Q3 2020 Spotify Technology SA Earnings Call

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In 2020, the world changed its playlist it composed a new soundtrack for ally.

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Ladies and gentlemen, thank you for standing by.

Q3 2020.

Earnings.

At this time all participants are in a listen only mode.

Please press Star zero.

On the call over to your speaker today Goldberg head of Investor Relations. Thank you. Please go ahead.

Great. Thank you and welcome to Spotify third quarter 2020 earnings Conference call I Hope everyone's continuing to stay safe. Our team has again hosting this call remotely our CEO Daniel lack is participating from Stockholm, Paul Vogel, our CFO is that its home office in New Jersey, and I'm, joining from New York, We'll start with opening comments from Daniel after the remarks.

Daniel and Paul will be happy to answer your questions will again be taking questions exclusively through slider questions can be submitted by going to slide no dotcom F. L ideal dotcom and using the code hashtag Spotify earnings Q3, 20 analysts can ask questions directly into slide show and all participants can then vote on the questions. They find the most relevant.

If for some reason you don't have access to slide or you can email investor relations at IR at Spotify Dotcom and we'll add on your question before we begin let me quickly cover the safe Harbor. During this call, we'll be making certain forward looking statements, including projections or estimates about the future performance of the company. These statements are based on current expectations and assumptions that are subject to risks.

And uncertainties actual results could materially differ because of factors discussed on today's call in our letter to shareholders and in filings with the Securities and Exchange Commission. During this call will also refer to certain non IRS financial measures reconciliations between our eye out for us a non IR for us financial measures can be found in our letter to shareholders in the.

Financial section of our Investor Relations website, and also furnished today on form 6K, and with that I'll turn the call over to Daniel.

All right hi, everyone and thanks for joining us. So Q3 was a very strong quarter, surpassing our own expectations on several measures I think this is a testament to all the amazing contributions of this part of our team in these uncertain times remain focused on the needs of our creators fans and partners around the world.

World.

Monthly active users beat the top end of our guidance and subscribers hit the very top end of our range and our service now reaches 320 million users and 144 million subscribers the.

The slice of our total catalogue increase significantly and our advertising business returned to growth and we also beat expectations in our newest markets, where we're seeing growth continued to accelerate.

I think this affirms our belief that there's a significant pent up demand for Spotify around the world even in places where our service has yet to launch.

These results illustrate the power of our business, despite coven and other related challenges across the globe.

And as a result of our performance this quarter, we have updated our Q4 guidance ranges to reflect increased optimism on where we expect to end the year.

It's also worth noting that we've paid out more than a billion to rights holders in every quarter in 2020, and I'm proud to say that we're on track to pay another billion plus in Q4.

In addition to sharing our results I believe these calls are also time to help frame, where we're headed and.

And our teams remain laser focused on building the worlds largest audio network and while it's still early days, it's clear to us that our strategy is working.

So we know that when we reach more listeners, we're able to attract more creators to our platform.

So with more reach comes more content with more content, especially cotton unique to Spotify that comes more opportunities to monetize and that interplay is super important because it's really the foundation of our flywheel that flywheel continues to accelerate faster with every new user and crater that comes on our platform.

Bottom line as I look at the increase specifically in reach that we're seeing this quarter. It gives me the confidence in our ability to monetize that growth.

So to fuel the flywheel, you'll see us continue to invest in enhancing our user experiencing.

Furthering market expansion and develop and acquiring unique content for both new and established graders.

Related to this you've seen us make a few big moves in launching new content. So I would like to shed some light on how it's going.

Our number of new podcasts increased over 20% and music releases are up 13% over the prior quarter and we saw strong positive reaction when Michelle Obama and Joe Rogan podcast launched during the quarter and we're seeing great success with our original and exclusive which now account for more than 19% of all.

Kessel listening on the platform.

In addition, we are hard at work on new content development that will roll out in the months ahead.

And one of the residual benefits over time indoors is that many creators have turned out turn back to what they do best which is creating and as a result future mood music releases look very strong too and as we know new music is now coming from artists like Billy Irish Drake and Sir Paul Mccartney just to name a few.

