Q2 2021 Spotify Technology SA Earnings Call

We don't have just a slight or you can email investor relations at IR at Spotify Dot Com and we will add in your question.

Before we begin let me quickly.

Making certain forward looking statements, including.

Injections 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.

So of results could materially differ because of factors discussed on today's call in our letter to shareholders and filings with the Securities and Exchange Commission. During this call. We'll also refer to certain non I FRS financial measures reconciliations between our <unk> and non <unk> financial measures can be found in our letter to shareholders and the financial section of our Investor Relations website and also furnished today.

On form 6K, and with that I'll turn it over to Daniel.

Alright, hi, everyone and thank you so much for joining us I will touch briefly on the quarter and then offer context for some of the opportunities I see across our business.

All along we've been pretty clear that our outlook for 2021included a higher degree.

Free of variability given the ongoing uncertainties of the pandemic and the uneven recovery worldwide.

And with the exception of Mou, we've had another strong quarter, which is apparent in the solid outperformance of all of their metrics.

And while I'm disappointed that our <unk> growth was softer in the last half of Q1 and the first.

<unk> off of Q2, the good news is that we've seen the trend line reverse and all of the leading indicators I'm seeing show that we're back on track.

There's a lot to learn for us on the MDU shortfall markets like India, Brazil, and parts of Southeast Asia lagged behind our expectations and we've also seen slightly slower adoption of.

And some of our newly launched markets. All of these regions have been hard hit by Covid.

Ultimately, we lost about a quarter of growth between Q1, and Q2 and in hindsight you'd likely underestimated the acceleration we saw in <unk> growth in 2020.

All of that said I feel really really good.

First how about what we're seeing taking a bigger picture view and looking at the last 2 years average together, we're still on track to outpace our <unk> growth in these 2 previous years 'twenty 'twenty was a bit of an outlier companies rarely grow and of straight line and nothing in our data changes our long term outlook and the audio.

Opportunity for Spotify.

In fact, if there's 1 thing that is the price meet the most during COVID-19, it's been how effectively we've been able to dream up and accelerate the rollout of new innovations in the midst of tremendous disruption, while also executing against our existing roadmap and long term I believe.

Believe speed of iteration will be a key competitive differentiator. So theres a lot of positives that we also bring with us from this.

We've highlighted several of these innovations in our letter, but we've actually introduced more than 20 significant new features over the last few months.

It's been on everything from collaborative listening.

Worldwide to launching a new live audio experience Spotify Greenroom. We also began rolling out paid podcast subscriptions and Spotify open access both of which offer solutions for creators and publishers to earn revenue from their Spotify listeners. These product innovations are unlocked an entirely new class of content on.

Bye bye.

And I'm hearing from consumers and creators alike about their firsthand experiences with the changes they are seeing on the Spotify platform and frankly from where I sit it's incredibly exciting to know that there are plenty of improvements we can deliver that will substantially enhance our offering and as a consequence opened.

<unk> for Spotify as well.

And all of this has been accomplished.

While our entire team has been remote allowing more teams across the world to collaborate on each new release, and we've used our learnings to supercharge, our velocity of shipping and that impact is starting to show per.

In other words.

You'd last form where building is all about moving from 8 million to 50 million creators and from 400 million to more of the 1 billion users on our platform.

For each improvements, we will turn more of listeners into super fans give voice to more types of creators and offer users multiple of.

The play to interact and engage with the talent they love.

When we connect creators at every stage with fans around the world, our flywheel moves faster and faster unlocking even more potential growth. We are still early in moving linear radio on demand audio, which just goes to show the growth opportunity is still out.

Waste is significant.

Then of course, there's the growing strength and importance of our AD business. Admittedly. This is an area where I previously didn't spend much time, but it's becoming impossible to ignore it's now safe to say, it's becoming a second big revenue driver for Spotify and I'm, especially inspired.

They're the early success of the Spotify audience network, while we are of growing the overall ads business from a small base. The potential is significant and the trend line is clear we saw strong growth of 110% year over year adjusting for FX. The growth is even more impressive coming in at 126.

6% and looking at podcasts podcast revenue was up over 627% year over year or nearly 200% on an organic basis and the continued outperformance is currently limited only by the availability of our inventory, which is something we're actively solving for.

