Q2 2024 Spotify Technology SA Earnings Call
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[music].
Hello, and welcome to the Spotify Q2, 24 earnings call all lines have been placed on mute to prevent any background noise I would now like to turn the conference over to Brian goes back head of Investor Relations you may begin.
Alright, Thanks, operator, and welcome to Spotify second quarter 2024 earnings conference call joining us today will be Daniel <unk>, our CEO and Dan <unk>, our interim CFO and VP of financial planning and analysis, we will start with opening comments from Daniel and Ben 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 hash Tag Spotify earnings Q2, 'twenty four analysts can ask questions directly into slide out and all participants can then vote on the questions. They find the most relevant if for some reason you don't have access to the slide Oh, you can email investor relations at IR at Spotify Dot Com and we will add in.
Speaker Change: Your question before we begin let me quickly cover the safe Harbor. During this call, we'll be making certain forward looking statements, including projections or estimates about the future performance of the company. These statements are based on current expectations and assumptions that are subject to risks and uncertainties actual results could materially differ because of factors discussed on today's call in our shareholder deck and then.
Fillings with the Securities and Exchange Commission. During this call. We'll also refer to certain non <unk> financial measures reconciliations between our <unk> and non <unk> financial measures can be found in our shareholder deck 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, Thanks, Brian and Hello, everyone.
Want to start by saying it was a very strong quarter across most of our key metrics.
You will recall a few quarters ago, I said that while many believe that Spotify has a great product we needed to prove that we could also be a great business I think we're really starting to show. This now.
Thanks to the hard work of our teams we beat on subs. We also expanded gross margin and had our highest free cash flow quarter ever. This quarter also marks three consecutive quarters of profitability as we continue to execute on what you've heard be described as a year focused on monetization.
So how have we done this well we have expanded our subscription offerings to consumers who might be looking for different types of content by introducing new subscription plans were successfully giving subscribers even more a listening choices with options like the audiobooks axis and basic tiers that also builds on our already robust.
Boston list of premium plants around the world, including individual duo student family and many past us.
In addition to this expansion we also implemented a price increase in several key markets, including in the U S, which we're rolling out now with great success. In fact, we're seeing less churn in this round of increases than we did in our prior one which was already very low by any measure.
Tribute to the tremendous value we've added to our service over the last several years our subscribers now get access to 250000 audio books more than 6 million podcasts and of course pretty much the worlds entire music catalog in one experience in the U S. Today.
<unk> access to all of this content would cost our user approximately $26 significantly more than a spotify subscription.
Speaker Change: Spotify remains a pretty outstanding deal.
But there is one exception to our overall outperformance this quarter and that's in our Mou. So I do what I do want to get into that.
As a reminder, the easiest way to understand Spotify business is through the lens of our free and paid segments. Our paid subscription business is primarily anchored in developed markets, where our growth today is driven by net subscriber additions and strategic pricing on.
On the other hand, the growth of our free AD supported segment is focused today on developing markets, where we see potential to convert these users into subscribers, but on a much longer time horizon.
Speaker Change: So looking at where we are today, the changing market dynamics play a role in how we think about our user acquisition strategy and while we talked about the importance of reinvesting in marketing to attract new users to Spotify were only going to spend money to attract listeners if it meets our ROI expectations.
And while our developed markets the high ROI from our marketing spend we already have strong penetration and broad awareness in these markets. So it's really about carefully targeting our acquisition resources here in.
In these markets paid subscriptions arent showing signs of slowing down even from historically high levels.
On the flip side, we have significant potential to attract a large number of new users in developing markets. However, these users can be a little bit more consistent engagement looks different in these markets as through the channels to acquire them and conversion to paid can be a bit slower. This.
This makes it difficult to get the same level of ROI effect and less from our marketing spend.
So to tackle our Mou challenge, we're doing two things first we're intensifying our efforts to improve the impact of our marketing and we believe there are a number of levers to pull over the upcoming quarters second we are prioritizing enhancements in our free product pipeline that based on existing performance in certain.
