Q3 2024 Spotify Technology SA Earnings Call - Q&A
Speaker Change: Good afternoon and welcome to Spotify's third quarter 2024 earnings call and webcast.
Speaker Change: I would now like to turn the call over to Bryan Goldberg head of Investor Relations. Thank you. Please go ahead.
Bryan Goldberg: Thanks, operator, and welcome to Spotify as third quarter of 2024 earnings conference call joining us today will be Daniel <unk>, our CEO and Christian <unk>, our CFO will start with opening comments from Daniel and Christian and afterwards, we'll be happy to answer your questions questions can be submitted by going to slide <unk> Dot Com S. L. I D O dot com and using the code hash tag Spotify earnings <unk>.
Bryan Goldberg: $3 24 analysts can ask questions directly into slide open all participants can then vote on the questions. They find the most relevant if for some reason you don't have access to slide or you can email investor relations at IR at Spotify Dot Com and we will add in your question.
Bryan Goldberg: 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.
Bryan Goldberg: 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 in filings 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 <unk>.
Daniel: Our holder 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.
Daniel: Alright, Thanks, Brian and Hey, everyone and thanks for joining us so where in L. A this week to spend time with creators and over the next few days, we will have a couple of announcements that I'm sure will be of interest to you related to our expansion of video on the platform so more to come on that but.
Daniel: But I want to start this call by welcoming our new CFO Christiana do we got I know some of you have already met him and I hope the rest of you will have the opportunity to do so soon Christian brings incredible expertise and proven leadership to Spotify and I am grateful to have the benefit of his track record I also wanted to take a moment to thank Ben Kung Fu.
Daniel: Fantastic job he's done as interim CFO, it's been seamless which is a huge testament to all that he has brought to the role.
Daniel: As you can see there's a lot of positives. This quarter Q3 is another standout in what you've heard me refer to as the year of monetization and we are on track for our first full year of profitability. We outperformed on both the subs and MCU revenues were in line and we had significant beat on gross margin and op.
Daniel: <unk> income we also had another sequential at an all time record quarter of free cash flow.
Daniel: Back at our 2022 Investor Day, we set clear goals for Spotify is the growth and this quarter marks a key point, where we successfully achieved and even surpassed those targets doing so slightly ahead of schedule and I think this demonstrates what we've been saying over the past year Spotify is not just a great product, but well on its way.
Daniel: To become a great business, a big things star team for their hard work and dedication in making this vision a reality.
Daniel: Over the past few years, we've continuously modulator, our time and resources between focusing on growth and optimizing for profitability. This approach led to a record year in 2023 for MCU and premium additions. However, as the macro environment shifted we made the difficult but necessary decision to adjust and focus.
Our efforts on cost efficiency.
Daniel: And we did this while continuing to transform our business, which included expanding into audiobooks in Europe, launching new subscription tiers and bringing more video onto the platform just to name a few and today's results demonstrate what we've consistently seen the importance of finding the right balance between growth and.
Daniel: <unk>.
As we head into the year I'm sure you're asking what does this all mean for Q4 and beyond.
Daniel: We will close out Q4, just as we started the year laser focused on monetization and the underlying fundamentals of our business looking at our forecast we expect to make further progress across all of our key metrics, which sets us up with plenty of runway for growth and profitability expansion in the years to come but make no.
Speaker Change: Jake we're not here to merely optimized for today I am as energized as I've ever been about the current landscape of technology, what's unfolding in AI with all of its knock on effect is both thrilling and humbling moments like this don't come often theyre inflection points, where you can either let the opportunity slip by what you can see.
Speaker Change: And press forward with conviction, we're choosing the ladder fully committed heads down and building for a future full of possibility.
Speaker Change: So as you think about Spotify in 2025 and beyond picture a company that operates with the same disciplined management you've seen this year, but one that also has the ambition to seize the opportunities presented by what's happening in technology in the near term I see potential for transformative shifts in music discovery and new innovative ways to.
Speaker Change: Artists and fans like never before all great stuff for the music industry, which will drive further growth across our core business.
Speaker Change: And just as we successfully entered the audio book space, we're committed to making the targeted investment to also expand spotify into new areas enhance the platform and deepen the value we bring to users and this relentless focus on consistently delivering exceptional value well beyond the price of user pays for Spotify is how we draw.
Speaker Change: <unk> sustainable growth for all stakeholders across our entire ecosystem. So to conclude our commitment to the long term goals. We shared at the Investor day remains unwavering, but our journey well that's always be defined by bold innovation and relentless pursuit of what's next.