So it's clear to me that the base of our AD business accounting for less than 10% of our total revenue are behind us and going forward I expect adds to grow to be a substantial part of our revenue mix. So as you can see there's a lot going on and there is a powerful pipeline of platform improvements that will benefit consumers traders.

Brand partners in Q3, and Q4 and now I'll turn it back to Brian and the questions.

Thanks Daniel.

Again, if you've got any questions. Please go to slide O Dot com hashtag Spotify earnings Q2, 'twenty..1 once your question has entered you can edit of withdraw your question by selecting the option in the bottom right, we will be reading the <unk>.

And in the order they appear in the queue with respect to how people vote up their preferences for questions and our first question today is going to come from Ben Swinburne can you provide some data during the first half of the year that supports the view.

That Mou weakness is driven by Covid related factors. For example are there regions performing better or worse, where the variance can be explained.

By different stages of lockdown reopening or economic stress.

Yeah. Thanks, Ben.

So we can and we've looked at this and so there's a couple of things I would highlight.

So first as we know in general that engagement leads to better <unk> and better retention and so where we have markets where engage.

Engagement is high we're seeing positive trends and where engagement is not as high of the trends aren't as great and so how can we measure that well theres a couple of ways..1 is what we've noticed in markets that where COVID-19 is a significant use of lockdowns of significant or the spread of significant youre seeing less mobility and in markets, where youre seeing things more.

Open you're seeing more mobility and more mobility leads to higher engagement, which tends to lead to a higher retention and better <unk>. So we've seen it in that data we.

You'll also see it as we've talked about in the past when we first of all the Covid, we sort of mentioned that everyday kind of look like of the weekend, meaning every day had sort of similar types of of of patterns that were.

Like a Saturday or Sunday, you didn't have the normal cyclicality in the day through of commute and what we've seen is again in markets that are more open in markets that are.

Where its less of an issue youre seeing a little bit more of a returns out of cyclicality weekdays are starting to to get back to the way. They normally are with that cyclicality of net usage and engagement and in markets, where COVID-19 is still bad and we're still.

And lockdown phase those midweek days are still looking like weekend days in so we can see it in that data as well so that's kind of.

<unk> always sort of thinking about it from the engagement metrics perspective. The other thing we know is in markets, where COVID-19 was.

Very prevalent we cut back on.

Net advertising pretty significantly so regions, particularly India is 1 where we're still.

Relatively new there we know how our marketing plans work, we know that when we do marketing plans. They tend to have a direct impact on user growth in India.

We didn't really spend any money in Q2, and India, given what was going on with with Covid and net area.

Marketing and so as we.

Increased some of the advertising increase some of the spend in the back half of the year, assuming some of these markets get better.

We feel like we'll see some of that.

That Mou growth come back, where we werent spending in.

In the last quarter.

I think there was just sort of be the highlights of sort of how we've tried to triangulate between.

Area kind of markets with with.

With Covid, and where things are better or worse, and how they've impacted kind of of our engagement metrics an army of your growth.

Alright. Our next question is going to come from Matt Thornton. Another 1 on Meus wondering if you could expand on or quantify the impact of the intake issue you experience.

<unk> with a third party platform.

<unk>.

What gives you confidence that slow revenue growth is a function of COVID-19 as opposed to a function of price increases competition and or saturation.

So I'll take the first partner I guess I'll, let Daniel take over the second part.

So with the the.

Third party platform.

That was an issue with email of our IMU.

Verifications between us and of third party in.

In full disclosure this was an issue on our end we made a change.

That was not called soon enough and we believe it had an impact on growth. The estimate right now it was about $1 million to $2 million of Mou growth was impacted by the friction created.

By this email verification change, it's since been corrected and Shouldnt impact should not be an impact in Q3.

In terms of the first half of the of the.

The first half of the second part of that question.

Again talking about Covid I think I mentioned it in the last.

A question I will say, we obviously.

Its price increases because of our subscriber growth was actually slightly better than expected. So price increases would really have a bigger impact on subscriber growth as opposed to free user growth.

And then maybe I'll, let Daniel talk about sort of competition and saturation.

Yeah.

As Paul kind of outline button. This question and the last 1 most of.

Of the underperformance, we saw were in <unk>.

Sort of emerging markets of non.

Sort of western markets. So as it goes to the question of saturation et cetera. Those are also in markets, where we're in much earlier stages of growth rather than the sort of bigger markets like the U S and.

