Spotify (SPOT) reported fiscal third quarter earnings on Tuesday that beat expectations on both the top and bottom lines, as the music streaming platform aims to improve profitability through reduced podcasting investments and price hikes.

The streaming service turned a profit in the third quarter with net income of 65 million euros ($69.1 million), or 0.33 euros per share. It's a significant beat, given analysts had expected a loss of 0.20 euros per share. It also compares with the year-earlier period loss of 166 million euros, or 0.86 euros a share.

This was the company's first quarterly profit in over a year. It follows recent price hikes coupled with lower-than-expected costs related to personnel and marketing spend.

Profit was also boosted by strong margins in the quarter, with the company delivering gross margins of 26.4%, slightly beating guidance of 26%. The streamer said it expects margins to tick up to 26.6% in the fourth quarter.

Spotify has previously said it expects the metric to come in between 30% and 35% over the long term, as it plans to further scale its podcasting and ads business.

Revenue, meanwhile, totaled 3.36 billion euros — 11% higher compared with Q3 2022 and above Wall Street expectations of 3.3 billion euros. Spotify guided to Q4 revenue of 3.7 billion euros.

Spotify's stock initially jumped in pre-market trading following the results before erasing gains; however, shares ticked up as much as 11% by morning trading as investors digested the report and subsequent earnings call.

User figures

But while overall revenue came in strong, average revenue per user, or ARPU, for Premium subscriptions declined 6% to 4.34 euros — pressured by discounted plans and lower prices in emerging markets. This was partially offset by the price increases implemented late in the quarter, the company said.

Total monthly active users (MAUs) beat estimates of 572 million to hit 574 million in the quarter — a 26% improvement compared to the year-ago period. The net additions of 23 million users represented the company's second-largest Q3 net addition performance in its history.

The company anticipates Q4 MAUs to come in at 601 million, slightly above estimates of 598 million.

Premium subscribers also surpassed Wall Street expectations of 224 million, jumping another 16% year-over-year to hit 226 million. Spotify expects Premium subscribers to increase to 235 million in the fourth quarter.

Free cash flow, another key metric for investors, jumped on both a yearly and quarterly basis, coming in at 216 million euros compared to 9 million euros in the prior quarter and 35 million euros in the year-ago period.

Late last quarter, Spotify hiked the price of its ad-free Premium subscription plan by $1 to $10.99 a month — a long-awaited change as the company continues its profitability push. The company's Duo plan rose by $2 to $14.99 while the family plan increased by $1 to $16.99. The student plan also went up by $1 to $5.99 a month.

The news comes after competitors Apple Music (AAPL), Amazon Music (AMZN), and most recently YouTube Music (GOOGL) have all raised prices.

Analysts, overall, have been bullish on Spotify after the audio giant pledged to improve its profitability beginning in 2023 on a gross margin and operating income basis.

The music streamer, which categorized 2022 as a peak investment year, spent $1 billion pushing into the podcast market over the past four years with splashy A-list deals and $400 million-plus studio acquisitions.

That spending took a significant bite out of gross margins and weighed heavily on profitability. Investors punished the company as a result, and the stock was down a whopping 70% in 2022.

Flash forward to today, however, and the company seems to be fulfilling that profitability promise. In addition to the price hikes, Spotify has committed to various cost-cutting initiatives over the past year, which have included layoffs and a realignment of its podcast division. It also recently made audiobooks free to paying subscribers, offering 15 hours of free listening per month.

The stock, which lost more than two-thirds of its value in 2022, is up about 100% year to date and up roughly 75% on a year-over-year basis. Still, shares remain more than 50% below their record close of $364.59 in February 2021.

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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