Speaker Change: And with that I'm going to turn it over to Christian to share his perspective, and then he'll provide more details into the numbers.
Christian: Thanks, Danielle and thanks, everyone for joining us I couldnt be more excited to join Spotify.
Christian: And onboard for just now toward time and I'm impressed with the talented teams I met and see great potential in the product business and looking forward to working together in efficiently allocating our capital and scaling the business towards our long term goals.
Christian: Turning then to the quarterly results quarter three marked another strong quarter for new business <unk> grew by $14 million to $640 million and we added 6 million net subscribers, finishing at $2 $52 million, both MAA and subscriber growth outperformed our guidance by $1 million.
Christian: Total revenue grew 21% year on year on a constant currency basis to $4 billion premium revenue rose, 24% year on year on a constant currency basis, driven by continued subscriber growth and <unk>.
Christian: Acceleration associated with price increases.
Christian: Our advertising business saw currency neutral growth of 7% year on year, reflecting another quarter of volatile market is spending on brand related campaigns.
Christian: Moving onto profitability. We are pleased that we have delivered on our intermediate term gross margin target of 30% in fact gross margin came in at a record 31, 1% surpassing guidance by 90 basis points.
Due to primarily content cost favorability.
Christian: Operating income of 454 million Europe also set a new record aided by gross profit strength.
Christian: Operating income was impacted by $54 million in social charges, which in the quarter were $39 million higher than our forecast due to share price appreciation.
Christian: As a reminder, we don't forecast share price movements in our outlook for the business since they are outside our control.
Christian: Finally, as towards a record $700 million 711 million euro in the quarter and performance here was driven by our improved operating income profile as well as networking capital.
Christian: Our ability.
Christian: Looking ahead to fourth quarter guidance, we are forecasting 665 million Mou, an increase of $25 million from quarter, three and 260 million subscribers, an increase of $8 million over quarter. Three we are also forecasting $4 1 billion in total revenue as you have may seen in today's results.
Christian: Favorable foreign exchange rate movements created a larger than expected headwind to the business in quarter three.
Christian: These movements have also impacted our quarter four outlook by approximately 80 million Euro. We also anticipate gross margin of 31, 8% and operating income of $408.
Christian: Million euro pointing to our first full year of positive operating income of $1 4 billion.
Christian: With respect to subscriber net additions the very low levels levels of churn that we expect in the six markets, where we have recently announced price increases is also incorporated into our quarter four outlook.
Christian: This is consistent with what we have seen historically, we have also incorporated our ongoing actions to drive better subscriber monetization.
Christian: Also new pricing will contribute towards ARPA growth in quarter four overall we.
Christian: We expect the lapping of 2023 years price increases that we had in 63 markets that they will lead to an approximately 400 basis point moderation.
Christian: Over a year on year ARPA growth on a constant currency basis in our revenue outlook.
Speaker Change: In terms of our recent gross margin improvement as Daniel mentioned, we are very pleased with the strides we've made this year.
Speaker Change: This significant rates of improvement in our gross margin in 2024, which exceeded even our own plants has been exceptional and should be viewed as such.
Speaker Change: Looking ahead, we see substantial runway to grow margins and income over the long run, which will be driven by a continuing focus on improving our product and business via targeted investments.
Speaker Change: Disciplined management and improving monetization.
Speaker Change: Finally on capital allocation, we have a strong balance sheet with $6 1 billion in cash and equivalents and $1 3 billion Euro in an exchangeable debt and a trailing 12 month free cash cash flow profile of $1 8 billion.
Speaker Change: As a sustainable growth company, our top priority remains to invest in opportunities that makes sense for the business with high returns. We are of course, considering our shareholders as part of our overall framework as well overall.
Speaker Change: Overall, we are very pleased with the positioning heading into the year end and looking forward to building on our momentum going forward.
Speaker Change: With that I hand things back to you Brian for Q&A.
Speaker Change: Thanks Christian again, if you've got any questions. Please go to slide <unk> Dot Com hashtag Spotify earnings Q3, 24 will be reading the questions in the order they appear in the queue with respect to help people vote up their preference for questions.
Brian: Today's first question is going to come from Eric Sheridan on capital allocation.
Speaker Change: How are you thinking about a multiyear approach to capital allocation as your profitability levels continue to scale and can you frame your priorities for capital between growth investments and possible capital returns.
