Q1 2021 Spotify Technology SA Earnings Call
You won't be the volume.
I'm going to in a message of manganese ore and in Colorado made a form of cut out more critical effect on other kind of on an ex Asia on a stigma.
First of all kind of high single digit partnership.
Outbound scale Missoula for ear of mother of York, you'll not all of Crystal eat of my Yoga is deep.
He brought her on behalf of haul healthy on sales kind of their phone call middle of Amdocs yellow zone, what do you want to rely on.
Some of them.
All of that support digital supported for that day.
But on that.
Yeah. This is Tom, albeit for me all seem to vary from action out of her channel said, Oh do you have anything for us.
Yeah on Silicon Hill of it.
Hum on the Mustang of meals could hack of a day value of digitally volume of couple of Spotify all of a sales call me, you'll not split them up.
Yes.
Okay.
On a wake up every day for all of confidence, believing that I can conquer any challenge that comes by way.
And find a way to excel in ways that I never thought were possible you can't over manipulate just for the success of the metrics.
Like once you look for Mastec over the art.
Yeah.
Yeah.
Yeah.
Yeah.
Okay.
Okay.
The women, who grab them and the man, who would do anything to keep the fantasy of lag and I've estimated of taking my close on.
Good day, and thank you for standing by welcome to the Spotify first quarter 2021 earnings conference call. At this time, all participants lines are in a listen only mode.
If we acquire any further assistance. Please press star Zero I would now like to hand, the conference over to your Speaker today, Brian Goldberg head of Investor Relations at Spotify. Thank you. Please go ahead.
Great. Thank you and welcome to Spotify as first quarter 2021 earnings conference call joining us today will be Daniel <unk>, our CEO and Paul Vogel our CFO.
We will start with opening comments from Daniel and after the remarks, Daniel and Paul will be happy to answer your questions. We will again be taking questions exclusively through slide on questions can be submitted by going to slide on dot Com S. L. I D O dot com and using the code Hashtags Spotify earnings Q1, 'twenty one analysts can ask questions directly into slide on all participants can then vote on the questions. They find the most relevant.
We'll start by taking one question per analyst once everyone's had the opportunity to ask a question, we'll be happy to address follow up questions time permitting if for some reason you don't have access to slight or you can email investor relations at ICR at Spotify Dot Com and we will 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 of 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. We'll also refer to certain non I FRS financial measures reconciliations between.
On our IR I F. R. S. In non ire for S financial measures can be found on our letter to shareholders in the financial section of our Investor Relations website and also furnished today on form 6K, and with that I will turn it over to Daniel.
Alright, hi, and thanks for joining us.
I'm pleased with the continued momentum we're seeing across many aspects of our business this quarter, including our subscriber growth 'twenty 'twenty was a very strong year for Spotify and as we reported our Q4 results I discussed the high degree of uncertainty we knew we would continue to face in this unprecedented environment I also shared.
We likely pull forward some growth as evidenced by our outperformance in MCU throughout this past year.
In Q1. This uncertainty played out largely as expected several metrics like subs revenue gross margin and Arco came in a little higher while Mou came in a little lower but still well within our range and some markets that we have previously seen really strong performance from like parts of Latin America, and Southeast Asia show.
Some softening on the EMEA side, while others in both new and mature markets continued to disrupt demonstrate really impressive growth.
And while it's worth noting that of our four quarters Q1, historically tends to be the quarter with the lowest new user Activations. We also know that the world is in various stages of recovering from the pandemic and we see that reflected in aspects of our business.
And while I expect the puts and takes that we saw in Q1 to continue throughout much of this year I still feel very confident in what's on the horizon looking out the remainder of the year and beyond and as always I want to focus the bulk of my time with you looking ahead.
I am more confident than ever in our ability to deliver on our ambition to become the world number one audio platform.
And if you tune into our three main event in February you, probably understand why I'm. So bullish our strategy to move from being a streaming service to being an audio platform is really starting to come to life look no further than the clarified messaging, we launched yesterday around how we will enable access to paid audio products on top of the Spotify.
