Q4 2022 Spotify Technology SA Earnings Call
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Good morning, and welcome to Spotify is fourth quarter 2022 earnings conference call and webcast.
All participants are in a listen only mode. If you require operator assistance at any time, Please press star zero.
As a reminder, this conference call is being recorded.
I'd now like to turn the call over to Bryan Goldberg head of Investor Relations. Thank you. Please go ahead Mr. Goldberg.
Thanks, operator, and welcome to Spotify as fourth quarter 2022 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 Paul and afterwards, we'll be happy to answer your questions questions can be submitted by going to slide O Dot Com S. L. I D O dot com and using the code hashtag Spotify.
Earnings Q4, 'twenty two analysts can ask questions directly into slide Oh, and all participants can then vote on the questions. They find the most relevant we ask that you try to limit yourself to one or two questions and to the extent you've got follow ups, we'll be happy to address them time permitting if for some reason you don't have access to slight or you can email investor relations at IR at Spotify Dot Com and we will add in your questions.
As 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.
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. We'll also refer to certain non I F. R. S financial measures reconciliations between our <unk> and non I FRS financial measure.
These 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 it over to Daniel.
Alright, hey, everyone and happy new year, and thanks for joining US we had a great Q4 and ended 2022 strongly our user and subscriber numbers continue to climb showing the value of our investments in the platform over the past few years, we're now in an even stronger competitive position and I'm.
I'm confident in our future prospects and I'll, let Paul fill you in on more of the specific details.
However, a notable call out in the quarter was our eighth annual wrapped campaign, which was a big contributor to our Q4 success and we broke all sorts of records and reached several all time highs with an increase of over 30% in user engagements wrapped with training all over social media, but it wasn't just.
[noise] about wrapped so by the end of the year, we had more than 100 million tracks on our platform and more than 5 million podcast and more than 300000 audio back books being enjoyed by almost half a billion listeners.
In 2020, one we said that 2022 would be an investment year and it was.
And in light of our recent news on cost and staff reductions I'm sure. Some of you are wondering if we believe that that investment was a mistake and the answer is no and yes, I still believe it was the right call to invest and I would do it again. So for instance in the last 12 months, we grew our user substantially.
Enhanced our capabilities developed a better product and brought more content creators and users around the world.
And we also made tremendous strides in setting Spotify apart from everyone else in our space. In addition, my expectation was never that these investments would have great impact in the short term yet they have but more importantly for our share owners I fully expect that they will continue to pay dividends in the months and years to come.
But things change and the macro environment has changed significantly in the last year and in hindsight I, probably got a little carried away and over invested relative to the uncertainty we saw shaping up in the market. So we are shifting the focus on tightening our spend and becoming more efficient this remains.
Distance with a plan, we outlined at Investor day, but you should expect us to execute on it with even greater intensity given what I just said.
However to be clear this doesn't mean, we're changing our strategy. We will continue to work to build a platform of the future and that will take investment in new opportunities.
We outlined like podcast and audio books, and if anything thanks to our position in users and subs. This should allow us to both increase revenue per user over time as well as improve our stickiness with consumers even more.
But going forward, we will do it with an intense focus on efficiency and that marks a pretty big shift in how we will act.
And to meet this objective we are also rethinking how we operate we have set up a new org structure that streamlines decision, making and prioritize the speed and efficiency.
23 marks a new chapter for us, but our commitment to achieving our goals remain the same.
I'm really optimistic about the direction, we're headed in and will continue to focus my efforts on guiding the long term success of the company and with that I'll hand, it over to Paul to go deeper into the numbers and then Brian Lopez it up to the Q&A.
Thanks, Daniel and thanks, everyone for joining us I'd like to add a bit more color on the quarter and then touch upon the broader performance of the business and our outlook.
Let's start with Q4.
User growth was very strong in the quarter.
Total monthly active users grew to $489 million in Q4. It was 10 million ahead of guidance up 33 million quarter over quarter and the largest Q4 net additions in our history move.
Moving to premium we finished the quarter with 205 million subscribers 3 million ahead of guidance. Thanks to broad based strength across several regions, particularly Latin America.
Our revenue grew 18% year on year to approximately $3 2 billion in the quarter reported results were aided by a 600 basis point currency benefit. However, this was 200 basis points less than forecast. So while reported revenue was a touch below forecast our organic growth on a currency neutral basis modestly outperformed due primarily to advertising.