Brian: Well.
Speaker Change: Going back to my remark, but also.
Speaker Change: Emphasizing again, it's really amazing and good to start this journey for me and then for the company now with with a strong balance sheet, which we have.
Speaker Change: It is an important and.
Speaker Change: Great question. It is fantastic to see now how we have broad healthy returns in the past and the investments we have made and I think the main focus is to continue to focus on LTV over CAC ratio.
Speaker Change: And I believe the investments we have made annuity books and others are those that we should look for going forward, how do we create growth in a sustainable profitability in this company.
Speaker Change: Alright.
Speaker Change: Our next question is going to come from <unk> Levi.
Speaker Change: Gross margin performance.
Speaker Change: Can you provide more color on what drove the gross margin beat versus your outlook. What are some of the drivers for further margin expansion sequentially.
Speaker Change: Thank you the gross margin improved.
And it was a continuation of quarter two.
Speaker Change: We have a very good marketplace and program that actually is developing well and has improved the gross margin. We also have streaming and delivery costs and have to add also the payment of course that we are scaling on and on top of that we have the U S publishing rate favorability that comes through our books.
Speaker Change: And that is the reason for quarter, two and Thats the reason.
Speaker Change: <unk> improvement and.
Speaker Change: I'm not going to go in that much on future.
Speaker Change: And drivers.
Speaker Change: Okay. Our next question comes from Doug on this on.
Speaker Change: 2025, you.
Speaker Change: We have now reached the low end of your medium term financial targets. How are you thinking about drivers of incremental leverage into 2025 more of the same across marketplace bundling price increases podcast improvement or are there other new initiatives.
Yes.
Speaker Change: I really believe it's kind of a bit of both as you look at the 2025, it's pretty much a continuation of the trends that.
Speaker Change: Some of them you already spoke about yourself I would probably add audio books to the mix too.
Speaker Change: But as you kind of go into the.
Speaker Change: The later of the year and certainly 2026, we are looking at new initiatives too so.
Speaker Change: <unk> of Spotify.
Speaker Change: <unk> is by now through our history of a public company has really been one where we constantly keep innovating and we keep pushing the envelope of what our consumers are expecting for us and we really do that through that lens of the value of the price ratio that we keep talking about how do we constantly and relentlessly add more and more value.
Speaker Change: To our consumers because we know that if we focus on that eventually price will be there for us to take as I think we've proven this year.
Speaker Change: Okay. Our next question is going to come from Justin Patterson on pricing.
Speaker Change: The record labels have recently signaled that they expect industry prices to increase given the product innovation at Spotify relative to peers. How do you think about setting price in relation to the broader industry do you need competitors to raise price to support your own price increases.
Yes, I mean look we feel really good about the proposition of Spotify and our value through price and in many markets. In fact, we are price leader.
Speaker Change: And I think that is a testament to the great offering we have that Spotify now with all that said, obviously every product in the marketplace.
<unk> in respect of the competitive set as well so that is not an endless thing. The key thing. However is we are rather than speaking about the competitive set we are relentlessly focusing on how we can keep adding more value to our consumers at how do we measure that value and you've heard us talk in the past.
Speaker Change: About these concepts quite a bit. So you talk here has talked about everything from churn you hear us talking about engagement being a leading indicator for low churn and so on so these are all metrics that we're tracking relentlessly and when we see them and we keep developing and enhancing our proposition and our engagement with.
Speaker Change: Our customers, we will eventually have opportunity to raise price.
Speaker Change: As well.
Speaker Change: Okay. Our next question comes from Jessica Reif Ehrlich on advertising there have been reports that you've built your own AD exchange and can tie into demand side platforms, such as the trade desk can you provide some color on the time to ramp up how quickly you can scale and when will it quote unquote move.
Speaker Change: The needle on your advertising revenue.
Speaker Change: Yes. Thank you I just want to remind ourselves about the journey. We all know so I mean, we our AD business today have been heavily reliant on direct sales and top of funnel brand spend and therefore, I mean, we've seen over the years.
Speaker Change: The type of ads based instead, we build has an exposure to macro trends. So with this we have now diversified and changed our platform and built is Spotify AD exchange and moving on with the trade desk as a test pilot.
Speaker Change: What we do see is that 2025 will be a year of testing and trying out this and we will see the impact going into 2026.
Speaker Change: It is early days.