Most of Europe, as well and then.

As competition goes I still look at all day, leading indicators of our engagement is up NPS scores looking super healthy compared to competitive set et cetera, we feel really really good about where we are free.

Some of competitive standpoint that we see of strong demand for Spotify really across the world, but obviously.

Obviously, as we said going into the year.

2021 will have a higher degree of variability in especially for a global company like Spotify, where we have so many regions that are all in different stages of maturity and I really think that's what you're seeing here and just to contextualize. It even further it's really been playing out over a quarter.

Water, so I look at it more.

Because we've had such a strong 2020.

So if I'm disappointed about anything it's probably just we should have seen it coming more in the.

Forecasting, but it's obviously very difficult to to forecast these.

Thanks, but I feel.

Feel really really good about our long term growth prospect and that Hasnt changed.

Yeah.

Alright next question is going to come from Mike Morris had insurers half of 'twenty, 1 versus those who didn't.

And what's your view of future.

<unk> or additional.

Increases for us.

Other plans.

Yeah, so yeah.

Churn was down year over year and quarter over quarter specifics about regions or geographies.

Fees or or products I will say that.

That in the margin.

Hum.

Thanks.

Perfect.

Formed inline with expectations, if not slightly better.

In terms of thinking.

Better so nothing there to call out of it.

Paul in terms of an impact from price increases.

We.

Our continuing to roll this out we've tested a number of markets I'm, not really going to comment on whether or not we will roll out into more markets or more sort of standard planner or family plan, but.

Can imagine we're going to continue to test and expand again, we're excited about the how the trends have been so far in the markets, where we have raised prices.

Just maybe to iterate on the strategy here the strategy.

<unk> for US is if we increase the engagement the value per hour of increases of our customers and us.

Proactive in raising prices when we book.

We'll leave that ability exists so it's more aligned with the engagement of our customers rather than maybe us. Some may have speculated competitive set of etsy.

Et cetera, and that's why we feel so good about.

We have raised prices both of the engagement of staying very very strong and the fact that as we've said many many times we have.

More than 2 or even 3 <unk> and sometimes the amount of engagement per user than some of our competitors do and obviously that means that there is a very.

Strategy loyal customer base there.

And I think that's what you've seen play out in the business and why subscriber growth has been so strong as well.

Yeah.

Yeah.

Alright next question is from Justin Patterson directed to Daniel at stream on Daniel you talked about a billion users.

Very EBIT for Spotify, given the degree of growth that implies what are the key investments you need to make to deliver on that target.

Yeah.

Upon this in the opening remarks, but for US. It's we've grown in the past few years from about a million creators to now more than $8 million traders, but the opportunity.

Your opportunity in front of us is really to get to more than 50 million creators and as part of that is.

Really all about of getting those.

Audiences of those $50 million per channel.

And so of creators to start listening to that.

Content, becoming super fans.

And creating more and more tools for creators and fans to start engaging with each other at turning that engagement into monetization opportunities and so on so that's really the kind of main strategy and a lot of that comes down to the combination of platform improvements.

Opportune of discover ability of.

Just being able to showcase and seeing new content and then obviously.

The content team and Onboarding new creators.

And finding.

Compelling ways to get creators to feel like Spotify is the number 1 platform because when that happens.

It is.

How will that turns into more creators turns into more users and more users turns into more creators and so on and so forth.

And from Mario Lu can you provide more details on both the strategy and economic <unk>.

<unk> open access our partners expected to pay Spotify revenue share of subscriptions.

Or is the main goal is simply to increase engagement on the Spotify App overall.

Yeah. So so really the idea of between Spotify open access is to provide an open platform for creators. So we wanting enable us much audio as possible and we view it SB 1 of D. The audio platform.

Of the World and we have multiple of ways for creators to engage with our platform..1 of them is obviously the open access where we don't partake and take any revenue and the creator of themselves can choose how they best want to monetize their audience or indicate they already had of paid audience like bento.

<unk> Thompson they can enable.

<unk>.

<unk> listen friction free on the Spotify app without sort of any hiccups and then to the extent of the trader needs help and both.

Getting more customers to come to them and help in better friction on.

<unk> et cetera, we do also offer that opportunity and those are added.