Turning to gross margin gross margin of 25, 3% was above guidance by 80 basis points due primarily to lower podcast content span along with broad based favorability in our core music business led by strength in marketplace.
Moving to operating expenses growth in the quarter was lower than forecast due mainly to currency movements and to a lesser degree lower marketing spending when combined with our better gross profit or operating loss was ahead of guidance by $69 million.
As we previewed last quarter free cash flow was negative in Q4, due primarily to timing shifts around certain payments.
However, we continue to generate roughly $200 million in free cash flow on a trailing 12 month basis, and we expect to be free cash flow positive for the full year of 2023.
Looking ahead, we are pleased with our momentum into 2023, when combined with our increased focus on speed and efficiency. We are confident in our ability to continue our double digit top line trajectory in conjunction with improvements in profitability.
With respect to first quarter guidance, we continue to see strong momentum in Mou and anticipate reaching half of 1 billion users by the end of Q1 on.
On the subscriber front, we expect to add about 2 million net subscribers, bringing turo subscribers to $207 million.
We're also forecasting $3 1 billion in total revenue our gross margin of roughly 25%, excluding severance charges and an operating loss of $194 million with the latter reflecting 35% to $45 million in severance charges within our operating expenses.
While we no longer give full year guidance full year 2023, we see strong growth for both users and subs.
We're feeling good about the momentum exiting 2022.
Gross margin and operating expenses are expected to improve throughout the year as we've mentioned previously our free cash flow is expected to be in line with historic averages.
Given many of the adjustments you made at the start of 2023, including our decision to reduce our workforce by 6%, we see our operating expenses growing slower with the material improvement in our operating loss compared with 2022. This is according to plan, but as Daniel mentioned, we are entering a new area with even more focus and with that I'll hand things back to Brian for Q&A.
Thanks, Paul again, if you've got any questions. Please go to slide <unk> Dot Com hashtag Spotify earnings Q4, 'twenty two we'll be reading the questions in the order they appear in the Q with respect to how people vote up their preference for questions and our first question today is going to come from Matt Thornton on subscribers and pricing is spot.
If <unk> seen any lift of subscribers from recent competitor price increases if not does this give spotify increased confidence to take price and what are the reasons, if any spot would not take price.
I'll take this and feel free to chime in Paul So I think the most thing if we kind of up level. This is our priority is to grow revenue as fast as we possibly can so when we look at that market. There is generally two strategies. We can do that one of those strategies would be to grow the number of people that we can <unk>.
To join our platform and the second strategy would be to increase the revenue per user that we already have on the platform.
So generally our approach when we're early in our markets.
Is to try to grow the number of participants on the platform and.
The usual way to do that is not to try to increase prices too early too early but keep a competitive price that attracts the most amount of users.
Onto the platform.
And then.
As the market matures, then obviously it will shift more so that most of the revenue growth comes from price increases so to put things in context in 2020, we increased our price point in more than 40 markets around the world. So it's definitely something that we're doing and we're looking at ADESA.
Balanced portfolio approach, where in Submarkets, where we are selectively increasing prices because we're in a more mature place in some markets, we're mostly focused on growth.
That's our general approach and I don't have anything specific to announce at.
At this point, but we're.
We are constantly discussing with our rights holder partners around various price increases that we would be doing so we would always look at what's net beneficial to our business in growing the revenue and growing the profitability.
In each market we're in.
Yeah, I would just add in terms of just the subs outperformance in Q4, it was pretty broad based so it was broad based globally. It was broad based by product we had strength.
Family plan and do our plan we had.
Outperformance of 3 million there was outperformance in pretty much every region. So it was pretty broad based.
And we had success with our holiday campaign, which you would you ever December .
And raft was a huge success as well sort of driving traffic to Spotify. So overall, the overall subs out performance was pretty broad based.
Alright.
Our next question is going to come from Michael Morris on music Economics.
Universal CEO recently called for a change to the streaming music business model, citing an increase in lower quality content diverting economics away from artists do you believe this is happening on your platform and what do you see as the path forward with your music label partners on this topic.
So first off we have great relationships with all of our music Parkers and are in constant dialogues with them about their performance and our performance in all the markets around the world, but I think the most important thing too to perhaps note is that much.
Much like other forms of media one of the most interesting changes that's been happening.
Obviously that People's music taste is becoming more personalized and as People's music taste is becoming more personalized youre seeing two things happening the number of artists that are moderating for our users are increasing materially and the other change is that unlike in the early areas of streaming we're seeing notable.