<unk> should boost engagement and retention, especially in our developing markets.
Further additional improvements will be integrated into our free experience in the coming months.
While I am disappointed with our Mou Miss I see the reversal as more of a when rather than if the reason I feel so confident is that overall, we're seeing healthy <unk> engagement trends year over year. So the users. We are now acquiring we're also retaining which is a great leading indicator for value and for you.
For monetization.
I know the impact of <unk> on our subscriber growth will be top of mind for some of you. So I wanted to discuss what I think this means in the short to midterm.
Historically, our conversion funnel was quite straightforward a listener would come in as a free user and overtime convert to a standard premium tier.
This process has evolved given the bifurcation between developed and developing markets and the increased number of subscription offers we now offer.
This means the relationship from free to paid is no longer a one size fits all scenario and we're less dependent on new free users to fuel our revenue growth in the short to mid term take for example, our developed markets with both the widespread awareness of our offerings and the strong affinity for Spotify products, we see many users.
<unk> directly to our paid tiers without any trial period.
Additionally, the high engagement in these markets gives us tremendous confidence in our ability to raise prices, allowing for strong revenue growth even as those markets continue to mature.
Speaker Change: To close I want to go back to how it opened we set out a very ambitious goals to transform our business and there are many ways to grow Spotify today, it's not a linear path dependent on any one metric we have more options than ever but to also be very clear I have no doubt that we will also capture the top of funnel growth.
Over time, while we continue to focus on monetization.
Now turn it over to Ben to provide more detail and then Brian will open it up for 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 Q2 marked another strong quarter for the business led by robust subscriber trends, improving monetization and record strength across all of our profitability metrics.
Although miu variability was again greater than expected our funnel continues to expand at a healthy double digit rate of year over year growth in our rate of subscriber conversion, particularly in developed markets, where we've recently taken price continues to be strong.
We added 7 million net new subscribers in the quarter, which was 1 million better than forecast total revenue grew 21% year on year on a constant currency basis to $3 8 billion Euro our recent price increases and improving product mix shift accelerated premium <unk> growth by 300 basis points.
<unk> to 10% year on year on a currency neutral basis, while our advertising business saw currency neutral growth of 12% year on year. Our ads performance was a bit slower relative to Q1 as marketer spend on upper funnel brand related campaigns continue to be volatile.
Moving to profitability the business continues to inflect nicely towards the targets, we laid out for you at our 2022 Investor day.
Gross margin came in at a Q2 record of 29, 2%, surpassing guidance by 110 basis points as Youre well aware there are many components that can move our gross margin in Q2's outperformance was driven primarily by music content cost favorability and marketplace.
Speaker Change: Operating income of 266 million Euro also set a new record aided by gross profit strength and lower operating expenses operating income was impacted by 59 million euro in noncash social charge accruals, which were 46 million euro higher than our forecast driven by share price depreciation during the quarter.
As a reminder, we don't forecast share price movements in our outlook for the business since they are outside of our control.
Finally free cash flow was a record 490 million euro in the quarter performance here was largely driven by our improving operating income profile net of noncash items as well as fairly fairly typical net working capital favorability.
Looking ahead to third quarter guidance, we are forecasting $639 million, an increase of $13 million from Q2, and 251 million subscribers an increase of $5 million over Q2. We are also forecasting a currency neutral revenue growth rate that is sequentially consistent with Q2.
Pointing to 4 billion Euro in total revenue. We also anticipate a gross margin of 32% and operating income of 405 million euro setting the stage for a another record quarter of free cash flow generation.
In terms of our Mou growth outlook as Daniel mentioned, we are continuing to make adjustments to our marketing activities and also exploring potential product enhancements both of which we anticipate will contribute to improving <unk> net add levels as we progress through the back half of the year.
With respect to price increases and subscriber growth in Q3, our data continues to show the historical price increases have had minimal impacts on growth. However, much like Q3 of last year, we are baking in some modest levels of churn into our Q3 outlook. Additionally, we anticipate another quarter of sequential improvement.
