Spotify shares fell to seven per cent on Tuesday in a lower-than-expected second-quarter profits forecast, citing a sharp rise in salary-related taxes. This move overshadowed strong user numbers.

The Swedish music-streaming giant reported that higher employee-related costs—largely tied to a spike in its stock price—led to 76 million euros ($86.47 million) in charges for the first quarter. These charges offset savings from reduced marketing expenses, bringing operating profit to 509 million euros, missing the 518.2 million euro estimate compiled by LSEG.

Looking ahead, Spotify projected a second-quarter operating profit of 539 million euros, including 18 million euros in payroll taxes, well below analysts’ expectations of 557.5 million euros.

The profit miss comes despite robust subscriber growth. Premium subscribers rose 12% year-over-year to 268 million in the first quarter, beating Visible Alpha estimates of 265.3 million. Monthly active users reached 678 million, also topping forecasts of 671.9 million.

CEO Daniel Ek said Spotify’s strategy to introduce new video content and AI-driven features, such as automatically generated playlists, was proving effective in attracting users. He added that much of the subscriber growth stemmed from Latin America and the Asia-Pacific, which are expected to drive long-term expansion.

The company anticipates 273 million premium subscribers and 689 million monthly active users in the second quarter, both ahead of market forecasts.

First-quarter revenue climbed 15% to 4.19 billion euros, narrowly missing the 4.20 billion euro target. Spotify expects second-quarter revenue to hit 4.3 billion euros, in line with expectations.

Despite recent cost-cutting measures and price hikes aimed at improving margins, investors continue to scrutinize Spotify’s profitability as the company works to shift from growth-focused spending to sustained earnings.