I really think this positions us to truly be the audio browser of the world.
And for those who may have missed it we detailed several new innovations and enhancements in our pipeline that will benefit both creators and the users and this includes our recent launch into more than 80, new markets, which is open up of new exciting opportunity for growth and I will share more on that and of minutes.
I also shared more on why I continue to believe that the opportunity in audio is still largely untapped with tremendous growth potential far beyond what most of us can imagine today take music is an example.
The latest numbers from I S. P. I just out this quarter reinforced the strength of the industry. It has seen an increase of 54% in global recorded music revenues since the 2000, fourteens low and streaming revenues with a growth rate of more than 600% over the same time period continue to propel the industry forward.
Industry sources recently forecasted that the streaming market will triple reaching $79 billion in revenues by 2030, and Spotify continues to be the primary driver that is pushing global music revenues to record highs.
Related to this look no further than the price increases, we just announced across 12 key markets, including the U K and U S and we did this on the back of successful Rollouts in the previous two quarters, when we implemented price increases in more than 30 markets. The positive data we continue to see in terms of the value of users.
He and Spotify underscores the significant opportunity here and you should expect that we will continue to leverage increases as we evaluate market conditions.
I Hope you have also checked out our new site loud and clear, which is increasing transparency on the economics of music streaming there you'll see the number of the most listened of artists in the world is growing and it's more diverse than ever as more artists are finding success the bigger the impact we as a platform can have in serving them.
<unk> and their teams and the more successful artist there are the more impact we can have on creating an even better consumer experience.
Thinking of consumer experience, we continue to see lots of opportunities to enhance our user experience across the board and you should expect us to move quickly and invest aggressively when we do because the broader audio market is still in its infancy compared to music the opportunities to innovate there are immense and evolving fast.
And seriously.
We have long enjoyed a first mover advantage and we will continue to prioritize introducing new capabilities across all facets of audio.
Our recent acquisition of the live audio room locker room is an example of this commitment to improving our experience we want to be the absolute best partner to creators by giving them opportunities to create and grow and engage and monetize their art and fan base and we have some exciting plans for locked room, and we will share more details.
In the coming weeks.
And why are we decided early to go all in on audio, it's giving us a head start of more than a decade and unrivaled size and scale others are of course, taking notice. This isn't surprising at all given the enormous size of the audio market, which some projections indicate could be valued at $200 billion by 2030.
Competition is nothing new for US we saw it in music and always expected others to jump on the audio train when they realized how attractive it is to billions of listeners around the world.
We believe we have at least five to seven X growth left in the business. We are in today music podcasting and paid audio and we intend to win in those businesses.
All of that said you should expect us to remain focus on our core pillars for consumers. This is delivering a great consumer experience through of freemium ubiquity and personalization and for creators it as a maniacal focus on serving them through a personalized marketplace set of offerings and not one size fits all.
As always when we see opportunities that we believe will strengthen our capabilities for creators or consumers you should expect us the prior prioritize the long term over the short term.
And to help realize our ambitions over the last couple of months. We've led our most sweeping geographic expansion to date, turning Spotify on in more than 80, new markets across Asia Africa, Europe, and the Caribbean and Latin America and.
And in doing so we're introducing the passion the creativity of this sounds and cultures of creators in these markets two of global audience.
We are ramping up quickly evolving our content and adjusting our product as we learn about what makes the most sense on a hyper local level.
These are only a few examples of the tangible efforts underway and we will continue to aggressively pursue opportunities to expand our content in our offerings and enhance our user experience in spite of the uncertain environment.
And with that I'll turn it back to Brian for questions.
Alright, Thanks, Daniel again, if he's got any questions. Please go to slide on Dot Com Hashtags Spotify earnings Q1, 'twenty. One once your question has entered you can edit to withdraw your question by selecting the option in the bottom right.
We will be reading of questions in the order they come in with respect to help people vote of their preference for questions.