And year on year <unk> growth on a currency neutral basis in Q3 likely in the 100 to 200 basis point range. This is a slight moderation compared to what we saw in Q2 as we start to lap last year's price increases from a profitability standpoint, we continue to expect a sequential ramp in gross margin through the balance of 2020.
For as well as improvements in operating income and operating margin with that I'll hand things back to Brian for Q&A.
Alright, Thanks, Ben again, if you've got any questions. Please go to slide <unk> Dot Com hashtag Spotify earnings Q2, 'twenty four we will be reading the questions in the order they appear in the queue with respect to help people vote up their preference for questions.
And our first question today is going to come from Justin Patterson on monthly active users.
Speaker Change: As you evaluate the factors weighing on Mou growth do you believe it's more a byproduct of expense reductions are simply being more penetrated in your end markets. What actions are you taking to drive more Mou growth.
Yes, I'll take this one and maybe you can chime in.
If you want to.
Yes, I think the easy answer is it's definitely not an impact on Tam. We still believe that there is plenty of room left to grow with.
With that said a lot of that future growth will of course come from as I noted in my introductory remarks developing markets.
And developed markets are trickier.
To get ROI positive because behavior it looks very different in that relative to some of the developed markets. So channels are little bit difference engagement profiles looks a little bit different and of course, ARPA looks different too and so the key constraint here is we're not just going to add back marketing for marketing sake.
Speaker Change: We will do so only when it works on an ROI basis and that will take some time to get the mix correct. So the actions. We're taking is kind of in three buckets one of the buckets.
Around.
Improvements on the marketing channels that we're using so partnerships will probably play a bigger role in these developing markets than in other markets.
We are.
Doing more types of partnerships, which we believe will help.
Second is further improvements in the acquisition in developing markets.
That is kind of optimizing how we do marketing in those territories.
And some of that will be adding back some spend too and then third bucket is around the product side, which you heard me talk about there too. So we have things that are rolled out in certain markets already that.
Past much better engagement profiles, and we believe that when we do roll those things out over the coming months again, youll see higher engagement and if we have higher engagement in the LTV increases, which then allows us to spend a little bit more on marketing.
<unk> still get those ROI positive. So it's really a bucket of many different things and needless to say im not happy about the miss in the quarter and we're working really hard to fix it but I am confident that this is more of a question when rather than if and it is something that if you go back to even our history as a public company.
We've been in this situation many times in the.
Come back from it each and every time and that gives me a lot of assurance. This.
Will it be the case this time too.
Alright. Our next question is going to come from Doug I Miss on gross margin.
Can you talk about the drivers of improved music and podcast profitability, leading to better gross margin and how should we think about royalty savings related to bundling dropping down to the bottom line versus being invested in other areas.
I'll take this one thanks, Doug this is great series of questions as.
Speaker Change: As you know there are a number of factors that go into what move our gross margins up and down each quarter Youre right to call out that the sequential improvement path has been fueled by improvements in music, including marketplace growth and podcast profitability has certainly played a part.
In the year over year story as well as what we said in past quarters about margin gains to other areas like our cloud and streaming delivery spend in terms of the outperformance compared to our guidance as I said in my remarks. This quarter was primarily about music content cost favorability and marketplace. Although there are always moving parts within the contribution mix.
In terms of your question about sort of bundling.
Speaker Change: But what I will say here is that many platforms take bundled treatments. So we're not unique in that regard we won't be commenting on the specifics of the mechanics of our deals.
But all we can say is that we're very confident in our position in the path that we're on at this point.
Alright next question from Justin Patterson on podcasting.
Now that major podcasts are largely nonexclusive, how his podcast engagement changed on Spotify as more of the industry shifts to video podcasts, how do you attract more creators and grow engagement versus a platform like Youtube.
Yes.
I think first and foremost we are seeing very healthy engagement on podcast that has not changed and we see where we do have video podcast engagement is even higher than what we had seen when its audio only which is a really sort of a positive Testament and I think this is also what sort of organically creates a bit of.
Word of mouth with creators so we're seeing more and more traders now uploading video content too.