Our revenue opportunities as well so the better way to think of about it is we're primarily doing it to increase engagement and to draw of new users there, but I am 100% confident that that also leads to more business opportunities for Spotify long term is we will have more.

More and more platform tools, whether that'd be advertising.

And whether it be a payment options that we can offer or even in the future live rooms et cetera. We can offer via the platform I think all of those are exciting new revenue possibilities.

And actually it looks like Mario has a follow up on this 1.

With the Green room soft launch in mid June.

Can you explain why you decided to create a separate app from a live audio experience versus embedding it within the core Spotify App.

Yeah I mean.

The <unk> of this is an acquisition we did earlier.

Earlier in this year and I'm actually very proud of the team we pretty much.

<unk> made the acquisition a quarter later, we're able to incorporate it into Spotify.

Consistent refresh of the product stabilize it for a size spotify sized audience et cetera.

That's very much the reason.

And why this is a sort of separate app and I think you should expect there'll be more and more tie ins to the main Spotify app to and obviously it will leverage our existing distribution.

On Spotify too.

But this feels like a great way too.

Learn experiments and iterate much faster than if we had to wait.

For a full on integration into the main app of given the difference in the crater and consumer experience.

Okay. We've got another question from Ben Swinburne, you called out of revenue mixed shift towards podcasts. Among other things benefiting gross margins previously you had discussed podcast investments this year as of.

Peter drag versus last year has something changed is.

Is the business now at a scale that it should drive gross margins going forward.

Yes so.

A big chunk of that is a couple of things 1 is revenue exceeded expectations on the podcasting side.

Led both organically as well as the acquisition.

Grid of megaphone, and some of the inventory for Jerry and others.

Which was.

Super impactful.

Daniel mentioned is opening of podcast seeing revenue growth was up 627% of it was actually up close to 700% on an FX neutral basis on an organic basis. It was up almost 200%.

FX neutral so the revenue growth there was better than we expected, which led to better margins on that side on the investment side I would say it was.

In line, maybe a little bit lighter than we thought in terms of the quarter.

That has more to do with just quarterly variances with respect to content spend than it does any shift in terms of the overall investment.

For for 2021, there is some of the shift got pushed out to the back half of the year, but in general was really led by just the leverage you get on having more upside on the part of testing revenue side.

In terms of how it drives gross margin going forward.

Wouldn't necessarily say, it's an inflection I'd say, it's of a strong indicator of where we can.

We will make when advertising of strong and where we can go with the leverage on the on the pod casting side over time, we're going to continue to invest in the business.

But I'm Super pleased with how it performed in the quarter.

Yeah.

Okay next question on rich Greenfield also related to podcasting.

Sting, we set of shifting your podcast strategy from studio content. That's available on all podcast platforms 2 high profile of exclusives like Joe Rogan, Alex Cooper of DAC Shepherd, both in the U S and around the world.

Whats changed with your strategy.

Hey, rich and I believe happy birthday by the way.

Yeah.

I don't think really anything has kind of changed I think we have been experimenting with windowing, we have been experimenting with exclusives and we've said for quite a long time that obviously, we want more and more of the listening to happen only on Spotify. So it's been kind of of more of a natural.

<unk> evolution to drive it towards that and I do think again from.

From a strategy perspective, we are very much aiming to be a very open platform all along and the most important job for us is to be accurate.

<unk> partner to all of the creators than we have in the ecosystem. So I don't think of roles.

We'll also say that we would only do exclusives hard on I think youre going to see us do many different types of deals, but where possible. We would obviously opt to take it fully exclusive.

But we're going to be very opportunistic about that going.

Going forward.

Yeah.

Yeah.

Alright next question from Mike Morris another 1 on gross margin 1 of the factors that drove <unk> gross margin above guide to the 26, 5% result that are not expected to recur or said another way what are the incremental headwinds anticipated in the second half of the year given at the high end of third quarter and fourth quarter guidance.

<unk> is below the 26, 5%.

Yes, So let me let me just unpack gross margins in the quarter in general because so we reported a gross margin of $28.4 and we've talked about.

Sort of more of an adjusted organic number of $26.5 so the delta between those 2 was the reversal of some publishing accruals.

They were 1 time in the quarter, but I will say if you think about what we have done we take a very conservative view of of how we play.

Publishing globally, where sometimes it's a little bit of a challenge to make sure you're paying people. So we tend to accrue at rates that are even.