And our first question today is going to come from Doug Anmuth of JP Morgan.
You noted that the percentage of Emma use consuming podcast was consistent quarter to quarter, but you saw a strong increase in podcast consumption hours can you explain potential reasons for the Delta there and can you comment on how much of total consumption hours are currently podcasts.
Yes, I can see I'm Gonna go yeah, I'll start with that one.
So yeah.
On a high level, Doug the consumption hours were very strong or about 20% quarter over quarter. So we feel really good about that when you look at the percentage of podcasts miu relative to total Mou. Some of that is kind of dependent on the on the point in time of day quarter ends and so December had a very strong months, particularly with the Joe Rogan going exclusive.
But when you look at the average podcasts Mou you over the average Mou over the period. It was up from Q1 over Q4 of them. When you look at the trend over the last.
<unk> really 678 quarters of for but particularly the last four quarters that average growth in podcast Ami you to average Mou has been up about 150 basis points quarter over quarter. So we feel really good about the overall trends in podcast Mou and sometimes theres a little bit of Lumpiness in the actual reporting just on how any one quarter ended.
With respect to new releases of our launches or exclusivity.
And in terms of how much consumption, we don't breakout how much consumption is on podcasts I will say that March at an all time high in terms of the amount of podcast consumption on the platform.
Alright.
Our next question comes from Rich Greenfield of light shed.
Everyone appears to be getting into the live audio business following clubhouse.
Curious how you think about live audio as a feature versus the Standalone product and how creators will decide where to go live whether it be spotify clubhouse or another platform.
Yeah. This is Daniel.
Now I I think live audio is clearly something that you should expect us capabilities go pretty much every major platform will have and my expectation, it's really no different than how you think about stories stories today exist on a format on a number of platforms, including Spotify <unk>.
<unk> of course, Instagram snap and many others so.
So I do look at this as a compelling feature set and I think creators will engage in the places where they have the best sort of creator of to fan affinity for the type of interactions that theyre looking for.
And I think this is very similar to say how story has played out historically.
Okay.
Alright. Our next question comes from Mario Lu with Barclays, You recently announced pricing of podcast subscription for.
For content creators.
Undercuts your competition are there opportunities outside of the podcast subscription itself that you can monetize to receive better than 5% economics.
I think this is a long term play for us and in terms of podcasting, but I do want to go back and just talk about here why I think this is important as many of you know we.
We have for now the better part of more than two years.
Talked about how we believe openness is what's going to be important and drive innovation across the ecosystem and the most important thing for US is that we play by those rules and I think what were we announced yesterday is just a very very compelling product for craters, where they have control they have control and how they can match.
It's their consumers to have control of and how they can monetize their consumers. It's just a very attractive proposition that creators are of very very excited about and want to work with us.
As revenue opportunities goes going forward from that I think that theres. So many tools that we can create for creators and for consumers alike and there'll be plenty of.
Revenue opportunities that will be coming from that so.
So look at this as the beginning and again as I've said many times before we're in the early innings of audio AD and the key thing right now is still moving offline linear audio of listening to online on demand.
Listening and that's the trend line that we're pursuing and there'll be lots and lots of opportunities for finding.
Monetization paths between creators and consumers into the future.
Alright, well good for the next question Mark Mahaney at ISI.
Why did you reduce your full year <unk> guidance, but maintained your full year premium subscriber outlook, what's causing better than expected conversion of M. A use of the premium subs.
Yeah, I'll start with that one.
I think for US if you look at the guidance of a lot of it is just.
Taking into account the coming to the bottom of the range in Q1 of the name of your side and this upside was actually stronger than expected I think if you take a step back when we started the year. We did say we expected some greater variability within some of our metrics I would say actually we probably had more concerned on the sub side for the fact of the subs number came in better than we expected.
This is really positive for us on.
And in terms of conversion I would say kind of if you look at the sub standard of your ratio.