The increase in local repertoire.
For instance, if you look at many of the local geographies now youre seeing a lot of.
Take France as an example are you seeing a lot of French music actually being very impacted tactful and Poland Youre seeing a lot of Polish music being very impactful as well. So I think the there is a lot more artists that are mattering.
Now than perhaps ever before and obviously the big <unk>.
Sort of a counter to that would be.
It doesn't mean that you can sustain yourself or is it more one hit wonders and I think youre seeing a little bit of both happening in the music industry at the present moment I think some of these trends are very powerful and very good I think for consumers with more choice and more artists, making their way and then.
You need to balance that obviously with having.
The ability to have sustainable artist careers on the back of that too and that's a constant dialogue that we're having with our label partners, but I would mostly say that most of what we're seeing is quite encouraging.
Because of all the all the response that we're seeing from from.
From artists around the world and their ability to grow their audience.
Alright next question is going to come from Doug Anmuth on gross margin as you move beyond the 2022 investment year do you still expect gross margin to expand in 2023 and can you talk about the key drivers.
So the short answer is yes.
We think Q1 will be the low point in terms of gross margin for the year with gross margin improving throughout 2023, So that's still the plan.
When we look at Q1 in particular.
Our sort of our core margin when we look at sort of music and podcasting.
It is improving some of the investments we made in the back half of the year is still.
Slightly impacting Q1, we think those will sort of continue to moderate throughout the year, which will help partly helped gross margin we've talked about the improvements in podcast gross margin.
As well as we expect that to get better throughout the year. So we do expect the Q.
Q1 will be the low point for gross margin and we do expect for it to improve throughout the year with hopefully a nice trajectory heading out of 2023.
Alright. Our next question comes from Mario Lu on operating income you mentioned in the deck.
And expectation for meaningful improvement in operating income in fiscal 'twenty three.
And beyond that being said is there a rough timeline within with regards to when we should expect overall operating income to reach breakeven.
Yeah, we haven't given a timeline that I would say the first thing is I think you can expect to see a meaningful improvement in the operating loss in 'twenty three relative to 'twenty two so.
So we expect that to be pretty significant.
Again as Daniel mentioned, we invested a lot in 2022, so we'll get some of the leverage on top of that investment in 2023, along with higher revenue growth and more gross profit dollars. So we expect that to improve.
And improve throughout.
Throughout the year.
Exactly when we breakeven we haven't said yet, but we feel like we're on a good path and we feel like we are in a good.
In a good position right now to to have that speed and efficiency that we want to have in 2023.
Alright, another question from Matt Thornton on margins do you still expect 2022 to have been the peak drag from podcast.
And podcast you expect podcast to reach breakeven within several years and three.
Do you still expect the consolidated gross margin to reach 30% within five years.
Sure.
And then you can chime in because I think.
Some added context here it might be.
Pretty good as well so I think the the.
Big thing that I, just want to highlight again as we mentioned as Paul said before that 2020 would be an investment year.
And we broke out the various verticals.
<unk> you.
I would see that the music has been making steady improvements, but obviously, our podcasting business had been a drag to our gross margin profile.
And we also then announced the 2023 would be a year, where you'll see the reversal of some of those trends. So I just wanted to add that context that that's still very much on the top line for us that you should expect music too to be meaningfully improving.
With things like marketplace, playing an important role and then.
Podcast thing both asset grows in size, but advertising revenue.
But also more efficient spending.
Well, I mean that youll see improvements there as well.
And then Paul maybe you can chime in on the detailed questions I can be quick now so the answer is yes, the 2022 being the peak drag from podcast.
Yes, the podcast, reaching breakeven within several years and yes, we still believe Arkansas that gross margins can reach 30% in five years.
Okay. Our next question is going to come from Justin Patterson.
This is for Daniel.
As Alex takes on responsibility as Chief business Officer, how should we think about his priorities and leadership for content and advertising.
How those might differ from dawn.
I don't think from a strategy point of view that it will differ all that much from.
Don However, again the primary reason why we did this re org was to drive speed.
And drive more efficiency, so speed will come in having more decision, making and faster decision, making essentially Spotify is a lot more complex of a business than it was several years ago and so to have both grew seven Alex helped me in the day to day in this much more complex business I think will.
Materially mean that we'll have more brains thinking about these things.