It's growing very nicely, we have about a quarter of 1 million already.
As it is and I think long term the way I think about this I don't know where this will end, but I think consumers of today don't really care too much about formats. They are actually moving in between of audio video and even reading things.
Sort of.
Africa Africa, especially younger consumers and so crazy.
<unk>, we'll obviously respond to that and should make their content available in as many formats as possible and I think that's the way we sort of attract more creators.
Is kind of a bucket of three things. So I think that the first bucket is things that are native to the Spotify platform. So things like podcasts, there's already like musicians.
Those are sort of a prime bucket to convert and add more things because they'll see higher engagement and thereby higher monetization. Then I think there's a second bucket, which is if you're already uploading video to other platforms to date.
You've taken most of your cost already so it makes a lot of sense for you to try to amortize that cost against as many platforms as possible and you see this already where a lot of people on the short side are uploading not just the one platform, but our upload into many platforms and we're starting to see some of that behavior happening on Spotify too and then I think <unk>.
Lastly, there is things that we will perform a lot better on the Spotify platform than perhaps on other platforms.
For instance, what we do see is longer form content tends to do really well on.
On Spotify on the video side, because people go back and forth between backgrounds and foregrounding.
And that is something that works really well on Spotify.
Because of course are sort of lean back here.
History as a platform goes so overall, it's looking very nicely and with lots of improvement of course, and more and more creators who are coming to the platform for each and every day.
Alright. Our next question is from rich Greenfield on advertising.
Advertising growth is decelerating given the large base of MA used and increasing engagement why is advertising not growing dramatically faster how does it ever get to 20% of revenues as Daniel had hoped.
Yes, why don't I begin and then then you can sort of chime in a little bit more on the macro story of what's going on.
But maybe to start rates I think an important part here as well is our subscription business is probably doing a little bit better than we expected it to do and as the net consequence, one one of the things that are happening is we're taking some of our best customers on best highest engaged users and turning them into paid subscribers which of course.
<unk> diminishes some of that potential that we have.
Speaker Change: On the advertising side too. So a part of this is also that the mix is improving in favor on the subscription side.
And then the second thing I would say is that.
Overall on the platform side, we have been making a lot of investments over the past few years. It is still a pretty much of a heavy lift that we have been doing and thats of course to enable more programmatic and it's not something that we're still doing.
To the extent that we would like to do so you should definitely expect us to keep investing in that and bring more and more programmatic and automated buying onto the platform.
Yes, just to add onto that.
As you all know our ads business is direct sales enterprise heavy in its current state.
And on top of that we are sort of in a current state in upper funnel brand focused platform and it is exactly that quadrant that we're sort of seeing choppiness and volatility in the market, but as Daniel said here I think that also highlights really what is a tremendous opportunity for us to basically diversify away from that and create agility for ourselves I think it just emphasizes.
Daniel: Sort of everything dangled set around programmatic tapping into new demand pools, and I think in particular being able to access kind of spend in the market. That's presented by small and medium sized businesses as well I think these are all forward looking opportunities that we're excited about.
Okay. Our next question is going to come from but you leave you on the music industry.
Can you provide an update on your relationship with the labels against the backdrop of legal action taken by the MLC.
Can you also clarify accounting for the lowered CRB rates.
Why don't I start and then maybe you can shine.
I can't really comment anything about any sort of ongoing legal processes, but I will comment.
Something I've talked about quite a lot before which is.
Sort of nature of our relationship with the labels and I think a lot of people want to make this sort of a series some gay and where we have to win in order for them to loose or they have to win and then we sort of lose it does not fundamentally how we view. This at all we look at it much more of a win win so overall weather on the publishing side or the <unk>.
Speaker Change: <unk> side, when I look at our numbers, we keep increasing our payouts year over year. So last year on the publishing side, we had record payouts in 2023. This year 2024, we will beat those numbers and have even more payouts going on and the same we will of course be true on the label side. So it is not as much of a series.
Some game as people make it out to believe that's not to say that we don't.
