Spotify’s latest earning call focused heavily on the extent to which the platform is now driven by AI, as executives emphasised they want to shift from passive listening to interactive experiences.
As co-CEO Gustav Söderström put it, the company is moving ‘from a world where Spotify recommends things to you to a world where you can actively shape, guide, and interact with our platform’.
Central to this are features like AI DJ, prompt-to-playlist, and the upcoming ‘Taste Profile’, which lets users directly edit their algorithm. The ambition is to turn Spotify into what Söderström described as a ‘deeply personal, increasingly interactive’ system that improves the more it is used.
That strategy is paying off, with Q1 revenue up 14% year-on-year. But it does come with a cost. Operating expenses rose by 17% year-on-year due to heavy investment in AI infrastructure and marketing. Söderström said that, despite slightly decreasing headcount, the company is ‘spending more compute per employee’ to accelerate product development. The bet is that increased personalisation will drive engagement, which in turn improves retention and long-term monetisation. Management likened the moment to the early App Store era, calling it ‘a time of tremendous opportunity’ where the priority is to invest aggressively rather than optimise margins in the short term.
Investors were less convinced — shares dropped 10% after the call today (28 April).
Weak advertising numbers didn’t help, either. While engagement is rising, ad-supported revenue grew just 3% year-on-year, and the company acknowledged a lag between usage and monetisation. Spotify has spent the past 18 months rebuilding its ad tech stack to support programmatic and biddable buying, with these formats now accounting for over 30% of ad revenue. Leadership insists the ‘gap will close’ over time, but for now it highlights the challenge of translating audience scale into ad dollars.
Finally, Spotify wants to push beyond music into broader lifestyle categories. A new fitness hub, including content from Peloton, reflects a strategy of capturing more daily users across formats such as video, podcasts and audiobooks. With 70% of premium users already engaging in fitness monthly, the company is doubling down to deepen engagement.