We'll be having more decision, making so that we can make decisions faster because that honestly. It's one of the biggest blocker at this point, it's not that we can't execute on the ground. It is actually making real sort of material decision, making at the top that's been one of our R. R.
Things that we need to speed up when we look at sort of the internal feed.
Feedback and then.
We're going to Holistically at now look at the business rather than looking at things bit by bit. So marketing was under Alex previewed previously, but not advertising and not content and now we're holistically looking at it.
One P&L and are focused on driving efficiency across the board by re addressing resources to where its most needed and.
That would be a big improvement from prior work setups.
Alright next question from Doug Anmuth.
Users in subscriber growth in 'twenty three how would you think about 2023 net adds for MA used in premium subscribers relative to your performance in 'twenty two.
What are some of the puts and takes here.
So.
Obviously, we don't give 2023 guidance anymore I think what we've said and my answer is we expect really strong growth.
Obviously on the MCU side.
Two was a real outlier in terms of how much we outperformed but we see this often where we have some years where we.
We over index on Mou, where we over index on solves and it can change evenly throughout the year in terms of how we're trending I.
I would say in general anytime we're growing Emma use the way we are its always a really good sign of the business the health of the business and the health of the future.
Future subscriber growth for Spotify as well so.
We're not giving guidance, but I would say, we feel really good about the momentum as we exit.
2022, we feel good about the guidance for for Q1, and how we're trending.
My only addition to that would be.
Again to note that.
Much of the investments we've been making over these past few years that culminated in 2022 was making platform improvements.
Improving the number of content, we have on our platform improving the tools for creators and consumers alike and that has led to better acquisition better retention.
The consumers really across the board so I feel really good about that and as I mentioned in my opening remarks.
Some of these things we expected to take longer.
Seeing the benefits, but we're seeing them already in 2022, and I think that's a real positive news for.
Years to come.
And our next question is going to come from Michael Morris and.
On advertising.
It was advertising revenue been trending in the first quarter of 2023 do you expect the relative performance of podcasting and music growth to persist in 2023, and how far forward do you have insight into demand trends.
So if you kind of take a step back and you look at sort of just advertising in Q4 overall, it's definitely continues to be very up and down.
So in Q4, we outperformed our expectations admittedly those were lowered expectation. So we had kind of lower expirations coming into Q4, we actually outperformed those by about $50 million or so plus or minus and even within that we had two months that outperformed in one month that underperformed. So even within Q4, it was pretty up and down so in Q.
One we probably should we expect more of the same.
We feel really good about the AD stack. We're building we feel really good about some of the acquisition acquisitions. We've made obviously at the high level megaphone.
Chartwell and pod sites, and our ability to improve measurement and attribution across all of advertising.
And so we feel good about that and where the tech is going and then it's really going to somewhat depend on just how the macro rolls out over time and so it's been uncertain I think we've done.
Well like I said, we say excuse me slightly outperformed in Q4, and we'll see how the year unfolds.
Okay next question from Benjamin Black.
On marketplace, you had expectations for approximately 200 million euro in marketplace.
Revenue for 2022.
How did you track versus expectations and how should we be thinking about the trajectory of marketplace in 'twenty three.
So we outperformed that $200 million I think we had said at the Investor day that we expected marketplace.
To grow at least 30%.
In 2022, it exceeded those expectations pretty nicely. So we had really strong marketplace growth overall in 2022 and again, we feel that product has a lot of momentum behind it as well and expect good things in 2023 as well.
Okay. Another question from Michael Morris can you share detail on the investments that have impacted premium gross margin what types of products are being invested in when do you expect them to be released and what is the projected path to contribution.
So there's a number of things that go on there a lot of it is things that we test and learn.
We don't always.
Talk about them some of the things that come out six 912 months later and so when we talk about investment year. Some of that is part of what was going on is it things that we think are going to drive improved engagement in Peru users improves subscribers and.
And some of it we have to absorb the cost as we're testing and so we don't go through all of them, we do sometimes 10, sometimes hundreds of those within quarters.
But again I think we believe we will get the benefits of some of those moving forward into into 2023.
And youll see the incremental investment flow and the benefits kind of hit in 'twenty three.
Okay next question from rich Greenfield on audiobooks.
Is already a books as a category of working was it wasn't a mistake and how has it impacted your thinking about new categories. Some of those new categories you teased at the Investor day.
Yes.
It's early days.
An audio books.