Another benefit of the investments that we made in our cost and the user experience is that Spotify listeners are enjoying greater value than ever before and we believe this presents two distinct opportunities.

So one with about 60% of Spotify subscribers, starting out in our free tier and our outperformance on and they use in 2020. We are confident that we have a long runway to continue to grow our subscriber base and the months in years ahead and to long term, if engagement and or our listener value per hours high it gives.

Plus the ability to selectively increase our price.

So here's how I think about it while our primary focus remains user growth based on our maturity in certain markets and the increasing value we provide to our subscribers including of course enhanced content, we've seen engagement and more specifically value per hour grow substantially over these past few years and I believe an increase in value per hour.

Sure as the most reliable signal we have in determining when we're able to use price as a lever to grow our business.

And while it's still early initial results indicate that in the markets, where we've tested increasing prices our users to leave the Spotify remains an exceptional value and they have shown a willingness to pay more for our service. So as a result, you will see us further expand price increases, especially in places, where we're well position against the competition and.

Value per hour is high I would however throw in one big caveat, we will continue to tread carefully in these cobot times to ensure we don't get ahead of the market.

So to wrap it up it was a really strong quarter and as history has shown us why we don't always nail the timing, we're usually right in predicting the outcome of our strategy I continue to believe in the long term value of each and every listener on Spotify and they're still billions of listeners that we've yet to reach around the world listeners who tries spotify.

Tend to stay and they often covered to a subscriber that is why our continued focus is on reaching more listeners as ultimately this will translate into long term value for our investors and with that I'll turn it back to Brian.

Thanks, Daniel again, if you have any questions. Please go to slide or Dot Com hashtag Spotify earnings Q3 20. Once your question has entered you can edit or withdraw your question by selecting the option in the bottom right, we'll be reading the questions in the order they come in with respect to help people vote up their preference for questions.

And our first question today comes from Matthew Thornton.

When you think about the two sided marketplace longer term do you believe that there is opportunity to monetize and play a role in accelerating the discovery consumption growth of live and virtual events as well as memorabilia and merchandise.

Yes, so long term if you think about our marketplace strategy, it's essentially about having creators need fans and so there's.

There's three distinct components of this one is to grow their fan bases. The second is to engage.

Further in their fan bases and the third is monetizing those fan basis.

And well go into.

Great tools and services in all three of these categories first how you grow your fan base second in how you engage with their fan base and then thirdly in how you monetize it and of that of course live is a very very interesting component assets merchandise as well and we're early days and some of our experiments.

But I do think the future of the platform certainly holds a lot more of those types of tools.

As well.

Alright, our next question comes from Michael Morris from Guggenheim.

As Jay excuse me.

Joe Rogan performed overall since launching on Spotify and the indication listeners from other platforms are migrating to Spotify in advance of exclusivity.

Yes, so the zone, Jerry has performed really well so.

So far has exceeded expectations since its been moved over to our platform. We obviously had some expectations of how what would happen now and then what would happen in the exclusivity period. So we feel really good about how it's performed it's we've definitely had faster growth than we expected.

We're expecting another step up when when the.

I'm Gonna podcasts goes exclusive to us before the end of the year.

Alright. Our next question comes from Richard Kramer of a red.

Can you share some rough percentages of premium subscribers that are actually paying we understand the number is around 60% with the remaining 40% under family plans.

Yes, so we don't breakout the mix by product.

As we've talked about ARPU has come down.

And some of that has been product mix or most have been product mix. It's a family plan has grown as a percentage of the overall user base and it is a.

A decent amount of our users right now you know for us as we've talked about a lot. You know we really look we're looking holistically as Daniel mentioned about growing overall users and growing overall subscribers and are we able to grow them in a way that is as a positive LTV to sack.

Somebody can be long term profitable for both us as well as the industry to continue to add more users overall to generate more.

More revenue.

Gross revenue for the entire industry and for Spotify and so that's been a real big success for us and so with an LTV the stack of two and a half to three times, which has been pretty steady since.

Since we've gone public yet.

We feel really good about the product mix within that within our portfolio.