Speaker Change: We are new to the auction environment and it's important that we are very deliberate and careful about how we rollout to supply into these channels.
Speaker Change: But we also need to say I'm very excited that this will help us to change.
Speaker Change: Okay. Our next question comes from Richard Greenfield on a super premium product offering.
Speaker Change: While some of the labels have talked publicly about this there doesn't appear to be a consensus of what the record labels or artist wants the product to be what is Spotify want the offering to be and how involved.
Speaker Change: With the artist or Willie artists need to be to make this work.
Speaker Change: Yes. So so overall just as a reminder, we have talked about this in the past quarters.
Speaker Change: As well.
We are excited about this and just to set expectations. We are moving from this one size fits all markets that quite often happens in early.
Speaker Change: Early development, where you have fewer skus to them.
Speaker Change: To keep growing into more and more mature marketplaces, you add more skus to address more of the market that is sort of how you should think about the evolution of Spotify and.
Speaker Change: This higher priced music tariff Spotify is certainly one that I think we'll have a lot of growth for the music industry and something that consumers will love to I can't really talk about specifics for it but.
Speaker Change: Again, I can talk about the principal thus driving the principles for us. It's always the same which is how do we create something that consumers love, but that also.
Speaker Change: Delivers value back to creators and.
Speaker Change: You can go back to vinyl buyers you can go back to all of these super fans that already exist to look for clues in what are some of the things are that they value. Some of those things are proximity to artists. Some of those things are of course better sound quality at.
Speaker Change: And a bunch of other things I can't get into specifics, but I think I've left enough breadcrumbs for you guys to get excited about it.
Speaker Change: Okay. Our next question comes from Benjamin Black on 2025 framing.
Speaker Change: 2023 was the year of efficiency in 2024, you are proving out the unit economics with a strong gross margin performance.
Speaker Change: The story of 2025.
Speaker Change: Yeah.
Speaker Change: I wish I had a much cleaner way of positioning the story, but the story of 2025 is growth with profitability.
Speaker Change: The mix of both of them being the story, so it's really proven that.
Speaker Change: It's not just about growth or just about profitability, but that we can deliver both at the same time and as I mentioned in my opening remarks, we're very excited about what we are seeing.
Speaker Change: Right now in the inflection points that sometimes opens up as technology becomes available for us to add value to consumers and this is adding value is the key.
Speaker Change: Long term indicators.
Speaker Change: Indicator I think for building, a very strong business and so we see a lot of those opportunities in 2025, and obviously, we will remain a profitable company as we are pursuing those investments.
Speaker Change: Alright, and another question from rich Greenfield on advertising.
Speaker Change: Advertising revenue is growing slower than may use and has shrunk from over 14% of revenues to now under 12% we understand the softness in brand advertising, but there seems to be a growing disconnect between the engagement of your audience and AD dollars is your programmatic push.
Speaker Change: The fixed alone for advertising.
Speaker Change: Thank you and let me go back and just remind US again here I just wanted to say that we actively build out to become a more automated business debated accommodate the external demand we do rebrand our self serve platform spots at ads manager and we also piloting our first supply side program.
Speaker Change: Platforms spots ads exchange and I think programmatic is.
Is a big part of the solution Thats for sure, but also other things into the mix driving more measurement diversifying AD formats et cetera that will help us.
Speaker Change: And on programmatic, we should view that as a that is a travel single fix with programmatic.
Speaker Change: <unk> auction and auction is a new thing for us and that will be a big support in this journey.
Speaker Change: Alright, another question from Doug Anmuth.
Christian Christian: Christian Christian since joining several weeks ago, where have you been most focused how should we think about your operating philosophy.
Christian Christian: And has anything surprised you thus far about the company.
Christian Christian: Well.
Speaker Change: I'm getting a little bit seniors, so I don't get surprised that often any longer but it is it is amazing to see the journey and the results. The company has accomplished I have to say again and then when you get into the company you see it also hands on and that that is always.
Speaker Change: Something that gives you a little bit warm and so.
Speaker Change: So that's a very good question also what have I done my first two.
Speaker Change: Two months in the company and to be a very explicit I mean, the first five six weeks I spent trying to learn and understand meeting my colleagues and external.
Speaker Change: <unk>.
Speaker Change: Everything for how what drives the business how are we set up.
Speaker Change: Does the company work and what are the drivers and then I have spent quite a lot of time, making sure I'm in control of the numbers that we just presented today to the market.