It was up in Q1, it's still a lower Q1 this year than it was Q1 last year and typically what you see for us and you'll see this if you look at the history of Spotify Theres always some kind of waves, where <unk> seems to be the bigger driver and then subs becomes a bigger driver and a big function of that is when you have periods of time, where mou growth very very fast growth.
The top of the funnel, but it normally takes six 912 months for us to convert those free users into our premium paying subscribers. So it's actually very logical to see that growth in EMEA U that we saw last year and translate into subs down the line. So actually all of the numbers are pretty consistent with what we expected and I think we feel still for really good about the overall.
Trends in user growth and <unk>, and particularly subscribe for growth.
Alright next question comes from Venezuelan Brennan of Morgan Stanley.
What percentage of your users have seen price increases thus far.
If that's not having a material impact on top of funnel growth can you elaborate more on what you see as the drivers of them of your softness relative to expectations.
Yes, I guess I'll start with Aero as well.
So we haven't disclosed the actual number of of subs affected by price increases, but we're in over 40 markets right now.
We feel good about what we have accomplished so far in terms of price increases when you look at gross additions and churn we've seen very minimal impact on either one of those metrics. So we feel good about.
The price increases.
Yeah of price increases wouldn't really impact of top of funnel because top of funnel is sort of the free users. So there's really no impact on there I think you know like a lot of folks we saw exceptionally strong 2020, we did see a pickup in Mou growth starting in March of last year that in hindsight looks to be somewhat correlated to COVID-19 in some ways.
And so there's just a little bit of a of that comparison, but in.
In General I think we expected some variability so it's not surprising to us it was in sort of the complete.
A complete range of our expectations and like I said I think we feel really good about the fact that we're able to grow subscribers faster than they expected.
Okay next question from Jason Bazinet Citi.
Investors tend to think of Spotify is very sticky, implying low churn rates, you've made progress on churn, but it's still high relative to other subscription based businesses like serious Directv et cetera, what causes churn remain elevated and what's your long term churn goal.
Yeah.
Yeah, I would actually argue our churn is not high I think in markets, where we're established our churn is it at really good levels and we're growing really really fast and then when you grow into newer markets, where your newer product churn tends to be higher and it comes down over time. So the fact that our churn rate continues to come down as a as a positive for us I don't think we've ever.
Quite out of an actual churn target, but I do think you can expect it to continue to come down over time. So I think we feel really good about it of as I said I think the churn in some of our more mature for markets.
Are at levels that you expect of businesses that are that are mature.
And.
I also think that.
So when you kind of when you think about the mix between the mature markets and the end of a growing market.
The churn is a pretty appropriate for the level of growth we have right now.
Okay. Our next question is going to come from Matt Thornton of Truest can you talk about the Facebook partnership how accretive do you think it could beat of the business as well as car thing, including how Youre thinking about go to market.
Yeah sure I mean, these are obviously two very different partnerships, but they fall on the same strategy for us, which is ubiquity and so when you look at Facebook as an example, it's obviously one of the world's largest platforms, reaching billions of consumers around the world and one of the key insights for us has been.
How many Spotify users are constantly sharing their tracks on.
On Facebook, and Instagram and other social platforms and expressing themselves that way.
So you should you should look at this as a way of reducing friction which will of course enable a much better experience. So it's too early to say.
What the overall in impactful day, but generally speaking when you reduce the friction for consumers who tend to see great results and I have high hopes that the Facebook partnership could certainly do that.
And then when it comes to the car thing I think again you know.
The most important thing as you think about audio product is that the car happens to be of major use case. So if you look at the car radio which is still today, where most of the offline.
Radio listening happens it.
It is pretty clear that it's it's AGA and the ongoing transformation that is going on you know if you look at <unk>.
Cars like Tesla et cetera, you see it very clearly aware. These streaming services now is the fact of radio in the car and SOCAR thing is our attempt of speeding up that progress into a future where.
You will have just a great experience as you have on your mobile in your car and you can now use that as a sort of sort of in car entertainment system. Instead of this antiquated radio systems that most people have in the car and early results. It's just a.