All right another question from Richard.

Spotify has now at 15 straight quarters of declining premium ARPU, even adjusting for FX with the industry trend towards further bundling and toward saturation in developed markets should investors expect any reversal of this trend in 2021.

Yes, so just sort of I guess dovetailing on my last answer you know for US It has been historically about really.

Thinking about growing users and subscribers first before worrying about the monetization part second.

I mentioned, you don't really has been a focus on the holistically as the LTV. The SEC, you know positive and staying in that two and a half to three range.

Being said.

Let me backup with ARPU in the quarter. It was down 10% was down 6% on an FX neutral basis, which was pretty much in line with our expectations. So the quarter did you know stay in line with where we thought it would be.

We did announce.

A little while ago, a couple weeks ago that we have raised prices in a few markets continuing to test where it makes sense for us to potentially raise pricing you know.

And for us its that balance its continued with a balance of growing users and subscribers.

And in markets, where we think we have the opportunity to potentially raise prices we will.

And we'll continue to test new if you look back over the last five to 10 years, we've added a tremendous amount of value into this ecosystem now having sort of 65 to 70 million music tracks 2 million podcast and we've done that without raising prices. So the value you're getting a subscriber definitely increased materially over that five to 10 years and so for us it's.

We're really looking at different markets and different regions looking at the overall streaming penetration in those markets looking at our penetration in those markets, but yet the maturity of markets and thinking about where.

It may make sense for price increases and where it may not.

I would just reiterate what Daniel said in his opening comments, we will be very.

They are cautious and careful around cove. It in terms of how we think about any potential price increases moving forward and again, we're still testing and learning and anything we do will we will be very market specific.

All right. Our next question comes from Eric Sheridan at you'd be us how should we think about podcast investments beyond 2020 are you at the necessary scale or further investments needed in areas such as tools for creation and measurement exclusive content.

And local language content outside the U.S.

Yeah, I mean I.

Actually I just want to back up and I think this kind of relates to the prior question as well about this sort of long term opportunity. So one is were aiming to be the number one audio platform in the world and that category in itself is huge we're talking about billions of users and many many millions of creators and.

So to the extent that we are still cash flow positive and to the extent that the LTV to Soc is favorable to us we've seen in the past we will continue to invest and we still believe we're early days in our growth and so that's why the vast majority of our focus has been on growing that user base.

And growing the number of subscribers rather than sort of raising prices.

Our however, adding that to the mix because again the overall growth in each and every market is the priority that we're having and that's the revenue growth and we can grow that by either adding more users or raising the prices of the existing users there we're doing it in and.

So.

But because we really have this macro opportunity and we're still in the beginning even though we have 320 million monthly active users.

We still think that there are billions more to go after in this ecosystem and we're going to invest in better tools.

And that will increase the engagement if increases being engagement that increases our ability to monetize them as well and if you add then into marketplace and all these other things you will see monetization increase even further and that could drive up ARPU and gross profit for both us and the whole ecosystem as well.

All right next question comes from Matthew Thornton on pricing you guys raised family plan price in seven markets. What are you seeing in those markets. For example penetration engagement FX something else that led you to raise price do you expect similar actions in more markets in fourth quarter and into two.

Thousand 21.

Yes, I guess I'll, just reiterate what I said.

In the last question, which is you know for US it's about looking at each market individually looking at overall streaming streaming grocery mi penetration you know our market share there our position in those markets.

And being smart and selective about where we think it made sense. So that's that's where it was for those seven markets.

There are also sort of geographically.

Difference or waste it kind of test and learn and see.

How the impact of those price increases evolve.

Yes, we've done it selectively we did it in Norway, a little while ago, we did in New Zealand, a little while ago. So we have some early learnings of what happens there.

No indications yet in terms of.

Any impact on.

Attention or charter engagement or new subjects too early to tell but again, given how we've been smart about their reflective in the past, we feel pretty confident about the markets. We've.

Weve changed so far.

I would just add as an addition, Norway, we did quite a while ago and we do know that it had no impact whatsoever on our negative impact I should say so.

That gives us confidence we don't have a lot of data on these recent market launches that we have that that's.