There are more conservative than we need and as we're able to.

Get comfortable.

All of that we're paying the right amounts, we reversals of accruals and theres been some of it.

It worked in Europe in particular to get this accomplished in a way that was satisfactory for everybody. We can get into the details offline with with the IR team if you'd like.

But so in every quarter for like the last 2 years, we've actually had about 2030 basis points of of hit to gross margin that we havent.

Necessarily called out because we were accruing more than we actually potentially might have to payout to be conservative. We now feel comfortable about the proper payouts or were able to reverse that accrual and that was the big 190 basis point gain there the rest of the so that's about 2 thirds of.

The upside relative to expectations. The rest of it was a couple of factors 1.

I mentioned, which was the better revenue on top of podcasting.

Helped we did benefit.

On some of the other cost of revenue a little bit more than we thought so.

So of payment fees streaming deliver of streaming delivery of customer service those types of things.

Where we.

We got to live a better leverage than we thought so the team's done.

Job on those angles, and so it's really been a combination of the better revenue growth on the 1 hand, which helped on the on the margin side and then also on the other cost of revenue side.

In terms of going forward. So now that the that accrual has been reversed that actually gives us.

A benefit of moving forward.

It's about 20 million or so.

A year so.

So that'll help in terms of of positive.

And then of negatives are as I said, there's always some seasonality on the content side, so there'll be potentially more spend on the content in the back half of the year than the front end of the year and we're not expecting quite the same leverage on some of those other cost of revenue that we saw in Q2.

Alright next question from Doug Emmis and they use have been light in the last 2 quarters and it usually takes 12 to 18 months to convert to a premium subs.

Does that slower top of funnel growth create premium sub risk in future periods.

Maybe I'll start here and then Paul you can add on.

I think it's really important.

Contextualize that.

Most of our likeness has really been due to the outperformance in 2020 more than anything else.

And even despite all of that as I said in some of my opening remarks.

And part of the reason why I feel really good about things including of course, all of the leading indicators.

2 can positively of step.

We.

When you look at.

The.

Sort of the last 2 years, we're still on track of outpacing those average the average growth of the past 2 years, but still on track of outpacing that in this year. So overall.

<unk> point of line <unk> growth is healthy we're just comparing it to an exceptional 2020.

And that's clearly on US we should have realized some of this variability going into the year et cetera, but I feel really good about that and then the second part of that is.

Leading indicators of looking Super healthy engagement Super strong pod.

Toughest engagement Super strong.

So just overall plenty of runway left and we're still early and gone from linear radio to on demand of audio so I feel really good about the.

Sort of future path to 1 billion plus users when it comes to Spotify.

Yeah, and I would just add on top of 2.

Hollywood Daniel said, if you look at the 2020 and 21 combined and think about the sort of average growth in Mou index.

He has any other year, we've ever done and so we again, we still feel really good that the overall sort of long term.

Slope of the growth in users is is on track and healthy.

And then on top of that some of the variability of its been in markets, where we would expect they would have.

Higher.

No free users for a longer period of time anyway.

There are countries again, like India, where our expectation is you're playing a long game, there and while we expect subscriber growth there and we are optimistic you know it's going to take a long.

Long period of time, so 1 quarter here or there of of growth is really not going to impact the overall trajectory of where we're expecting so.

At this point, we don't think that it should impact any of our subscriber expectations for for at a minimum this year and then we'll talk about next year. When we give guidance later on in the year.

Yeah.

Okay. We've got another question from rich Greenfield. This 1 on marketplace can you help us understand discovery mode Walk us through an example of how it's being used and how that leads to 40% more listeners for artist utilizing it.

Yeah.

So the first weighted to contextualize discovery mode of its really a marketing tool for artists and labels. So.

The great thing here is that it's really a result based marketing tool, where you're really only paying Spotify. If you find success, hence why we're highlighting the success.

From discovery mode here, So it's really a marketing tool where you opt in your shoes of the program you do see the downstream.

So locations of how many more of listeners we're able to generate because of this how many more of downstream.

In our followers and subscriptions am I able to generate and labels that are in this beta are now very very active on it and we're seeing a very healthy sort of.

Retaining rates of of new book.

Through the tool as well, but just looking at making that easier and smoother in this beta period.

Hopefully that will lead to even better results which of them.

Of course means even better adoption.