Speaker Change: And from there I will I will discuss with the management, how we should take things going forward. After this so that's really where I started and I just wanted to again.
Speaker Change: I say that.
Speaker Change: I am really.
Speaker Change: I'm excited but and my style them well.
Speaker Change: I'll leave it to others to talk about my style.
Speaker Change: I'm quite hands on.
Speaker Change: I, usually say I work with a short screwdriver that makes me come close to the details to understand them before I go in and decide on how we should do things in a broader scale.
Speaker Change: Okay. Another question from Jessica Reif Ehrlich on audio books can you provide an update on audiobooks usage and engagement.
Speaker Change: Yes, Thank you Jessica.
Speaker Change: We're very excited about audiobooks.
Speaker Change: It's fascinating to see a year into this journey how much has happened.
Speaker Change: As we launched.
A year ago, we saw we had a pretty comprehensive library of titles, but we've more than doubled now the number of titles we have available.
Speaker Change: Which is really.
Speaker Change: Fantastic.
Speaker Change: And.
We are seeing strong strong strong adoption across the board and the adoption part.
Speaker Change: User is also growing very nicely. So for instance in the U S.
Speaker Change: Among the <unk> users, we're seeing more than five hours more consumption for Spotify users and remember Spotify is already a very well used service. So the fact that we can see five more hours of consumption on average is a pretty strong testament to what a great proposition this's for consumers very excited.
Speaker Change: Okay. Another question from rich Greenfield.
Speaker Change: On sports, we've seen Amazon and Netflix pushing to sports to build their respective advertising businesses to Spotify need sports audio content to accelerate advertiser demand and interest.
Speaker Change: I'll take this one I think overall, we know what we need to do.
Speaker Change: Sure.
Speaker Change: Advertising and the primary story in advertising is about meeting the market tiers, where they want to be met and that is in the programmatic marketplace and enabling them to more easily by across.
Speaker Change: Spotify the network.
Speaker Change: So I think that's the bigger story now when it comes to sports in particular.
Speaker Change: The truth is we're already playing a pretty big role. So just look at something like the <unk> the ringers doing phenomenal for us on the podcasting side.
And I know many of you our listeners already to Bill Simmons and all of his podcast and so.
Speaker Change: We see that as a great driver for us with advertisers.
Speaker Change: And with consumers as well so we're very excited about that.
Speaker Change: Okay. Our next question's coming from Deepak on AI.
Speaker Change: Given all the innovation on the product front with AI video et cetera over the last six months.
Speaker Change: Can you give us some color on how these enhancements are benefiting metrics such as engagement and retention.
Speaker Change: Yes overall.
Speaker Change: Spotify keeps.
Speaker Change: Bringing up engagements and keep bringing downturn that is the story, we've been on and whenever someone thinks we have reached the ceiling and turns out that we're finding more ways to drive up the engagement and driving down the churn and.
Speaker Change: I think this this again showcases that we keep adding more and more value to the platform.
Speaker Change: Across the board and AI is one of those ways video is obviously another one podcast thing as a third audiobooks as the fourth.
Speaker Change: What we're doing with courses in the U K being a fifth there's so many ways that we both adding lots of new ways that people can engage with Spotify, but also small incremental improvements.
Speaker Change: We are driving great results, but but.
Speaker Change: We are very excited about.
Speaker Change: Driving our usage of Spotify up over the next coming years, I mentioned that when we spoke about AI too but.
Speaker Change: I really feel like this is a huge unlocking technology that can enable really transformational new.
Speaker Change: Waste, where people want a sound track.
Their lives in even more ways than they've done in the past.
Speaker Change: Okay. Another question from Benjamin Black This time, an Mou you changed your marketing strategy and now we're seeing I know you net additions revert towards prior levels could you dig in a little bit more into what you did how sustainable is this level of Mou growth and should we expect a reversion back to the $70 million to $80 million per year net.
Speaker Change: As you pointed to in the past.
Speaker Change: I think it's early days, but I do believe we turned the corner and are back to growth again on the MH side and I'm happy about that because I wasn't happy about us missing the prior forecast. So it feels like we've got a good grip of it now now.
Speaker Change: As it relates to what do we do to make that happen. The reality is it's a bunch of different things.
Speaker Change: The chief among them is really product improvements lots of small tweaks been driving good results are things in the past, that's probably werent smart we've reversed we've added new things as well all of Thats created.