Very very encouraging it seems like we've really struck a chord with what consumers want and so we're seeing a lot of excitement, but it's of course very very early and I think based on how people will use their product et cetera. We will certainly think a lot more about what the appropriate go to market strategy will be and how we can move.
Most effectively roll it out.
Okay. Thanks.
Next question will be from Deepak at Wolfe research given the recent launch of several new offerings can you discuss your updated thoughts on potential gross profit contribution from marketplace in fiscal 'twenty, one and in the next few years.
Dan do you want talk about marketplace at a high level on that I can talk about the gross margin on.
Correctly.
Yeah sure. So I think I've said this before but I'll say it again, we're very very early and our efforts of moving the entire music industry from this one size fits all to a more individual offering and the way where we're taking that approach is we're trying to create a really across the whole audio.
Jack even beyond music as well and just creating more opportunities for creators to create for them to be able to distribute it for them to be able to grow their audience and for them to be able to monetize their audience and most of the marketplace products that we have today is just.
Enabling music creators to be able to grow their audience and the early response that we've had on those products of just been phenomenal with many artists seeing twice the uplift that they have from other marketing channels and really really strong retention from customers as well they are engaging with these products there.
I think there's a lot of excitement.
In the music community among the people who of use these products and we're kind of gradually rolling it out and having more and more of artist and teams.
Experimenting where our products.
Yeah, and then just from a gross margin.
We haven't given out specific targets, but I would say we talked about at the end of a year ago in terms of where we were and then we had significant growth and in 2020 of expected significant growth again in 2021 and right now.
Marketplace was.
In line with expectations in Q1, and we expected to have another really strong growth year for us in 2021.
And it is starting to be of positive contributor to gross margin gross margin and we expect it to continue to grow overtime, we haven't given any specific targets out, but we do feel good about.
Kind of of the ramp over the last year or so.
Alright. Our next question is going to come from Justin Patterson of Keybanc on advertising.
Could you elaborate more on the strength in podcast advertising.
And how are advertisers responding to S AI technology.
Yeah podcast advertising was strong in the quarter organically. It was very strong and then when you throw on top of it Jerry or Joe Rogan and Ringer.
And megaphone, it's really starting to see an accelerant to growth on the advertising side.
SA is in high demand, there's the feedback has been great as we roll that out into more areas within the advertising business and more areas of in podcast and we expect it to be a big driver of growth I would say if you take a.
A high level view of our of advertising in general I think from a product of technology standpoint from an innovation standpoint, we think we're really just scratching the surface of where we're going to go on we feel really good about the tech stack. We're investing in we feel really good about all of the incremental inventory, we have with respect of megaphone.
On <unk>.
And Joe Rogan, and the Ringer and park asked and Gimlet.
And anchor products and so I think we feel really really good about the opportunity for us to.
To really drive of advertising across the business.
Okay. Next question is going to come from Richard Kramer at of reaching its on pricing do.
Do you expect competitors to match your price increases in key markets like the U S and the U K.
So on.
I'm not sure to be honest, but that was never a deciding factor in how we approach. The decision are we focused on our business and the data that we're seeing.
And there the it's very very.
Very very clear and very very compelling data, which is we see enormous amounts of engagement with our consumer and it's been growing year over year over year as we have been improving the proposition both in terms of personal life better personalization better.
Features, but obviously expanding the content library significantly with the addition of of.
Podcast thing and exclusives as well so I think it's on the back of that that you should read that we feel very comfortable about doing that and you should obviously look at our expansion of these price increases as a debt we see this strategy working.
Alright next question from John Egbert at Stifel.
Can you discuss how locker room complements your existing spoken word content strategy. What are some of the immediate synergies you see with your existing offering.
Do you view linear consumption of spoken word audio as a more interesting opportunity than live music streaming.
Yeah. So I think the first and foremost important thing is to visualize Spotify as a platform. So we have over 8 million creators and obviously more than $350 million.