That's kind of what I can say, we are seeing some encouraging signs we're definitely seeing people take up the offering but we're nowhere done from where we want to be and where we are.
Believes the cavalry can be doing but I would just rather than perhaps giving any specific share of pre announce things I think that the most important thing I can do is kind of give context in that there's two types of companies. There is the company that waits until it gets things perfect. The first time.
And then a price to launch something Thats perfect and then there is the company that.
It releases something that it knows that needs work and then rapidly improves from there.
We're definitely the latter it's hard for people to understand when they're looking at us because it looks like it's an inferior product or an inferior strategy. We had the same notion around podcasting. How is this thing going to.
When podcasting.
These many years ago, when we when we announced that and yet now four years later, we're the leader in that space. So I think as Youre looking at our strategy now.
Yeah.
You shouldn't draw any two big conclusions.
We are.
Our full intent of what we want to do in the category. So we are encouraged because we think fundamentally that.
<unk> has a massive opportunity and that there are very few consumers that are currently participating in the ecosystem and if you look compared to our other verticals music.
And <unk>.
Podcast thing we saw pretty much the same thing so nothing has really changed when we look at.
The space and what the potential is.
And now we're just heads down focused on executing and.
During 2023, you'll see a lot of.
Few things Rollouts in the auto book category from Spotify.
Alright. Our next question is going to come from Deepak on user choice billing.
Were there any noticeable benefits to subscribers from the rollout of Google user choice billing in the fourth quarter and are you seeing any conversion uplift.
Yeah, it's still early days, so it's tough to really know I would say in general I think we're just overall very excited about the opportunity.
The joined flows better giving users the choice.
On payment methods and how they want to.
To work with us.
Purchase from Us and so we're excited about user choice building, we think it is going to reduce friction.
And improved conversion over time still early days in terms of how it's impacted at this point it is positive.
So it's early days, but positively.
Alright got another question from rich Greenfield on podcast thing investors remain skeptical that podcasting is a good business and that it is meaningfully move the needle for Spotify and can you help them understand why you believe in the investment to date, especially in the context of your recent management changes.
Yes.
I think the most important thing here is to kind of go back on context four years ago, we entered into podcasting.
The major player in podcasting had been doing it for 20 years and was considered the sort of unassailable leader. So we wanted to tackle this head on and we realized again as I mentioned in my comments around audiobooks that this was a nascent space.
That was growing all albeit still was under consumed to what we believe the potential loss.
The industry.
And.
We took the medium in pretty much have grown overall globally now the <unk>.
<unk> by a huge margin to what was through four years ago. So it wasn't just that we took our audience from another platform, but we actually grew the pie meaningfully for broadcasters and as a result.
Now we have over 5 million creators on Spotify, It's a massive increase in the number of people who are.
Creating podcast you being one of them and.
No.
This is true across the world really at this point. So net net I think we went from being almost nowhere four years ago to now being the leader in many markets around the world.
In this space.
And that.
At several benefits to Spotify it adds.
The benefit that it makes our business more defensible.
Because now it is meaningfully contributing to our advertising story. It is also so that from a competitive lens.
When we've added this content what we're seeing is that consumers are note not just consuming music on the platform, but theyre consuming music and podcast.
To a great extent in the number of users on our platform that are consuming podcast keeps growing as well and as thats happening there retention increases and is that happening. It is impacting our business now what you are probably asking underneath all of that is that it's been a drag on the gross margin side.
Right. So what does that mean for the future, while we've been making many.
Investments some of them have been working greatly and you should expect us to double down on those and some of them not surprisingly haven't worked out.
And.
There are certain shows that work.
Really really well for us in their shows that didn't perform as we expected and I think thats a sign of maturity that you.
You go for growth first and then you see the efficiency, but generally what you should expect us it's across the board out to be focused more on that efficiency and creating more leverage and that's certainly true in podcasting too.
And the management changes really had nothing to do with a change of strategy in podcasting. It is more around increasing the speed of decision, making in increasing the focus on efficiency across the board.
Because the next era of Spotify is one where we're adding speed plus efficiency.
Not just focused on on speed or growth at all costs and that is a big shift but it is also what we said during the Investor day in June .
And now we're going to have to live up to that and I know some investors don't believe that we're serious about it but hopefully my remarks today.
Shows that we are really really focused on driving efficiency going forward.
Another question from Benjamin Black on pricing.