Speaker Change: The backdrop of stronger engagement, which then translates to more MDU than you as you mentioned on the marketing side, we have improved there too. So we have spent a little bit more on marketing now it's important to add why didn't you do that pryor, while we didn't do that because we werent seeing efficiency so as.
Speaker Change: We're seeing more efficiency I E. The sac to LTV ratio that Christian spoke about then we are happy to spend why wouldn't we be.
Speaker Change: So the team has been working on.
Speaker Change: A bunch of those things and if we see great opportunities with great sector LTV ratios, we will pursue them if.
Speaker Change: If nothing else the core will be about improving engagement on the product improving.
Speaker Change: Efficiency on marketing.
Speaker Change: Okay. Next question is from rich Greenfield on video Podcasting, Daniel If you put your creator had on Spotify offers.
Speaker Change: For larger platform for video podcasts, it's still dwarfed by the scale reach and engagement of Youtube. We presume that's why creators like Joe Rogan want to be on Youtube and not just Spotify, how do you change that over time.
Speaker Change: Well I mean, if you look at the history of the company, we've always been up against much bigger.
Speaker Change: Companies.
And platforms and I feel like this is the story of Spotify.
Speaker Change: We don't really as we're entering spaces, we don't think too much about competition is the honest answer while we do think about this.
What are the needs of the consumer what are the needs of creators we have an upcoming video event tomorrow. So I'm plugging that to all of you I hope you'll you'll follow along.
Speaker Change: What I'm sure people will live tweet and all of that from the events where.
Speaker Change: You can see really our philosophy of play where we're solving real creator needs, where we're solving real consumer needs.
Speaker Change: We're seeing and it's really how we are pursuing this I think that there is not so much people make it out to be the sort of.
Speaker Change: The winner takes all dynamic in that Theres only one player that can solve all of it what we're actually seeing is greater wants to be multi home they want to be in more platforms.
Speaker Change: That's certainly what we learned in podcasting and that's what we're leaning into.
Think what we're seeing now is we have lots of creators that are on Spotify, but only with parts of their content and they want to enable more ways for them to add more content to Spotify. There are new craters that have needs.
Speaker Change: Which we arent yet fulfilling but hopefully tomorrow is a great step in that direction.
Speaker Change: Okay. Our next question is from Stephen can haul on the AD supported tier would.
Would you consider a modest subscription fee on AD supported users in mature markets. This appears to be attracted to the labels and it may support your commentary about scaling profitably.
Speaker Change: In AD supported especially in a soft CPM environment.
Speaker Change: I can't really comment on specifics about pre announcing what we may or may not do but I can talk about the sort of general views, we're always open.
Speaker Change: Considering how we evolve our opportunity and as I mentioned before we're always thinking about what's this crater needs and what the consumers want and we're really trying to find win wins between the two one.
Speaker Change: One of the challenges in specifically.
Speaker Change: Why music is not analogous to video however, that's good for investors to be aware of in music, specifically because of the regulatory rights environments.
Speaker Change: You are.
Speaker Change: With radio and other things, there's a lot of AD supported music available out there in the marketplace. This is not something thats likely going to change.
Speaker Change: And so as you think about that there is a very very different industry dynamic in music.
Speaker Change: As compared to say something like video, where we've obviously followed with what's happening with the AD supported tiers with fees involved et cetera. So we're always.
Speaker Change: Always open we're always discussing with our partners and with consumers' needs and thinking about how do we create the best possible proposition, but it is a very different environment than in videos I don't think we can just overlay what happened in video and say Hey, let's do the same thing in music because it's a very very different regulatory.
Very different industry environments.
Speaker Change: Okay I've got another question from Jessica Reif Ehrlich on revenue drivers.
<unk> 2022, Investor Day, you provided a revenue goal of 20% annual growth are you comfortable that you can achieve this and can you help us think through the various levers to reach this target.
Speaker Change: Yeah. So.
Speaker Change: We have very high goals in this company.
Speaker Change: And we will continue to set very high goals across the board and we're always going to push for more innovation and constantly push forward Whats next and we want to be one of these very few iconic companies to defy expectations and Thats certainly what im focused on everyday of my my.
Speaker Change: Task here now what are the drivers to get to 20% annual growth well, it's probably a combination of both super strong topline user growth and then on top of that.
Speaker Change: Very strong monetization.
Speaker Change: And so in both of these buckets when you really think about it we're just scratching the surface of.
Speaker Change: All the potential we have in reaching more consumers across the world. So as you think about the addressable universe.