Users on this platform and in most of the time the number one thing that our users are asking us help US help me find more great content and the number one question of our creators are asking US is help me connect with my fans in more ways. So alive issue really view live as the opportunity for creating new and meaningful ways to.
Next <unk>.
Graders and fans.
That's how we look at it and then as platforms mature and features on platform mature usually the features in the beginning tend to be creators.
That are experimenting a lot more of probably not the most successful craters that and jump on the platform.
And then as us us and more people start engaging with a feature on a medium you start seeing more and more professional creators jump on board. So I think it's probably going to go on to start out with spoken word content, but specifically as it relates to Spotify I think that there will be a lot of musicians that want to engage in.
In everything from you know speaking to their fans to having listening parties and all other things because it's so clear to them that on the Spotify platform that engagement drives meaningful a conversion to monetization opportunities just on the basis of our revenue.
Yes.
Okay.
Okay. Next question is going to come from Maria reps at Canaccord.
Live audio is a fast growing space, but also when it gained popularity during the pandemic when people were spending more time at home how does Spotify plan to integrate this feature within its audio ecosystem to make it just as useful when people are back in their normal routines.
Yeah.
I think it really just comes down to creating compelling content.
As an example.
Again, you can imagine as in the previous question. We may have an artist I have is on upcoming album and Hugh.
As as the.
Fine may be able to experience that earlier than than other consumers can or you can have an artist explain what the thinking around our writing of certain songs was and you can obviously have comedians and other people engage on topics.
Our debt there are currently experiencing or imagining so I think it's really comes down to the quality of the content.
And.
I think you know when I look at our 8 million creators we have some of the world's best storytellers on the platform and that's ultimately what people will tune into.
And that's what matters.
I would also just add you know with our ubiquity strategy, we've been able to sort of pivot in both directions and so you think about when people first started being at home a lot more of an interactive game consoles and voice speakers.
We sort of lead into that which was which was super great in and when people start traveling and being out again.
There'll be able to use other devices, just as equally and so having that sort of ubiquity strategy of having our platforms.
And Spotify on as many devices as possible has allowed us to be successful no matter, how you're how and where and when youre using audio content.
Yeah.
Okay. The next question from Lloyd Walmsley of Deutsche Bank.
Based on the improvement in churn it would appear that gross premium subscriber additions didn't really grow year on year on the quarter, Despite opening up new markets.
Do you think gross adds the growth in gross adds will be declining on a year on year basis going forward or can you grow those again.
I'm not going to comment specifically on gross adds.
We'll share gross adds are very strong in the quarter.
Without getting into too much of the technicals I think because we give you guys rounded numbers of not actual numbers, sometimes trying to back into our gross add numbers can be misleading, but I will say our gross adds were strong in the quarter. So.
So we feel we feel good about that on.
And we feel good about the overall.
Subs number.
In general and so yeah.
Yeah, no no comment other than that but I feel good about the gross adds on a net ads.
It both for the quarter end for the year.
And also just in terms of your new markets. Obviously as you can imagine a lot of these new markets take a little while to ramp. So there wasn't really an expectation that there would be massive increases in subscribers or new markets. Although they performed in line with our expectations.
Okay next.
For Nick Yaltas at Redburn.
How do you.
D. A use compare to your Emma use and are you seeing lower engagement is that why M. A use.
Were below expectations this quarter.
The day, you'd MAA ratios has been pretty steady.
Both overall and for premium and adds it's actually.
In general been ticking up a little bit across both over a over the average of the last couple of quarters. So we feel good about that ratio on.
And I think we've talked about the Mou of lot. There was some pull forward of at a very strong 2020 in general.
But we feel good about the overall trajectory for we still feel good about the overall number of net additions to be expected Mou for the for the full year and engage on remains really solid on the platform.
Okay next question for Mike Morris of Guggenheim.
And is your share of listening in the car compare to your broader share of overall listening.
How significant is this segment of the market can broader distribution of car thing be of step toward meaningful engagement expansion.