Mature yet, but it's looking very good. So I think this kind of adds to our optimism and the framework that I outlined in the opening remarks about the value per hour, which is the thing that we're looking at as we look at to our to our future ability to raise prices.

All right next question from Richard Kramer does spot if I get any revenue from hosting podcasts, where ads are sold by the content owner creator.

So the short answer is no. Obviously, we saw the ads for things that we own or exclusively license we don't take.

Any revenue for things that just sort of gets passed through onto our platform.

That being said Daniel mentioned in his opening comments that on a trailing 30 day basis, 19% of our podcasts every year now engages with their own.

Content and so to the extent that that continues to move up on our platform. It gives us even more opportunity to.

To monetize.

Alright. Our next question comes from Justin Patterson, How do you think about tech talks influence on the music industry, what if any traits from tick tock can you layer into your business.

Yes take talk is a great discovery vehicle for music acid is for a lot of cultural means that's going on in the world today I, obviously like many others are fascinated with the growth of it and fascinated with the creative expression from craters.

On that platform and really the whole kind of re mixing culture I would say.

Now that said related to Spotify again, our focus isn't so much on making the average user a crater that many of the social platforms do we instead want to add superpowers to the people who want to be professional creators and that's kind of our focus but to the extent that we're looking at something like takes docket is.

More about giving our artists.

Looking at what they're doing on that platform and making sure we provide more creative ways that allows them to express themselves on our platform too and we have been trying out a number of these things music and talk being the most obvious example that we launched more recently.

But there has also been.

Music stories as a way for creators to to talk about the.

There.

Content and their expression Katy Perry.

Kerry Katy Perry made a great wanted more recently that I'd really encourage you guys to shake out.

All right. Our next question comes from Rich Greenfield can you talk about the controversy created by the Joe Rogan podcast and how are you handling this with your employees.

Yes.

Again.

You know overall I would just say we have millions of millions of creators on the platform and almost 70 million pieces of content.

And the most important thing for US is that we anything we do on our platform as it's consistently applying those policies. So we have a content policy. It's openly available to anyone can look at it.

We obviously review all the content that goes up and it doesn't matter, if you're Joe rogan or anyone else we.

We do apply those policies, but it's important to note that.

This needs to be evenly applied no matter, if it's internal pressure or external pressure as well because otherwise we are a creative platform for lots of of creators and it's important that they know what to expect from our platforms. If we can't do that then there are other choices for a lot of creators to go to so that's.

Consistency is super important in terms of our messaging.

All right. Our next question comes from Eric Sheridan.

Can you provide more granularity on the recovery in advertising trends is it a broader array of advertisers engage with the platform is it a recovery and overall AD budget trajectory versus earlier this year.

Can you quantify the exit rate in September that you referenced in the shareholder letter.

Yes. So the recovery was was pretty broad based if you look at it by the different products, we sell our direct business was pretty strong in sort of in line with our expectations and it improved.

You know pretty significantly from a a pretty significant downturn in in the prior quarter due to covert.

We've seen programmatic.

Grow and was in line with expectations and we saw particular strength on the AD studio side, which is our self service tool.

You know and podcasting was up pretty significantly year on year as well so.

It was kind of you know that's sort of the breakdown of how advertising recovered and yes.

We do feel good about where the quarter wasn't it did.

Perform a little bit above expectations when.

When you think about the trajectory coming out of September again.

Pretty strong we feel good about where it was we were you know have positive advertising growth in all three months of Q3.

And it built up built upon itself within within the quarter.

I would say, while we don't explicitly guide to both premium or advertising revenue our expectation is that.

You know Q4 advertising revenue will grow faster than it did in Q3.

All right another question from Richard Kramer.

How long do you anticipate until the two sided marketplace effort coverts covers its costs.

You want to start with that one Paul I'm not sure how to answer that since we don't actually break up the.

The profitability or the cost of any of our businesses that way I would say.

You know at a high level, we feel really good about the two sided marketplace in general we feel good about the trend through.

Through the first nine months of the year.