Quibble around various things at various points that is the nature of all sort of supplier and distributor relationships, but overall I would say we have had healthy relationships with the music industry for the better part of now 18 years I've been here at the company.
There's always things that we're arguing about for sure but overall the music industry is growing we are spending a lot of time and effort in making sure that it keeps growing.
That is our primary thing that we're doing as a company.
Something we deeply care about as the core mission of this company.
And I think that is recognized across the entirety of.
The music industry as well and we feel good about that.
You will always see us over time get into these sort of arguments about various things over time, but that said the music industry is growing.
We're all as an industry focus on keeping that healthy growth.
Speaker Change: <unk>.
Yeah, and just to add to that.
I think to clarify I think obviously, we're talking about sort of two different sides of the the rightholder coin here, there's obviously decided with the labels and what you are asking about with respect to MLC in CRB that obviously pertains to the publishers.
Look I'll I'll say here is that it's quite a complex matter that we spent a lot of time scrutinizing and where we net out.
<unk> has been and continues to be that we're confident in our position we never get into the specifics of how we're accounting for specific licensing matters. So I won't be able to do that here today.
And I'll leave it at that.
Okay. Another question from Doug I Miss on pricing.
While it's still early in rolling out can you talk about initial consumer reaction slash churn related to the recent U S price increase the second in a year.
Do you think about the cadence of price increases going forward and should we expect more raises across international markets. This year.
Yeah great.
Great series of questions here.
As sort of a general principle, we don't ever talk about our forward looking plans.
I think what were what we'd like to say and what we can say here is that we're very encouraged by what we're seeing in the three major markets, where we've taken price now that's basically about two times in the last 12 months.
So I think we see that as a great data point for sort of.
Speaker Change: What might be possible kind of in the rest of our territories, but for now it's obviously still early days, we've only just taken this action and so we're obviously monitoring this quite closely but we're encouraged by all the right signals that you would get one would expect to see here which is.
Sort of the cancellation rates basically being better than expected.
And I think that's what we're going to continue monitoring as time goes on here.
Okay. We've got another question from Justin Patterson This time on future growth opportunities Daniel you outlined back at the 2022 Investor Day, how Spotify is focused on lifetime value as gross margin expands and lifetime value increases how does this influence where you invest for future growth.
In both the core music business in emerging areas like audiobooks and education.
Yes.
You are right that the LTV or lifetime value is the north star metric that we keep optimizing for.
And why we're so obsessed about it and why we like it so much as the fact that it is an all encompassing thing where.
Measures to everything from of course retention measures everything from.
<unk>.
Across.
A bunch of different other things too in a pretty a nice way.
When when you're operating a business like Spotify.
So overall the most impactful thing I can probably stayed around where we're focused on is we're focused on solving problems in the intersection between creators and consumers. If you wanted to understand what makes it onto our priority list. The easiest way is to look for things that are a win win.
So the highest thing on our priority list is when we look at group of creators and we look at what would be a win for them and then we look for something where our existing base of consumers, we're adding nothing to them would be a win win for them too. So a great example of this point would probably be the work we're doing right now.
On concerts.
It's very early days for that side, but on the music side.
Speaker Change: Concerts and live shows is a very big revenue source for a lot of artists.
Meanwhile, we also know that consumers love go into concerts, but one of the big consumer problems is they don't always know what to go to.
<unk> and when <unk>.
Speaker Change: So because of US having this base of loyal fans and listening to that artist.
Speaker Change: Very early on that we could probably make an effort where we could have the artists promote their concerts on their artist pages and.
And across the different surfaces that Spotify and thereby also creates great opportunities for their real fans to go to shows and this is something that we've been expanding that program.
That we call fans first quite widely across the base.
Spotify and we're seeing great artist support and we're seeing great.
Speaker Change: <unk> support of that so that gives you an idea of something that then creates value, but overall the way. We believe we create a higher LTV is by creating win wins, we want to both do things for the existing traders we have.
More new ways like concerts and potentially when we see things we've already invested in and other groups are creators.
Finding value and that will expand into other verticals as well.
There of course, audiobooks and education are great examples of that.