Yeah.

Yeah.

Okay. Next question comes from Stephen Chahal, how should we think about.

King's your ARPA trajectory on a constant currency basis as you move through price increases should we expect <unk> to expand from here.

And are there any plans for a base price increase.

Excluding family.

Duo and then finally are there any notable churn impacts from price increases.

Yes.

So I think I can answer the first 2 already so.

Gross intake churn.

Right on plan, if not slightly better in markets, where we've changed prices.

In Q2 on an FX neutral basis, very very modestly, but we were up it's the first quarter I think in 3 or 4 years as far back as I looked.

Where we had.

Yes, our 200 of FX neutral basis to.

To be positive in the back half of the year that is a combination of the follow through of the flow through of the price increases.

Somewhat offset by some of the pressure.

Modestly for a for the back half of the year.

Okay.

Again on a I'm, sorry on an FX neutral basis.

Okay next question from.

From Matt Thornton did you talk about what inning, you're in with your marketplace strategy overall of the momentum and artist label.

Publisher feedback around sponsored recommendations in discovery mode.

Mode, and how much of an opportunity or focus is lives of my best imitation of what inning.

If I'd make.

Yeah.

Educated guess I would say, we're probably in the second or third inning I have no idea, but that should indicate early in the journey, but likes not starting.

So.

No. It's still much very much early days, we're past the point of launching this we're getting of results, we're seeing very very strong.

Sort of leading indicators around both of resolve that.

You know our partners that are participating in these programs are are giving us in.

And the feedback around how we should develop this even further.

A lot of this just comes down to a lot of details around how our labels and artists work together and understanding that and building out products that are bespoke.

To that.

And to an extent.

That's probably 1 of the biggest sort of surprises for US is just how much you know data.

Data sharing between labels and agents and managers and building out almost like an enterprise suite for products, where you have certain types of rights for certain types of people on the.

Artist team.

Certain types of dashboards. This should only be available for other types of teams. So a lot of that stuff is the stuff that we've now been building out over these past few quarters and that certainly like new and that's what happens in the customer development phases.

We're actively going in and learning more about the customer needs and understanding.

But the good news is usually when you're past that you'll have a product that is highly tailored of highly bespoke to that type of audience and I feel really really good about the feedback that I'm seeing of.

Of course as with anything that goes with our music partners are for the industry and how.

How much of an impact any.

That book.

Change that we do so even shifts in how our algorithms where all marketing teams.

We got a lot of feedback on EBIT.

And those types of changes too, but I think that's just more of a sort of.

Our NAV.

Actual evolution.

S. S goes to just the scale and the size of Spotify and how important we are for the music industry.

And then life.

You know again I talked about this but I think the most important thing really is we're very very creator focused and so live if you think about music creators.

The singles today.

A vast majority of of all of the income that normally flow through to an artist so to the extent of Spotify can be helpful. In driving life outcomes, that's going to materially.

Improve the earnings of an artist and that obviously means that we can be an even more.

Better partner to artists that can then drive preferences and get artist engage even more on the Spotify platform. So it's a it's a long term very important focus of ours to the extent that you know it'll have an impact on the business side, that's not how we work what what we're doing really is we're focusing on.

It has interest for the constituents in building amazing experiences and thereafter, we tend to focus on how do we monetize that too. So I just wanted to be clear upfront about that you should expect us to try to build amazing products that will get drive meaningful outcomes for our partners and and it's only at that point that it starts flowing through.

To business outcomes for Spotify too.

And I would just add 2.

2 things 1.

Just dovetailing with Dana said everything about that gross margin that I should've said that in my earlier comments. So there was a slight benefit.

I'm not quite a decent benefits of the gross margin outperformance. So I mentioned, the better revenue and I mentioned.

The new crossover of other cost of revenue marketplace was also another driver of.

Of improved gross margins of the quarter and I Should've mentioned that earlier.

And then the second point is for those of you non Americans of Nicole that's about the 15th of minute of a of a football game in terms of trends.

I think you said football too but.

Didn't call it soccer I appreciate it.

Okay next question comes from Doug Anmuth.

How would you characterize the early returns.

On the Spotify audience network the.

Of the open access platform and.

The other moving items.

Utilization of monetization.

Yeah. So.

I think the early returns have been of great greater excitement, which usually translates to adoption of some of these are more.