Beyond that on the ratio to come into that maybe I'll turn it over to Daniel talked about the marketplace growth in general.

I think the metric that we evaluate our investments over is and whether or not the trucks than they have in the marketplace and to that extent on the marketplace side, what I I'm encouraged by is that we're obviously seeing a tremendous uptick in our sponsored recommendations so its up 76% and.

More importantly, it's retained over 74% of the customers that.

The experiment with the format from the quarter before so that's a strong engagement metric and it shows that we're providing a lot of value to the ecosystem and that combined with the growth of the number of craters that are using that gives us the confidence that this will be a great thing for the music industry and a great thing for Spotify and the long term.

All right next question from Brian Russo of Credit Suisse.

Can you help us quantify how much of your advertising revenue is related to podcast listening versus music and how different the growth rate of podcasts related advertising is from your overall advertising revenue growth.

Yeah, we don't we don't break it out that way I would say podcasts running revenue was a significant driver of growth in the quarter.

It was up.

I would say very significantly from from last year, so year over year growth and podcasting was very very strong.

I think we feel really good about podcasting in general I think Q3 My memory serves me correct had about two X. The number of podcasts advertisers in Q3 than we did in Q2 and the retention among those advertisers was very high between the people who advertise in Q2, who advertise in Q3.

We've seen a big upfront podcasts media buys as well so in general the traction or podcasting is strong both from a revenue standpoint from a retention standpoint, and then from a growth in the number of podcasts advertiser's standpoint.

All right next question from Eric Sheridan.

You cited a stronger than expected rush to launch and a successful India marketing campaign, how is your approach to market launches and or stimulating user acquisition and emerging markets evolved over the past few years and what that might mean for medium and long term growth prospects.

Yes.

I mean overall, it's a it's an evolving toolbox as what I would say so I'll just give you. One example in the western World, we tend to focus a lot on sign ups by email in many of these emerging markets you can't do that it's all about phone numbers and the ability to interact with already existing services like what's up and I'll.

Others to drive growth, so, whether we're where we're extending the toolbox and it adds value and amortizes over the whole base like for instance, our what's up integrations or Instagram integrations.

Or for instance, the adding the sign up flow to to involve.

Signing up by her phone number instead of an email all of those are sort of small changes and tweaks that we're adding that that.

Then gives benefits across the base globally and so so we continue to do that and then the separate thing that we're doing is that because of our platform and our knowledge of culture and the team that we hire on the ground, we really focused on getting the cultural aspect right. So we invest a lot in understanding that and spending that time.

And then you see that very very clearly when it goes rights such as the Russia launch, where you saw us not only like many international players get the international content right, but you saw people also to a wide degree.

Getting the local content.

Right too so it's the combination of those things sort of macro learnings, but more importantly, I would say, adding more tools in the tool box, which is something that we've been doing over these past years that then compound, making us better and better and better as we launch new markets and so I'm very encouraged by that and but the big surprise that.

I do want to sort of a.

Address for all investors is that.

There seems to be a lot of pent up demand for Spotify end markets that we havent launched it and I think Russia is the greats existence proof of that.

And that has surprised even us internally, we were very optimistic about the launch, but they've exceeded our wildest expectations. So that's super encouraging and that gives us even more reinforcement SB.

Go and launch.

The rest of the world.

Alright.

Next question comes from Josh lay of Covenant capital your.

Your churn rate has been declining due in part to lower ARPU. How do you think of the balance between ARPU and churn at what churn rate would you raise price.

Yes, so I think it's obviously all tied together right we have a number of products.

That are.

Have very high retention that have helped to lower churn overtime, our affinity plans like family plans and student plans.

Okay, then move them into our free tier most of them don't wake up thinking I'm gonna pay $10 a month for a music, they're very few of those customers around that have that mindset. So we start getting them into the service. They liked the service to enjoy the service then whether it's a family plan or I need trajectory offer or just the fact that.

I Love the service to get them to upgrade to one of our plants. That's all good and great. But then what happens is that they get to that plan and to get even more benefits. The AD free environments, even more platforms, where spotify becomes available like cars, and so knows and a bunch of other things that adds that experience and you're spending more and more.