Speaker Change: Definitely more than 3 billion people around the world that cares about music.
Speaker Change: We're only at $640 million so far so there's plenty of growth left to be had now obviously, if you stretch out 20% across.
Speaker Change: Decades on it will be very tough because we've run out of people. So eventually that growth depending on what sort of time period Youre looking at it will be hard to accomplish.
Speaker Change: On the revenue side however.
Speaker Change: You saw us this year to close some of that gap between the value to price ratio, we're now back to adding more value there and we will eventually close the price gap on that too I feel very good about our ability to monetize and we have to put things in perspective too few years back. It was a big question around whether Spotify could even increase.
Speaker Change: Mrs. At all I think we've proven now that we have that ability to do so we have the ability to lead on price and we have the ability to do so profitably.
Speaker Change: There is nothing that makes me stop and think that we cannot do this going forward, but we certainly to get to 20% growth in both advertising to grow faster than what it is going now and our subscription business.
Speaker Change: To add more skus to help with that sort of growth. So those are sort of the main ingredients as you think about this.
Speaker Change: Okay. Our next question is going to come from Ken on the <unk> on distribution opportunities.
Speaker Change: With record labels looking to launch Superfan apps could you talk about Spotify its potential role as a distributor of other applications.
Speaker Change: Well, we really don't have anything to announce at this moment, but again the goal of the company.
Speaker Change: Now a few times is to look at the <unk> section of consumer needs and greater needs and we're always open to discussing with the industry. How we can improve our proposition and if there are super fan apps that we think has great consumer appeal.
Speaker Change: We'd be more than happy to look at ways to contribute to that growth.
Speaker Change: Alright. Our next question is going to come from Doug Anmuth again on advertising FX neutral AD revenue growth of 7% is well below digital AD peers can you talk about the product roadmap here in diversifying the advertiser base away from brand, while leveraging demand side platform.
Speaker Change: <unk> and other AD tech partners to accelerate growth.
Speaker Change: Going back to a little bit what I talked about before so so actually the purpose.
The changes we are doing with the sport fortify apps exchange is to actually move into more and more performance based AD services instead of brand and that will then take us there. So so that's the short answer and I'll keep it at that.
Alright, we have got a question now from Maria rips on marketplace is there any quantitative color you can provide around marketplace growth. So far this year are there any new products or features that you've recently introduced are working on that you think could be notable growth contributors in 2025 and beyond.
Yes.
Speaker Change: Marketplace.
Speaker Change: Very pleased with what we're seeing with marketplace.
Speaker Change: There are more and more artists and labels teams that are using market place across the board that's driving some of that growth.
Speaker Change: As it comes to product features one of the big things that just giving more control back to those marketing teams in how this shows up when it works when they have their campaigns ready how they do it.
Speaker Change: More granularity and more integration with the tools and workflows that label teams an artist teams are already using today. Those are some of the sort of near term driver of the longer term drivers is I still think we have a lot to do on the merchandising front and on the merchandising front, what I'm simply referring to is how.
Speaker Change: The music releases, our marketplace products show up users what we do see as one example, as we've been adding music videos when Theres music videos on our product you see significant uptake in stream sure. So, we're just giving more and more tools and more and more controls to labor teams in <unk>.
Speaker Change: Artist teams on how to use marketplace.
Speaker Change: Okay. We've got another question from Jessica Reif Ehrlich on music royalties theres been speculation that the record labels, we'd like to move to a per subscriber pricing model similar to cable television networks from a Spotify perspective, what are the pros and cons from moving from variable to fixed pricing.
Speaker Change: Yeah, I'm not sure I can comment so much on speculation but to say that.
We have a very healthy relationship with our partners and we are constantly discussing what the future of.
Speaker Change: The model will be and how this can provide growth for the music ecosystem.
Speaker Change: Okay. We've got a question now from Mark Mahaney on.
Speaker Change: New features how impactful have music videos and AIG DJ features and products been to user engagement and satisfaction.
Speaker Change: Yeah.
Speaker Change: We are seeing.
Speaker Change: One of the more interesting things is that as you think about.
No.
Speaker Change: Like Spotify and the spices Spotify over 640 million users.
Reality is.
Speaker Change: There are very few things that move.
Speaker Change: Things on the aggregates.
Speaker Change: More things that may move numbers on small individual cohorts.