Okay.

<unk> early days.

The building and out of rolling it out but great.

Excitements among partners.

S. A I N span obviously.

Already our lives today and even in the quarter started impacting the results that we're seeing but for me the most important thing again.

Variance down to focus on our constituents that we're serving providing great tools for them when that happens that then leads to better outcomes for Spotify and maybe if I zoom out and just kind of give some context I think really the big thing you all as analysts should focus on is the shift of Spotify SA.

Again.

Premium subscription music service too and audio platform and that audio platform means that the business model fundamentally of Spotify now is very different than what it had been in the past and you're starting to see that shift come through with ads, but I suspect over time.

There'll be many more tools and services that we are.

You know driving and.

And delivering here that will then all start impacting the overall results in different ways of the business going forward and so when I in my opening remarks focused on that sort of shifts on velocity.

<unk> product improvements and platform improvements that is for me, perhaps 1 of the most important leading indicators.

For me about sort of having that kind of impact both for creators and consumers that then leads to tangible benefits, but you should really expect us to be more investing in the platform side of Spotify.

Which will then lead to lots and lots of really exciting business outcomes for Spotify in the future too.

And then just I'll go or Daniel macro or micro here. If you look about AD sort of span in SA in particular in terms of AD products in the quarter.

As we mentioned, we had a really strong advertising quarter numbers, albeit.

4 of occasions, we've seen through.

Implementation of some of these new products that sell through rate was better than expected in the quarter.

And Cpm's Russell of little bit better than expected and of course, so we saw.

Better utilization of whereas as well as better CPM in the quarter.

Yeah.

Alright. The next question from Hamilton Faber could you comment.

On recent press reports that Spotify is interested in becoming involved in light of events, how easy would it be to scale in this space.

Yeah.

Maybe by way of context, we have actually.

Sort of depending on how you view had been involved in the life space now for.

<unk> spending years both.

Having as a feature.

The ability for artist of post upcoming concert on the on their Spotify pages, but then subsequently with our own playlist and brands like wrap caviar been doing some shows.

With tens of thousands of people.

Independence, and having that all of the U S and U K and so on and so on so we've been in this space for quite some time now.

I can't really comment on sort of product tests that we're doing but as I mentioned in my previous comment livish of meaningful thing for many of our creators and its something.

Net we're excited about and in the past quarter.

As evident by some of the tests, we did we did some live concerts digital life concerts and test of that.

And sorry, some really positive results from that and lots of excitement from our artist partners about Spotify.

Picking out during COVID-19, and providing more meaningful ways for them to monetize their fan base and I think that's in line with our strategy.

To the extent.

That life will have an even bigger impact I think we are still an open platform, we want to work with as many.

Partners as we can.

And provide as many.

If I held units of your creators to create more ways to turn of listener into fans and fans of the super fans and increase the monetization for those creators.

Yeah.

Alright next question comes from Deepak and it's directed to Paul can you provide additional color on some of your assumptions in.

In the second half outlook, our guidance you've renewed several promotional programs, but also have new ones such as Tictoc. How are you thinking about contribution from these new programs, particularly as you potentially expand them into more markets.

Yeah I mean.

It's hard to talk about any 1 plan because we don't really do that I would say in general.

We're excited about a number of new partnerships. We have they are all baked into our forecast moving forward. Obviously, the newer ones are sometimes tougher to forecast because they are new and we don't have a track record of history in terms of success.

I would say initially of the partnerships, which were excited about there'll be.

Higher marketing expense in the second half of the year as well because we'd pull.

1 on some of that so I think that's all factored into into the guidance as well as kind of the trend lines. We saw coming out of of Q2 relative to the first half of Q2. So that's.

All within the numbers with the obvious caveat that there's still a lot going on there's still a lot of variability of the number of markets with respect to the to Covid. So we are.

Back offing and monitoring as best we can.

Yeah.

Alright next question is from Mark Mahaney.

Also somewhat guidance related.

1 of the day can you provide on the 2 sided marketplace and your view on Wendy's.

<unk> will become financially material.

Forecasting.

Yeah. So I think I said earlier, we are starting to see benefit of the 2 sided marketplace. It did have a positive impact on gross margin in the quarter to Daniel's point, we're going to continue to launch out tools and services and products that help our creators.

Creators and artists and labels and enabled in order for them to sort of maximize.