Last quarter, you alluded to a potential win win with respect to the conversations youre, having with the labels around price increases what are some of the concessions you're looking for from the labels.
Yeah, I can't comment on sort of individual negotiations with our REIT partners, but as I mentioned before we're thinking obviously how we.
Can grow our business the best possible way, sometimes that is keeping the price.
Low and grow the number of users on the platform sometimes it is increasing.
The Ah <unk>.
Revenue per user sometimes it is increasing our margin per user and sometimes it's all of the above important part as well.
What's pretty amazing with our Spotify story.
Is that.
This is something that creates win wins with our label partners too. They if Spotify does well on the market in general increases the revenues.
For the labels as well.
And we've seen that time and time again that this close partnerships generates material benefits for both companies over time and Thats, what we will expect going forward to us as we're driving more benefits for all of our creator partners and Spotify.
Alright, we've got another question from Doug MF.
On marketing how are you thinking about sales and marketing spend for 2023 following the ramp in spend over the past two years.
Yes, we definitely increased marketing a lot more significantly in 2022.
There is definitely a driver of the outperformance in EMEA you and it was very intentional we had a plan and a focus.
At the beginning of the year to really invest particularly in some of our newer markets to grow there and make sure that we had a foothold that we wanted to have and by all accounts. It was extremely successful if not more successful than we than we even thought I do think youll see 23 being.
We will be more efficient with our marketing spend into 2023.
As Daniel said, we're going to be more efficient, we're going to be more thoughtful about all of our spending into 2023. So no specific guidance, but yes. There was a big ramp in 2022, and I think youll see us be more efficient with our marketing spend in the 'twenty three.
Okay. Another question from Ben Black on ticketing could you give us an update on your ticketing business is is this an area of focus and how should we be thinking about the business model and the market opportunity.
Yeah, and just to level set on context long term I think it's absolutely.
<unk> business model and market opportunity for Spotify too.
But our strategy is to be an open platform and we want to enable.
As much as possible and we are very partner friendly.
When we're doing so so think about for instance, how we're working with our label partners think about how we're working with merchandise and other things too it is not offering our own solution and locking people in it is.
Opening up the platform so that's.
Traders have as much choice as possible in choosing whatever options. They want to do so the primary strategy is very simple, we see a double sided win win here.
Which long term will translate into business opportunity, but our creators.
<unk>.
Trying to grow their audience on Spotify to trying to engage more with that audience and we're obviously trying to help them monetize that audience, even better a huge part of that especially for the music audience is obviously Tory.
So if we can be a partner to creators and help them sell more of their tickets.
That is a meaningful increase too.
Many artists a livelihood, which is great and something we're focused on but the separate parties on the user side. The same is true as well one of the big things. We're seeing is users are asking us helping find more great things, but they'll watch.
And we saw tremendous uptake in the number of people who are visiting the concerts tab on Spotify in 2022, but the strategy isn't to go compete with the ecosystem, but rather to enable the ecosystem and then from there on there will be a.
Opportunities for us to play as well and you can see that already today, where theres lots of concerts from all the big vendors being available and we'll add more and more of inventory.
And over time that will translate into business opportunities for Spotify as well.
Okay next question from Mario Lu on cost savings can you help quantify the annual savings from the head Count reduction you announced last week in any specific areas of the business to call out that were impacted more so than others.
We're not going to quantify the savings.
Obviously, you can do the math, it's roughly 600 employees.
That were affected.
6% was actual employees. We've also are looking closely at open head count to see.
Which of those we want to backfill and which of those we will also eliminate as sort of as we've mentioned a number of times as we try and be more efficient with deploying capital and employees moving forward.
And there wasn't really any specific area.
Pretty.
Most of the divisions within within Spotify.
You have got another question from rich Greenfield.
On the product Spotify recently began testing a friend's tab on the bottom strip of the App can you help us understand your thinking here.
Well, we do a lot of experiments.
On the product side in many different areas. So whether you probably haven't seen this one of those experiments and since we're not committed to rolling that out I don't really have much of a sort of comment but.
But to say that.
Overall, we're committed to creating the best audio experience for consumers and creators in the world and obviously social.
Could be a meaningful driver of.
Creating an even stickier and more engaging experience.
I've got a follow up question from Doug Anmuth.
On subscribers you typically see Mou to premium subscriber conversion in the 12 months to 18 months range do you expect any change to that conversion.
Or to churn given the large mou cohorts over the past couple of years.