Speaker Change: Alright. Our next question is going to come from Doug Emmis on <unk>. There are many moving pieces across bundling price increases and plan are tier optimizations.
How will this impact.
Currency neutral ARPA growth through the second half of the year and into 2025, what is the right balance of volume and pricing to achieve 20% plus revenue growth rate over the next one to three years as laid out as a goal at the Investor day.
Doug: Thanks, Doug.
Look I think you've highlighted a bunch of variables here that I think are all the right kind of inputs. Once you think about in terms of revenue equation, but what I might actually also highlight and not called out kind of in this list here is actually perhaps the most important factor of all which is are we what are we seeing continued growth and engagement on our premium plan.
Because I think.
On our subscription offerings really because I think that that sort of like.
The real sort of leading indicators that leads to basically the flexibility across all the other levers that you are seeing here.
I'm not necessarily going to say that there is a magic formula across these things that are going to necessarily kind of paved the way for the next three years, but I think it's going to be leaning into different parts of this equation at different points in time I think the important part is that we're now talking about our portfolio and our portfolio gives us sort of flexibility and optionality here.
Okay.
Alright. Our next question is going to come from rich Greenfield on premium add ons.
There has been increasing noise that an ultra premium tier is coming that would cost an additional $5 or more above your current premium tier can you help us understand what the consumer would be getting in how you determined what features should be in this new offering.
Yeah sure rich.
So first off I think it's worth noting now that we're 246 million paid subscribers. So we are one of the largest subscription services on the planet.
Speaker Change: And interestingly.
Interestingly enough a huge part of that success were really driven by a very simple proposition of one size fits all proposition, but part of why I believe the subscription business in the last year or two has been doing better is because we've moved from that one size fits all to a much more tailored propositions.
Are consumers now have everything from the basic tiers too.
Speaker Change: <unk> two.
Family plans to.
Student plans, there's just many more options for you to subscribe to Spotify and.
What we do see.
Is that there is a.
A good subset of that group now of 246 million subscribers that want a much better version of Spotify.
And those are.
Huge music lovers, who are primarily looking for even more flexibility in how they use Spotify and the music capabilities that exist on Spotify.
So I've talked about that sort of relationship to the music industry and our commitment to growing the entirety of the music ecosystem and so I think this is a great way, where I think we can create a win win both for the creative ecosystem, but also for consumers as well so.
The plan here is to offer a much better version of a Spotify, So think something that could be something like $5 above the current premium tier like you include so it's probably around $17 $18 price point, but sort of a deluxe version of Spotify that has all of the benefits that.
The normal Spotify version has but a lot more control a lot higher quality across the board.
Speaker Change: And some other things that I'm not ready to talk about just yet but.
The reason why we're doing it is where I began which is we think it's something consumers really are asking us to do and we believe there is now a very large subset of that $2 246 million subscribers that wanted but also that it will be a net positive for the entirety of the music industry and will further.
<unk> enhanced the growth of the music industry is seeing so we're quite excited about it but it's early days.
Alright, we've got time for a couple more questions.
Our next one is going to come from Benjamin Black on gross margin goals.
So no. Good deed goes unpunished you hit the gross margin targets you gave us at the Investor Day in 2022, well ahead of plan. If we were to do a postmortem what specifically broke your way and now that this milestone was hit how should we think about gross margins going forward.
Yes, I'll take it and maybe Dan can assignment I love. How you guys are straightaway, when we have accomplished something move onto the next thing it keeps us honest.
Joke aside.
Yes, what happened.
If I do a sort of post more than I think.
Primary thing is we really focused as a business.
Speaker Change: It's it's you heard me say this but.
This has been a year of monetization on our side. So we've stepped up our ability.
And our efforts on monetization, but on the bottom line of course also we've done a lot of things.
Come more resourceful lots of companies. So it's really a function of those two things at the same time and with the intensity that.
Have exceeded even our own expectations on how fast we sort of transformed the business too.
The one that's not just focused on growth at all cost, but really kind of growth with profitability.
In mind.
Two it and.