Speaker Change: D J and music videos, however have been exceptions to that where it truly is moving averages and we see that people who are using music videos have significantly higher engagement and retention than ones that don't similar to how <unk> is working to AIG J, we're seeing.
Speaker Change: Amazing results not just some quantitative metrics, but also on quality metrics, how people feel about Spotify, what they say they love about Spotify, both music videos and AI DJ are showing up in pretty great ways and I think this showcases the strength of Spotify, we are at our best when we can bring great innovation.
Speaker Change: For our consumers.
Speaker Change: Alright, we've got time for a couple more questions.
Speaker Change: Next question is going to be from Michael Morris on.
Michael Morris: AI objectives can you help frame any incremental investments for your longer term growth objectives, you mentioned youll be disciplined but should we expect an additional period of net investment while you pursue new opportunities.
Speaker Change: I think.
Speaker Change: Again, one of the hardest things I think for the entire technology industry right now is.
Speaker Change: It's very difficult for all of us to try to predict exactly what that investment pattern will look like because there's so much movement in the underlying technology stack and what it means I think what I think I can say to make investors feel calm about this.
Speaker Change: This is not reckless spending and we're not back to 2021, but we're going to be highly disciplined in what we do we also unlike.
Speaker Change: Other AI companies. This is not capex intensive for us. So this is purely based on usage.
Speaker Change: When we find it and obviously usage is correlated to higher engagement and higher retention, which then brings value. So that's how we should be thinking about it but we will be disciplined.
Speaker Change: But if we see something that we think will drive meaningful engagement.
Speaker Change: Or.
Speaker Change: Retention uplifts.
Speaker Change: Is in the best interest of Spotify, obviously to pursue that and if that means that there are shorter form trade offs.
We're <unk>.
Speaker Change: Numbers on.
Speaker Change: Margin perspective will go down for a little bit of a while.
Speaker Change: Always happy to make that trade off now that said of course.
Speaker Change: We are going to be very disciplined in how we pursue it.
Speaker Change: Okay. We got another question from <unk>.
Speaker Change: On podcasting subscriptions if podcast, there's like the New York times use a paywall on Spotify to improve their yield is there an opportunity for spotify to share in that upside.
Speaker Change: There is of course constraints in how.
Speaker Change: The App stores.
Speaker Change: Work and our ability to work with Upsells overall as you guys know this is very near and Dear topic for me personally.
That we are fighting because we see the need for creators they want to provide more opportunities Ala carte and we would love for that to happen. So there's some restrictions in how we were able to do so given how app store success, but I think in a perfect world what.
Speaker Change: We are seeing is partners of ours are coming and they want to offer more products through Spotify, They would love for us to be incentivized in doing so.
Speaker Change: The question is more of a technical one and sort of App stores.
Speaker Change: Perspective, one can we even do it but in theory, we could and I think our partners would like for us to help drive their businesses and we obviously would love to do so too, but I think the near term there are challenges on app stores and our ability to do so.
Speaker Change: Alright.
Our final question today is going to come from Barton Crockett on the competitive landscape. How do you believe Spotify as growth currently compares to major rivals such as Apple music.
Speaker Change: Yes.
Speaker Change: We are we feel really good.
Speaker Change: Our our growth rates relative to the peer set in music and.
I think.
Speaker Change: Yes, I'm just going to leave it at that we feel really good about it.
Speaker Change: Okay, well that concludes our question and answer session and I will turn the floor back over to Daniel for some closing remarks.
Daniel: Alright, Thanks, Brian.
Daniel: No.
Daniel: Thank you.
Daniel: From all of my remarks today and my commentary.
Daniel: If we want to conclude I would just say we've never been in a stronger position thanks to.
What's really been an outstanding execution by the Spotify team and I'm incredibly proud of the way we've delivered and the progress we've made.
Daniel: We are aware, we set out to be if not a little bit further and on a steady path towards achieving our long term goals and the key here is really the relentless pursuit of innovation and commitment to growth that I think sets us up to deliver the most valuable user experience in the industry, while reinforcing the core strengths that.
Daniel: Make spotify unique.
Daniel: And I am incredibly excited about what lies ahead for us.
Daniel: And obviously I hope you guys will join us.
Daniel: Check out the news on our video event tomorrow too so thanks for joining us.
Speaker Change: Okay that concludes today's call a replay will be available on our Investor Relations website and also on the Spotify App under Spotify earnings call replays. Thanks again, everyone.
This concludes Spotify third quarter 2024 earnings call webcast. Thank you for your participation you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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