So I'd say look at it at a high level. We've said this repeatedly for awhile anytime youre seeing.
Accelerating growth in Mou that always tends to be very good for our business and lead to subscribers over time at this point, we don't see any reason why any of our historical trends, which would change.
It's always tough to know.
But again given the outperformance in EMEA you. This year, that's always a good harbinger for.
Sub growth in the future.
And with respect to churn, we don't obviously give those numbers out year over year churn, though it was pretty consistent with where it was at this point last year. So even with the strong growth, we're not seeing any uptick in churn at all.
The one.
And I would probably just make is that's generally been true over the entire existence at Spotify that the longer a person stays with us the higher the likelihood is that they will end up being a.
Premium subscriber overtime.
So.
Again country mix changes maturity of those market changes and so on and so when you look at our cohort behavior. It may take.
Longer in some developing markets than it does in mature markets et cetera, but the trend is the same which is the longer they stay the more likely they are to convert and.
Of course, the better engaging experience we make.
More likely they are to stay and therefore the.
The more likely it is to lead to positive business results for us long term.
Okay, We've got time for one or two more questions.
We're going to go to the next one from.
Benjamin Black on margins I think you classified 2022 as an investment year. So could you breakout breakdown, which investments are falling off that will drive the positive gross margin inflection in 2023 and 2024.
Yes, I think there's look there's a number of factors that improved gross margin I think we've talked about a lot of them were going to continue to see marketplace growth, which will help our music gross margin.
A lot of the investments that we did in 2022 that were.
Investments with no real sort of benefits of the revenue will start to hopefully bear fruit in 'twenty three and beyond we've talked about podcast thing that 2022 was going to be the peak year in terms of the drag the podcast thing had on our gross margins. So we expect that to get better in 2023 as well so pretty consistent with what we've said in the past in terms of what the impacts were in 2022.
And how that will change in 'twenty three and beyond.
Alright, and we can take the last question from rich Greenfield on competition does but if I need to figure out music discovery, knowing that tick tock appears to be ramping up to launch a music subscription service in the U S and Europe later this year.
Well.
I mean again, we have a.
What I think is a pretty decent music discovery already which works pretty well now that said of course, we're always looking at how we can make that.
Better.
And Youre right to point out the tick Tock, obviously is a formidable competitor I think to any platform in the world today No matter what field you are operating in but we.
We feel pretty good about the improvements we made in the platform already and obviously I look forward to sharing more on stream on sort of Wink wink around.
The all the updates that we're planning throughout the year as well that I think will mean, a lot for both music and podcasting and beyond. So we are we're focused on having the best possible platform. We can have for both consumers and creators and.
That remains true, but I feel candidly that.
We're in a better position competitively than we've been in many many years for throughout the existence of Spotify, we have always heard of competitors and it was always the sort of big scary Wolf.
Whether it was apple or Amazon in the past et cetera, now it's perhaps.
Youtube and Tic Toc, etcetera, but with both.
All the improvements we've been making in music, but also with the addition of podcasting and audio books. It is a much more resilient consumer experience.
And I feel really really good about our competitive differentiation and I think when you look at already our 2022 results on both the <unk> side the improvements in the GNC our audience.
In southeast Asia, those are showing that.
Our products and platform.
Yes.
He is very very favorable in the competitive the competitive marketplace.
Alright, Thanks, rich and Thats going to conclude our Q&A session for today's call and I'm going to turn it now back over to Daniel for some closing remarks.
Alright, well, thank you everyone for joining the call.
I'll just once again want to reiterate my confidence in the business now as we're entering the next phase and while it was really great to close out 2022 on such a high note the fourth quarters.
I think we're just really one of many proof points that shows that the investments we made over the last few years are really paying dividends and when I look at the totality of what we've done.
One thing this is.
<unk> stands out to me and it is that it's not always linear we try to draw this linear adults, but that's not how the world works.
And.
What we've been going through has really been a multiyear approach.
That really culminated with.
What we presented to you the community at our Investor Day in June .
And that's the plan we're tracking.
Consistently against so I look forward to sharing more about our evolution and all the things that we're building at our upcoming stream on event on March eight and in the meantime, please check out our cast for the record for more details about the quarter. Thank you everyone for joining us.
Okay and that concludes today's call a replay will be available on our website and also on the Spotify App under Spotify earnings call replays and thanks, everyone for joining.
Yeah.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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