To the kind of.

Their careers and their monetization and so we feel good about it I think of couple while ago. We gave some numbers of marketplace and where it's going I would say, we've sort of met or exceeded all of the expectations. We had in terms of the marketplace of impact on gross margins.

Great next question is from Jessica Reif Ehrlich.

The advertising strength Youre seeing right now solely from the U S. In addition to a healthy AD market how is Spotify audience network contributed to the growth.

And should we anticipate faster growth as you rollout to additional geographies.

So the U.

Some of our largest market when it comes to advertising, that's probably not surprising.

And it did outperform but all of our markets actually outperformed so we had great growth in markets outside the U S and so.

As the U S goes the advertising market for us of Bogo, because it is the largest part but every every segment. We had every geography outperformed their expectations, which was.

Is all of which is great.

Despite its small filings that were definitely helped to contribute to growth.

I think as I mentioned, a little earlier sell through rates were better than expected cpm's are all higher than expected as well. So we're seeing the benefit of of of what we created and bringing.

The megaphone of inventory into into the Spotify family.

Great.

And.

Geographies more geographies will help.

As I said the U S is still predominant.

Terms of advertising in Europe as of a pretty big second.

And everything else is pretty small after that so.

I would say for the near term, it's really of U S. Europe story over over.

Which is more of those geographies will contribute.

Maybe just as an addition here we've talked a little bit about this before but I'll say it again.

We're mostly supply constrained enough demand constrained, meaning it's really more about us opening up more inventory than there being a lack of interest from advertisers and advertising.

With us.

Really big effort for us at the moment is just how do we unlock even more supply for all of the demand that we have.

Alright, we've got time for.

1 or 2 more questions.

Yeah.

The next 1 is going to come from.

<unk> gamma.

Regarding podcast thing only content is a small percentage of overall podcast on our platform, but it accounts for approximately 20% of total consumption.

How do you think about the optimal mix of O&M content going forward.

I don't I don't think we have a particular number that we're striving towards what we can.

This that the <unk> part of this tends to drive.

A bigger bump and engagement and in particular of translates into more new users. So whenever we've done an exclusive we've we've tended to be able to convert more of the existing Spotify audience to also start of listening to 2 podcast on Spotify.

Nancy and likewise, we have been able to get more people from outside of Spotify to try Spotify for the first time. So it's definitely been positive but as the mix goes we're primarily focused on making Spotify D audio platform on the Internet and we think that is the most important thing and that's opening up more content and as.

I mentioned going from 8 million creators to 50 million creators is the primary focus.

But obviously the only part of is a very helpful addition.

And it's helpful not just with our our ability to get more people to listen to podcast, but also is a very attractive proposition for advertisers as they think of us.

Hi, evidenced in the quarter.

Alright, Thanks for the question, Doug and actually we are out of time for Q&A. So I'll turn it back over to Daniel for closing remarks.

Alright, well. Thank you so much for listening to this.

Q&A portion and of course <unk> growth.

<unk> slowed during the significant COVID-19 related pull forward, we saw in 2020 and.

The impact of the uneven recovery in the first half of 2021, but we do anticipate anticipate a strong second half and our trend lines are looking very healthy and of course in the short term some COVID-19 uncertainty lingers and in.

Turned the ship from linear to on demand audio will only continue to accelerate and has more than 1 billion user opportunities left I think it really reinforces our position as the audio brosser of the world.

And no 1 else is is laser focused as we are in audio it's all we've done for over 15 years and that dedication is an advantage.

The long average every day for our creators for fans and brand partners, we're pushing ourselves to deliver at an unprecedented pace and we're building out the infrastructure to go even further faster and long term I believe these product innovations will bolster mou and subscriber growth, helping to attract more and more users around the world connecting.

We lam to creators they already love as well as the ones they are waiting to discover.

I'll be talking more about the quarter on our podcasts Spotify for the record, which will go live on our platform tomorrow. Thanks again, everyone for joining us.

Okay that concludes today's call and a replay of the call will be available on our website and also on the Spotify App under.

<unk> quantify earnings call replays, thanks, everyone for joining.

And gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

<unk>.

Alright.

Good stuff.

Yeah. The recording has stopped how long do we have of break for until.

Do you have income 950, and then we will get on the call of this ahead.

Hum.

All of it.

And the key is Mcgee.