Yeah, I think that's exactly the right way to look at it on I mean, if you look at audio as a category.
It has three distinct.
Use cases, one is in the home one is on the go and one is in the car.
In the home it obviously compete with other forms of media like video et cetera.
On the go you Theres a lot of things you can do but Audi of happens to be of very strong <unk>.
Medium there too and in the car.
Obviously video and other type of of sort of immersive experiences is not very common.
So audio there happens to be of very very big part of our overall of what people do in the car and especially in the U S. The car use cases, obviously massive so I think you should look at car thing as a wave of us sort of.
Full stack going in and re imagining what the user experience in the car for the next Gen car Entertainment system should look like.
And this is our version of that and I think this awesome why it's so pleasing to see.
The early results of that and how engaged consumers were.
And and just sharing the message and being Super excited about that so we're very encouraged with it but it's very early days.
Okay next question from Andrew Moroccan Raymond James with Q1, podcasts Mou penetration consistent with Q4 levels for consumption hours, increasing how are you thinking about the opportunity in terms of increasing podcast penetration versus driving more engagement with existing podcast users.
Yes, I touched on this in the earlier question, but in general I think the pockets M of you penetration continues to move up as I said, we had a really good growth last year in Q4 in particular, where we're up about 300 basis points quarter over quarter and.
In December in particular was strong given some of the exclusivity.
That we had.
In December but in general again, if you look at the average per.
Some of you over the average Amy you over the last couple of quarters that continues to trend up and so we expect that the overall per se.
Age of of.
MAA, who engage with podcast will continue to move up so we feel like.
On that line is on that curve is really really strong.
And and engagement engagement has continued to move up we're seeing in of new users and existing podcast users and it was a very strong quarter over quarter. So we feel like the engagement is there and it will continue to lead to more price get podcast usage overall.
Yeah.
Okay next question from <unk>.
Mark Z at Rosenblatt Securities.
Could you discuss the variables.
In the low versus high end of your gross margin guidance I assume that's for fiscal 'twenty one.
Yeah, I mean, there's always a number of things that go into that I mean, I think one of it is is content and the speed with which we continue to grow the content base says there is an element of that that's in there as I've said in the past.
I think overall music margins will be.
Flattish for the most part there's always some variability of it for the most of art flattish, we do see some some benefits for marketplace of the upside or downside on on marketplace as well it can be of driver.
And just on the other cost of revenue.
We actually have seen a little bit more leverage on things extremely delivery of payments than we expected leasing of first quarter is a little bit better than we thought so.
How that trends over time will also dictate it so those are sort of the main.
The main points.
As you did see we did raise the gross margin guidance for the for the full year. So we do feel like right now we're on pace to have a little bit better for gross margin here then than we expected when we started the year.
Okay.
Okay. We've got a question from Steven Cahill at.
Wells Fargo.
Oh excuse me well it looks like can you tell us what per user consumption hours are in North America on Europe, where they grew in the quarter and in developing regions, where there was some COVID-19 pressure.
In Q1.
I don't believe we've given out that number in the past.
So I think that's where I can add to that other than to the and we haven't really said specific.
Growth rates of regions, but as I did say that the overall consumption I think it's in your question. It has above COVID-19 levels in many markets and in some markets, where it was weak that hasn't that hasn't come on the way back they are improving so again, we feel good in general about the consumption trends across the platform.
Alright, our next question from Atlantic Equities.
I believe that's Hamilton Faber.
Can you talk about monetization models for lives and if how these differ from your current capabilities and what you need to drive this new opportunity.
Yeah sure so on.
I'm really really excited about this and I think this is one of the areas where.
We can learn a lot from what's happening in China, and particularly which has a lot more of sort of developed ecosystem. When it comes on line product et cetera. So obviously right now our primary focus is just creating more meaningful engagement on light products across the base and this is about getting our 8 million creators to interact.
With the hundreds of millions of consumers that are on the Spotify platform, but overtime I think that this will be a.
