Internet July 29

North America Industry Date Internet 29 July 2026 Internet 2Q26 Earnings Music Preview: Better Setups, with AI Catalysts Still Ahead Benjamin Black, CFA Research Analyst Spotify and Warner Music enter earnings with improved setups following recent stock underperformance. For Spotify, underlying engagement, app and payments Kunal Madhukar, CFA data remain constructive, while our checks suggest the U.S. price increase has Research Analyst been well digested. For WMG, we think concerns around recorded-music share losses overstate the implications of weaker frontline chart performance. Benjamin Hui, Esq. Research Associate For Spotify, we model 6mn premium subscriber net additions in 2Q26, in line with guidance, although our investor conversations suggest the buy-side expects approximately 7mn. Spotify guided to 33.1% consolidated gross margin, while Raymond Wong investors appear to be underwriting 33.3–33.4%, or 20–30bps of upside. For Research Associate Q26, our conversations suggest the buy-side expects gross-margin guidance in the 33% range despite the regulatory charge.

We lower 2Q26 and FY26 ad-supported revenue as the shift from direct to auction-based channels creates more near-term disruption than previously expected. We also lower 2Q26 operating expenses for reduced social charges and reduce 3Q26 consolidated gross margin to 32.8% from 33.0% to better reflect the regulatory charge.

The AI add-on remains the primary medium-term catalyst, although launch expectations have shifted from 3Q26 toward 4Q26. Spotify can launch without WMG or Sony content, but broader rights and greater artist participation would improve the product. We view potential WMG and Sony agreements as positive catalysts, while Suno’s anticipated launch by the end of August should provide an earlier proof point for licensed generative music.

For Warner Music, it’s 2Q26 Spotify Top 200 share returned to approximately its 2Q24 level after an unusually strong 2Q25, suggesting the y/y decline principally reflects a difficult comparison. Headline charts also underrepresent the more stable catalog business. All in all, we raise F3Q26 recorded-music subscription streaming revenue to approximately $760mn, implying roughly 11% FX-neutral growth and aligning with consensus. Our investor conversations suggest the buy- side had moved toward high-single-digit growth, creating scope for upside. The Red Hot Chili Peppers catalog should provide a modest inorganic contribution, though we do lower F3Q26 and FY26 ad-supported streaming revenue estimates. F4Q26 brings a stronger catalyst set through one to two per- subscriber minimum escalators, initial Suno revenue, potential benefit from Apple’s price increase and a possible Spotify AI-rights agreement. Overall, we maintain our Buy ratings on Spotify and Warner Music.

Deutsche Bank Securities Inc. IMPORTANT RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS LOCATED IN APPENDIX 1. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

Spotify: Improving Data Raise the Buy-Side Bar Spotify enters 2Q26 earnings with an improved setup following recent stock underperformance. Expectations for the AI launch and advertising recovery have moderated, while underlying consumer trends remain constructive.

Spotify guided to 299mn premium subscribers at 2Q26-end, implying 6mn net additions, which is also our estimate. However, our investor conversations suggest the buy-side expects approximately 7mn, supported by improving app trends and credit/debit card checks.

Figure 1: SPOT has been recovering from relative underperformance vs the SP500 while WMG has remained weaker

Source: Deutsche Bank Research, Bloomberg Finance LP

Third-Party Data Support Healthy Engagement and Pricing Sensor Tower estimates Spotify added 19mn MAUs q/q in 2Q26, ahead of the 17mn implied by guidance. Global MAUs increased 6% y/y, while the U.S. time- spent declines improved to the best level in six quarters.…