I think the better way to think about gross margins probably to go back actually to what we said at Investor day, as well I don't have any new targets, but.
You hear us talking about sort of first getting to about 30% and then long term.
Of course, that's the the ability is a little bit higher than that as well. So I would just encourage you to go back to what we said at Investor day that is still very much top of mind for myself and the team.
And to add onto Daniel's point about sort of focus right. It's truly been a full court press from every corner of our company I would say and what that's resulted in us actually the ability to find kind of multiple engines here for gross margin expansion.
It sounded like a broken record at this point, but sort of talking about kind of improvements in music with marketplace growth. It's the podcast profitability path is efficiency in things like cloud and streaming delivery. They are even smaller areas like how we're optimizing our payment fees and traffic with our payment service partners. All these different things sort of ladder up to a gross margin story.
That we are sort of a very proud of.
Going forward, it's going to be that same mindset, where it's going to take a village to contribute and sort of continue ladders up to our long term goals.
Alright. Our next question is from Michael Morris on our recent pricing adjustments Hello subscribers responded to the premium plan price increases can you share detail on how many of churn and how many have opted for the basic plan relative to how many have retained the premium service have you seen any difference by market.
Yes, Thanks, Michael.
As I said before with respect to pricing I think all of this is still such early days.
Again, highlighting kind of the uniqueness of all this right again, it's our three its three major markets for US. The second time, we've raised price in 12 months and so we're kind of watching all metrics like a hawk here, but early days suggest that signals are encouraging we're seeing kind of.
Better than expected cancellation rates. Despite the fact that it is now.
Successive moment that we've taken price here and obviously, having basic kind of in the portfolio now gives us a new sort of like pathway to mitigate churn. We don't have specific numbers to share on this call right here, but we are very encouraged by all the signals that we have.
Alright, and our last question today is going to come.
With a follow up from Michael Morris on Audiobooks.
How does the audio books business impact your cost structure, what is the basis for cost recognition. What is the current gross margin on audio book revenue look like relative to your Investor day goal of 40%.
And is that still the right margin and what's the timeframe to reach that target.
Yeah, Great question here.
I'll share two things I think first let's talk about sort of audiobooks in general following a variable consumption based cost structure I think thats important thing to continuously kind of keep in mind here as you think about that business and second again.
In the sort of scheme of Spotify, It's really early early days still and getting into sort of this new content vertical and establishing ourselves will always start with investment before we focused on sort of margins and profits.
Learning how to optimize but we don't have further details to share on that today in terms of the mechanics of the timelines, but we feel very good about what we've laid out for you at Investor day with respect to the margin goals longer term for that business.
What I would continue to encourage you all to think about is how we think about this internally. The most important thing in the near term is just making sure that audio books are driving incremental engagement for the platform and we're seeing this happening in a way that makes us feel good about the path that we're on here, it's central to how we think about audiobooks or really any other content vertical being a contributor.
The health of our business as more engagement paves the way for accretive monetization.
Yes. My only addition is the primary thing here that we're focused on is adding more and more value constantly. So audiobooks is just another testament to that.
Speaker Change: And I think when.
When you look at Spotify today relative to where it is two years ago, we can see in pretty much every metric whether it be engagement, whether it's the number of items of content. We have on our platform the diversity of content and how people are consuming that people are responding really well.
Two the Spotify offering.
And if if those metrics are true long term.
We will also build a really great business.
Alright, great that's going to conclude our Q&A session I will hand, the mic back to Daniel for some closing remarks.
Alright, well thanks, Brian.
It's really an exciting time at Spotify, we keep on innovating and showing that we aren't just a great product, but increasingly also a great business and we're doing so on a timeline that has exceeded even our own expectations. I think this all bodes very well for the future. The primary objective for the team now is to continue delivering against these.
While increasing our innovation to the benefit of consumers and creators all over the world. If we can do this even more great things are in store for Spotify. Thanks again for joining.
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. Thanks, Thanks again for everyone for joining.
This concludes today's conference call. We thank you for joining you may now disconnect your lines.
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