quarter three. Our focus is to opportunistically buy back shares, primarily to offset the dilution arising from our employee equity programs."
Christian Luiga, Chief Financial Officer
Strategic Positioning
1. Multi-Format Content Ecosystem
Spotify’s multi-vertical approach—spanning music, podcasts, video, and audiobooks—has become a core differentiator. The company is leveraging direct licensing deals for broader video rights and launching features like enhanced free tier, lossless audio, and in-app messaging. These investments expand the addressable audience and deepen engagement, with video podcast consumption up 54% year-over-year and audiobook listening hours rising 36%.
2. Product Innovation and Velocity
Over 30 new core features shipped this quarter, more than all of 2024, including first-to-market enhancements in free and premium tiers. AI-powered development, such as the Apple TV app built via iOS-to-tvOS translation, has accelerated shipping and enabled Spotify to quickly adapt to new user behaviors and hardware form factors. The focus on personalization, interactivity, and ubiquity is resonating globally, outpacing planned user growth and reinforcing the conversion funnel.
3. Advertising Business Transformation
Spotify’s advertising business is in the midst of a structural shift from direct to programmatic sales, with new demand-side platform (DSP) partnerships (Amazon, Yahoo) and expanded auction-based inventory. While near-term ad growth remains muted, management is confident that the inflection point—where programmatic gains offset direct sales declines—will be reached in the second half of 2026. The move of podcast costs from ad-supported to premium temporarily boosts ad margins but will normalize in 2026.
4. Monetization and Pricing Power
Recent price increases in over 150 markets, including differentiated strategies by market maturity and value-to-price (V2P) ratio, have not triggered material churn. Add-on subscriptions such as Audiobooks Plus are driving ARPA (average revenue per account) to record levels. Management sees further upside in bundling and superfan tiers, especially as new rights deals unlock product flexibility.
5. Leadership Transition and Organizational Alignment
With Daniel Ek moving to executive chairman and Alex Nordstrom and Gustav Soderstrom stepping in as co-CEOs, Spotify is emphasizing continuity in ambition and operational focus. The leadership team is united on accelerating innovation, expanding TAM (total addressable market), and executing on the company’s long-term flywheel strategy.
Key Considerations
Spotify’s Q3 demonstrates a business balancing scale, innovation, and monetization, but investors should monitor several inflection points as the platform evolves:
Key Considerations:
- Ad Business Inflection: Programmatic growth is promising, but direct sales drag will weigh on ad revenue until at least late 2026.
- Content Licensing Flexibility: New deals unlock broader video rights and enable non-music bundling, supporting future product launches and monetization.
- Premium Conversion Funnel: Enhanced free tier and engagement features are boosting funnel metrics, but actual conversion rates will be critical to watch.
- AI as a Productivity and Product Lever: AI is accelerating both product development and user personalization, with future opportunities in creator tools and new consumer experiences.
- Leadership Transition Execution: The move to co-CEO structure will test Spotify’s ability to maintain strategic clarity and operational momentum.
Risks
Spotify faces several material risks: A slow recovery in advertising could weigh on revenue and margin expansion, especially if programmatic adoption lags. Price increases, while currently absorbed, may eventually test consumer elasticity. Content cost inflation and evolving rights-holder dynamics could pressure gross margin. The leadership transition, though well messaged, introduces execution risk during a period of accelerated innovation and market expansion.
Forward Outlook
For Q4 2025, Spotify guided to:
- 745 million MAUs and 289 million subscribers
- Total revenue of $4.5 billion, up 13% YoY on a constant currency basis
- Gross margin of 32.9% and operating income of $620 million
For full-year 2025, management reiterated a focus on:
- Continued investment in long-term growth and innovation
- Margin and cash flow improvement, with recognition of quarter-to-quarter variability
Management highlighted several factors that will shape 2026:
- Advertising margin normalization as podcast costs fully migrate to premium
- Healthy revenue growth and further margin expansion, with Q1 2026 gross margin expected to step down seasonally
Takeaways
Spotify’s Q3 2025 results underscore a platform in transition but with clear compounding advantages:
- Product-Led Growth Flywheel: User engagement gains across all content types are feeding retention and premium conversion, reinforcing the multi-format flywheel.
- Ad Business Still in Transition: While programmatic momentum is building, advertising will remain a drag until the back half of 2026, requiring patience from investors.
- Leadership Execution and TAM Expansion: The co-CEO transition comes as Spotify aims to expand its reach beyond 3% of the world’s population, leveraging new monetization levers and content verticals.
Conclusion
Spotify’s Q3 2025 showcased accelerating user engagement, rapid product innovation, and early signs of monetization leverage, particularly in video and audiobooks. The business is positioned for further margin expansion and top-line growth, but the advertising turnaround and leadership transition remain key watchpoints for 2026.
Industry Read-Through
Spotify’s results offer several industry signals: The surge in video podcast consumption and audiobook engagement confirms growing user appetite for multi-format audio platforms, suggesting that pure-play music or podcast services risk being left behind. The shift toward programmatic advertising and auction-based inventory is likely to become table stakes for digital audio platforms. Spotify’s content licensing flexibility and AI-driven product velocity set a new bar for both user experience and monetization, with implications for competing DSPs, publishers, and rights holders. The leadership transition is a reminder that organizational alignment and execution are as critical as scale in the evolving media landscape.