A very very big potential from a revenue standpoint.
In addition to these existing models that we have today, but I also do you want on kind of up level of this question for a moment, which is if you really think about this day the real big transition for US in these past few years has really been obviously from for music to being audio but the other trend line, that's very clear on.
As I said in my opening regards is going from a music service to being an audio platform and if you think about that audio platform.
Narrative for a moment it really has a few core pillars. One of them is creates one of them is.
Distributed another one of them is engaged and the fourth pillar of monetization.
So we are investing massively in all four of these pillars on making easier for creators to create you can imagine that with sort of live experiences making.
Making easier for people to distribute their content anchor of being a great example of where we're.
Consistently you just innovating on music and talk.
Other types of formats that just allows creators to express themselves.
In different ways.
And then of course growing peoples fan base and create new forms of engagement with their audience and then lastly of course monetization, where you have everything from <unk> to <unk>.
Subscription packages that we announced yesterday.
This is a massive roadmap that the companies.
<unk> has taken on and that you are seeing us execute on and I'm really really pleased with the early innings of how that platform now is coming to life and I think over the long term.
That's what I'm Super excited about because we have this audience now of 350 million <unk> 8 million creators and it's really about creating across this creates distribute engage and monetize creating more and more avenues for these two groups to connect with each other engage with each other and monetize those.
Engagement.
So yeah, very very encouraged and very early days on the evolution of the audio ecosystem.
Okay, and we're gonna go to the next question from Jessica Reif Ehrlich at Bank of America. Another one on car thing what's the timing.
On a broader rollout for this initiative and what are the incremental revenue opportunities that spot can capture by targeting in the car.
So early days still still shipping the product to the consumers that signed up.
So it's too early to say I think from a broader rollout perspective.
But as we you.
You know mentioned there when.
When we roll it out broader it will likely have a consumer price point as well and not be.
Is it a a free product as it has been in this early.
Our early innings.
Okay and.
We're gonna go now two follow up questions, we've got time I'm actually for.
One more and that's going to come from John Egbert at Stifel. How much interest of you getting among of megaphone publishers and other podcast creators looking to participate in the Spotify audience network are you sensing any hesitance to participate from larger more established creators and how quickly do you expect network inventory to scale in 2021.
Yeah, I guess I'll start with them on.
Yes, I think it's low but it's too early to tell I think we're super optimistic about what the audience number of will be able to prove up to provide.
Both to the publishers and the advertisers as well as us in terms of just broadening out the.
The amount of inventory of the audiences. They can reach the targeting capabilities and then you sort of throw on top of of things, we're doing with Psi and we think theres a lot of opportunity to.
Grow the overall market and podcast and we know there's a ton of demand out there.
For podcasts advertisers and folks who want to advertise on podcasts.
And all of the recent enthusiasm about podcasting and audio content is only help that so I think we feel really good about where we are on I think we're.
Super pleased having made that acquisition.
Last year in terms of where we're set up for the future.
Alright, great. So.
We're out of time now for Q&A, So I will turn the call back over to Daniel for some closing remarks.
Well, thank you Brian.
In my experience the key to our future success is to stay focused on our long term opportunity and short term, we will continue to perform while rolling out with the ups and downs inherent in challenging and unpredictable environment put another way we at Spotify are stubborn ambition, but flexible on the details of execution we will.
Continue to experiment and prioritize being nimble and accelerate plans when the opportunity makes sense and in this audio world, where creators and consumers are at the heart of everything we do we see ourselves as a huge catalyst for growth and we're committing to holding ourself accountable to living in a constant state of improvement. This is what drives me.
And the team to come to work each and every day and I'll be talking more about our earnings report on our podcast for the record which will go live on our platform tomorrow. Thanks again, everyone for joining us.
Okay and that concludes today's call a replay of the call will be available on our website and also on the Spotify App under Spotify earnings call replace thanks again, everyone for joining.
Yeah.
On our website and also on the Spotify App under Spotify.