Or a more hours on Spotify and that's the value per hour a metric that I was referencing in my introductory remarks, and the more hours you're spending then the more value you're driving from Spotify, and we're seeing a clear correlation with that and our ability to them later on race prices, but the key here.

Is to to really kind of look at the balancing act for overall growth that is what we're focusing on so to the extent, where we focus on the top of the funneled to grow that that's obviously, the most longterm beneficial but in some markets that are more mature. We can also add the later part of that which is focusing on the ones.

That are already in the funnel in racing prices for them. So it's that balancing act that we need to play all the time, but I would want to say is think about that mental model of the staircase.

The ladder and and we are constantly in various stages in various markets on that and even among certain demographics in an existing markets. We may be at various stages and in that letter too.

Alright, we've got the follow up from Josh lame on pricing what could be the impact of apples bundle to Spotify pricing.

Well I I I think the primary impact one <unk> I was start off by saying, we haven't noticed any impact and I think that's evident by the the quarter we had.

To the extent that there is an impact it's obviously go into reinforced their ecosystem. So if you're already bought into the Apple ecosystem fully. This gives you didn't even further reason to to stick with that ecosystem in double down on that now that said, what we're actually finding as most customers orange and just one ear.

'cause system, because most of our competitors by the way are the the ecosystem competitors like Google or Amazon or Apple at this point and they're all trying obviously to create as many incentives as possible to get customers to stay within one ecosystem and what we're finding is more and more of the customers are actually experiment thing across.

Many different ecosystem. So they may be an apple iPhone user, but they may have an Android auto car or they may have a little extra device in their homes. So their across many of these different ecosystems and this is where our ubiquity strategy is so important because we play very nice on all hardware irregardless of if.

It's google's devices apples devices for Amazon devices. So I think this is a key sort of a competitive.

A difference between us and the normal ecosystem players, whose real business model is to just reinforced ecosystems that they're already in.

Okay and the next question comes from Richard Greenfield [noise].

Advertising is still less than 10% of your revenues. Despite how fast you skilled and may use globally. What do you think the longterm revenue mix looks like.

You Wanna go first Paul or do you want me to go I can go first uhm. Okay. I think we are very bullish an optimistic on the advertising opportunity for us at Spotify I think you know we've talked about it and you should be you know north of 10% I think you know could it be 20 per cent I think 100 per cent. It could you know.

We have you know tremendous growth on the on the music side, an overall I may use and free music and then you throw podcasts on top of it in the growth. There we think there's a lot of opportunity.

Think for US you know the innovation, we're bringing into the the market in the ecosystem I think is really going to be helpful. I think there's been very little innovation, particularly on the part casting side in terms of how to better target advertising and allow creators to actually monetize their product and a much higher way and I think our ability to help bring those tools and services into the <unk>.

And will be great for the overall growth of the of the business. It will allow creators to actually make more money off of their podcast and I think it will benefit us as well. So I think we we still see tremendous opportunity for you know for advertising can be a larger share of our overall revenue go HM.

My only addition, again this you know our goal is to be the number one audio platform in the world audio S. A category is going to be absolutely massive and I think the good news is if you look at a comparison I do think we have a she cheats just look at video I think it's very evident that some of the growth and the.

The AD platforms that you saw this quarter from the other players in the industry was focused on video at and so as I look at that and I look at audio we still have a lot of innovation to do on that formats.

But it's evident to me that's at maturity the business model will not be just about a subscription for Spotify, it's going to be the combination of subscription it's going to be advertising and it's going to be Ala carte all three of them in in into play and our goal is to try to grow into it.

Becoming the largest uhm platform than that and I think you can add innovation on the outside and you get to internet level monetization, which if you think about it from the offline to online parallel online usually is worse at the beginning but then over time S. It seems more on more more.

Innovation on the stock usually following a big platform growth on user side than monetization starts to catch up and I think you should expect the same journey here, that's certainly what we're investing against.

[noise] next question comes from fenced Swinburne of Morgan Stanley.

What drove the decision to raise prices and Ah markets you called out in the shareholder letter Y D. Seven Y family plan, what are the signals you're looking for in other markets to move to raise prices and.

