$Spotify(SPOT.US) first take: The Q3 earnings report was not bad, and the market reaction was very positive, with a 6% surge in after-hours trading so far. What exactly was good about it?

(1) The profit indicators were the main areas that exceeded expectations. Not only did Q3 significantly beat expectations, but the guidance for Q4 operating profit also exceeded market expectations.

The impressive profits were partly due to cost optimization, especially copyright costs. Last quarter, Dolphin Research also discussed in detail the logic and potential for Spotify's bundled packages to optimize overall content costs. On the other hand, the three operating expenses continued to shrink, mainly reflecting actions such as layoffs. Q3 employee stock incentive costs fell 26% year-on-year, indicating significant optimization in overall employee costs.

(2) The second surprise was the Q4 user guidance, including MAU and subscription numbers. The growth trend remained stable, alleviating market concerns about short-term impacts on user retention and new acquisitions after price hikes.

(3) Overall revenue was slightly below expectations. While Q3 music subscription business met expectations, podcast and other ad businesses fell slightly short, which was related to Q3 MAU missing expectations. From the revenue guidance, there is still some pressure on the advertising side. Future growth in ad revenue will rely on podcasts. Although music ad package users are numerous (reaching 400 million in Q3), perhaps due to the usage scenarios of music listening, ad effectiveness is mediocre, with very low per-user ARPU, far below the monetization efficiency of paid subscriptions.

However, since ad revenue accounts for a small portion (12%) and has low gross margins, its pressure has little impact on profits. Spotify continues to surge at the turning point of profitability.