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Spotify reported eye-catching Q4 earnings: rising users, expanding margins, and hundreds of millions in operating profit. Investors welcomed the numbers after a volatile year, and executives struck an optimistic tone about the company’s future. But beneath the headline growth lies a more complicated story—one that raises questions about how sustainable those profits really are, and who ultimately benefits from them.
Profits Boosted by Accounting and Tax Effects
At first glance, the quarter looked impressive. Yet a significant portion of Spotify’s outperformance stemmed from so-called “social charges” in Sweden—payroll taxes tied to share-based compensation. As the company itself disclosed, “since a portion of these taxes is tied to the intrinsic value of share-based compensation awards, movements in our stock price can lead to fluctuations in the taxes we accrue.” As the share price fell, so did those tax expenses, inflating reported profit.
The tax picture was similarly striking. For 2025, Spotify paid an effective tax rate of just 0.5% on billions in pre-tax profit, thanks to accumulated tax credits from prior losses. Chief Financial Officer Christian Luiga told investors the company would move “towards a normalised long-term tax rate,” but for now, the low tax burden boosted the bottom line.
Growing Users, Shrinking Value Per Listener
Spotify continues to add users globally, yet average revenue per premium subscriber is declining. Growth is increasingly concentrated in lower-priced markets and cheaper plans, squeezing overall revenue per user. Meanwhile, advertising—serving hundreds of millions on the free tier—remains comparatively weak.
On royalties, Luiga was direct: “price increases are going to outpace the net content cost growth in 2026.” In plain terms, Spotify expects revenue to grow faster than what it pays music rightsholders, including companies like Universal Music Group, led by Lucian Grainge. Gross margins have expanded significantly since Q4 2021, aided in part by controversial audiobook bundling now challenged by The MLC.
Pricing Power and Policy Contradictions
Spotify recently raised its U.S. subscription price to $12.99. Co-CEO Alex Norström insisted, “There have been really no surprises at all. Churn is low,” adding, “When we adjust price, we do it from a position of strength.” Yet the company has argued publicly that government-imposed levies would force price hikes that hurt artists by triggering cancellations—two positions that sit uneasily side by side.
Co-CEO Gustav Söderström described AI-driven disruption as opportunity, saying “the Chinese sign for macro wind is opportunity,” while Norström framed AI as a chain reaction leading to “boom, more enterprise value.” Investors may be reassured; many artists are less certain.
The Bigger Picture
Spotify’s Q4 results show a company that is financially stronger, cash-rich, and confident heading into its May 21 Investor Day in New York. But the earnings call also underscored a widening gap between investor priorities and music industry concerns. As revenue growth increasingly outpaces royalty growth, and as profits are buoyed by accounting mechanics and tax positioning, scrutiny over streaming economics, AI strategy, and artist compensation is likely to intensify.
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