And what's your assessment of the risk competitors continue to discount more or subsidize indicates a apple T V plus free with Apple music in order to take care.

Yeah, I think you know it goes back to what I said earlier on for US. It's it's a lot about looking at each market individually and thinking about where are they in your evolution of streaming where are we in terms of you know market share within those markets. How long have we been those markets where do the new trends, we're seeing you know to some extent.

<unk> if you look at the market's we we did raise prices and they're somewhat diverse it gives us some element of sort of testing and understanding of different types of markets. Some larger ones smaller ones that in different geographic mix, you know and and we think there's you know why family playing obviously, we we think there's a tremendous went a value within the family plan.

So we we thought that was an area, where there might be an opportunity where where it would work in some markets and so we're really testing and learning as we mentioned earlier we've done this in a couple of markets and we'll get you to learn and iterate, where we think it makes sense.

Alright next question from John Edgar at Stifel, You're about two months into the Nonexclusive edition of Joe Rogan to the platform can you talk about how the podcast is performed relative to expectations. Thus far are you, reaching a large number of listeners that are also consuming music for the first time.

Are people listening outside the U S.

Yeah, Oh, Oh, Oh overall, great success, so far I think the real tests will come however, when the podcast becomes exclusive at the platform, but we're very encouraged with the launch so far uhm, it's very much been a an international hits, which may.

Have been a little bit of a surprise, we thought maybe it let's give more U S than what it house. So I think that speaks to the appeal just have the platform that we have for someone like Joe Rogan, but also of course the appeal of his show that it has on audiences all around the world. So we're we're encouraged with that in fact, we're encouraged with.

Most of the original and exclusive that we've launched so far of which I I do want a uhm just add as a coffee I'd like Joe Rogan launched in September. So these are reasons Ah numbers and on the list four Q for the slate looks just fantastic So I <unk>.

Thank you should be expecting us to do a lot more than what you've seen even so far and I think one once we summarize the year and certainly the next sort of six months when we look back on it I think you'll you'll see that a part of the six success will be Joe Rogan, but it's really a whole slate of number of different content pieces that are interacting trading a much better.

Better experienced on Spotify than what you can find on other platforms.

Yeah, and I would just add just on top of that the Jerry's number one podcast at a number of markets and some markets that are non English speaking as well. So we know that he travels really well globally.

Okay, Great [noise] next question from Kevin repeated Evercore ISI can you discuss the factors that led the Michelle Obama podcast to be made available on platforms other than Spotify.

Over overall, it's I think it's important to talk about the fact that in many cases, when we do deals and then.

When they become available on the platform, we've done the deals and sometimes even a year prior to the deal is becoming available and more and more so our strategy going forward will be to make more and more of the content exclusive to uhm Spotify, but in this particular instance, it was the earth.

Days, and we made the decision to experiments and habits windowed by being available on Spotify first and then later make it available on the platform and we'll still experiments by the way I don't want to say, but I think as a strategy you should expect more and more of the content to go entirely exclusive like with.

Joe Rogan.

Okay. Another question from John expert Stifel.

Can you discuss the adoption and P&L impact of the two sided marketplace tools relative to your expectations are you on track to meet or exceed the 50 per cent growth target for gross profit from two sided marketplace and has U M. G's commitment accelerated adoption or has the cadence of album releases during covid been a headwind.

Yeah, so at a high level.

We are still on plan to meet the expectations for the for you that we gave in terms of marketplace contribution to gross profits and nothing has changed there.

And then maybe Daniel talk about the U N G said.

Yeah again uhm it it's still early days in terms of the M. G deal, but obviously I think this is fantastic for just a as an endorsement for the marketplace strategy and we're still ramping up that partnership and bringing more and more of <unk> U M G inventory onto.

The marketplace Uhm, so that's still very much to focus, but I think it goes really well for 2021 and as I mentioned before you know we have a 76% increase in unique participants on our products and a 74% for attention. So I think that speaks well to the fact that the <unk>.

People are enjoying this it is becoming a bit more of a word of mouth, where more and more craters an artist see this and again to to kind of take two steps back. The goal here is we in the marketplace strategy, we want to do three things, we want to create more and more tools for artists and labels too.

To grow there <unk>.

Fanbase on Spotify, Uhm, and then add more and more tools and services to enable them to interact with those fans and more and more towards the services that enables them to monetize those fans better than what they're currently doing that is the strategy and and we're adding more and more two <unk> and you'll.

Should expect us to double down on that strategy.

Great. The next question comes from Stephen Chahal at Wells Fargo, We've seen a number of advertising companies speak to queue for being sequentially worse for add growth due to rising Corona virus cases, what's baked into your Q4 guide in terms of bad revenue or at at <unk>.

Yeah as I said earlier, we don't give specific guidance on a premium versus ads, but I did say, we expect that the year over year growth in advertising queue for will be higher than what we saw in Q3.

Obviously, there's a lot of uncertainty around covid around the second or third wave and so there's some conservatism in our numbers, we we would hope, but again, there's a lot of uncertainty as well.

And my early edition of course is that while of course, we care about advertising is still a relatively small of a.

A small part of the overall revenue pool.

Alright. The next question comes from Justin Patterson podcasts have been a meaningful investment area for the past two years can you discuss what you have learned during this time frame and how audience reaches translating into listening hours and subscriber conversion what is the next levers to improve the user experience.

Uhm, obviously, a tremendous amount of learnings in and pod casting some that's translated incredibly well from music into audio I think the most important what's the the core thesis we had US we started doing this list that we could serve users better by not just doing music, but actually <unk>.

Adding podcasting as well and that the net result would be that we you would see a higher engagement a higher retention across both categories that has turned out to be true and I think that should give you a lot of encouragement us investors that the strategies working Uhm then in terms of all the other aspects of course like if you think.

[noise] about music is three and a half minutes uhm piece of content that you're selling so a lot of it. It's it's not a huge investment for people to try out a new song.

In podcast thing in many cases, it maybe half an hour or two an hour's worth of investments to try and you podcaster. So the way we merchandise content the way we recommend content is entirely different.

In a podcast thing as it is in in in from from music. So that's still an area, where we're developing a lot of learnings and trying a lot of things. So for instance, we shipped a few quarters ago thrillers as a way of of giving people a snack by a way of discovering new shows.

And we have many many more experiments currently underway and many more things that you should expect us to ship to uhm uhm, but overall I think the the key thing to to look into is we are using the podcast stacked now to give the craters further ability to engage with their fans.

Uhm user can talk being the primary example, this quarter, where you know whether you're a podcast. There now you can all of that we know music is a huge use case for a lot of podcast, there's but licensing has been a a big problem and the co Spotify has music and podcasts on the very same platform. We now have that Bennett.

If it were podcasts you can talk about music and incorporate that in their shows and that's great grades and just Ah. Similarly, we know a lot of music artists want to talk about the music that they're creating and so music can talk works really well for them too. So this is just another way where you can see a natural extension of this audio <unk>.

Our strategy playing out in the open and you should look for more developments on those formats, we've talked in the past about polls as well being one of those things that we have experimented with so many many more things to enable more engagements between crader some fans.

Alright, great and we are actually out of time for today's Q&A session I'd like to turn the call back over to Daniel for some closing remarks.

Alright, well, thanks, Brian well I'm really proud of our team and how well our business is performed of the first nine months of the year and as I said earlier, it's a real testament to our flywheel and as we gain momentum I strongly believe that you'll see us drive greater acquisition pretension engagement and monetization which is good.

For Spotify, good for users and good for graders and there's no doubt it's all the good for the entire audio ecosystem and for that reason as well as the continued outperformance of our business I remain very optimistic for more on this quarter by the way listen to the Spotify for the record podcast, which will go live.

<unk> on our platform Tomorrow morning, So that's a big plug for me to end. It all thanks again for joining us and have a great day.

Okay. Thanks again, everyone for joining the replay the call will be available on our website and also on a Spotify app under Spotify earnings call replace thanks again.

This concludes today's conference calls you may not disconnect.