Q1 2025 Spotify Technology SA Earnings Call
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Speaker Change: Hello, Welcome to Spotify first quarter, 'twenty 25 earnings call and webcast.
All participants are in a listen only mode.
Speaker Change: If you require operator assistance at any time, Please press star zero.
Speaker Change: As a reminder, this conference call is being recorded.
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 first quarter 2025 earnings conference call joining us today will be Daniel <unk>, Our CEO, Alex Nordstrom, our co President and Chief business Officer, Gustaf Soda Strohm, our co president and Chief product and Technology Officer, and Christian <unk> our CFO.
I will start with opening comments from the team 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 Q1, twenty-five analysts can ask questions directly into slide Oh, and all participants can then vote on the questions. They find the most relevant if for some reason you don't have access to slight or you can email investor relations.
Bryan Goldberg: At IR at Spotify Dot Com and we will add on your question before we begin let me quickly cover the safe Harbor. During this call we will 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.
Bryan Goldberg: Called in our shareholder deck and in filings with the Securities and Exchange Commission. During this call. We'll also refer to certain non ifr S financial measures reconciliations between our Ifr S. In non I FRS 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'm going to turn the floor.
Daniel: Over to Daniel.
Daniel: Alright, Thanks, Brian and Hi, everyone I'm really pleased to report that this was another solid quarter largely in line with our expectation with one clear standouts the outperformance in our subscriber growth. It was a fairly straightforward quarter. So I'll, let Alex and Christian take you through the numbers and share their insights.
Daniel: So instead of going over what's already working I want to use this time to talk about two things that are more top of mind for me right now.
Daniel: The first thing I want to acknowledge is the broader macro environment. There's a lot of uncertainty in the world and when volatility rises it's naturally natural to ask who might be effected in house and from where I sit Spotify is faring better than most but of course, if something truly extreme happens we may be impacted too that said I don't.
Daniel: [noise] believe anything we're seeing today changes the long term picture for Spotify. The business is solid our model holds up and the direction. We're heading in remains clear people still want to listen to music. They wanted to learn they want to be entertained that they wanna be inspired not fundamental demand hasn't changed since we started Spotify and the engaged.
Daniel: And we're seeing now suggests we've become even more central to People's lives that only happens when you consistently solve real problems and meet more of their needs. The underlying data at the moment is very healthy engagement remains high retention is strong and thanks to our freemium model people have the flexibility.
Daniel: To stay with us even when things feel more uncertain. So yes. The short term may bring some noise, but we remain confident in the long term story and the direction, we're heading and feels clearer than ever.
April 1st marked my 19th year, working here and that kind of milestone naturally leads to reflection and one thing that stands out is that while the emphasis on what we prioritize may shift the core strategy has stayed remarkably consistent.
Daniel: Our focus has always been on delivering the best possible experience to users and creators and solving the real problems they face.
Daniel: For me, it's never been either or when it comes to the short term or the long term the way I see it. The long term is built one day at a time, we focus on the inputs, we can control solving real problems, improving the experience and moving with speed and we trust that if we keep doing that the outcomes will follow Michael.
Daniel: My co founder Martin has this line that I keep coming back to the value of the company is the sum of all problems solved and that's how we think about our job just keep solving meaningful problems every day and the long term takes care of itself.
And that's also why we came into this year with a clear commitment to accelerate our pace of innovation, we're calling 'twenty 'twenty five the year of accelerated execution and so far we're delivering on that promise we support now more than 2000 partner devices and as you can imagine this comes with complexity, we've now Dick's.
Daniel: <unk> the time spent rolling out across all of our ubiquity apps by Tenex and timing for scaling new features on ubiquity devices has shrunk six X. So what used to take us years to deliver is now taking months from behind the scenes upgrades the visible new offerings. These are already creating the significant impact.
Daniel: One Great example is the Spotify partner program, our new monetization system for video podcasts, there's which launched in January and complements our growing podcast in ads business in record time, we've expanded it to nine new markets and we're seeing strong traction with users spending 44% more time with video.
Daniel: Content overall and as we work to scale quickly. The program has enabled us to pay out over $100 million. The podcast creators in Q1 alone. We also continued to expand audiobooks and premium rolling it out to more regions and introducing innovations that are driving higher user and author engagements.
Daniel: And what's particularly exciting is that I think it's only the beginning internal tooling and AI system. We've been building over the past few years combined with new ways of working across teams are now, enabling us to execute faster and smarter and the compounding effect of that shift is something I believe will become even more visible.
Alex: In the quarters ahead, and with that I'll hand, it over to Alex.
Alex: And now I will dig a little deeper on any new hubs and I'll also touch on our AD strategy.
Alex: So this was our highest Q1 subs net adds since 2020, and our second highest Q1 ever and a huge part of this booths came from emerging markets. These markets drove two thirds of the subs outperformance, whereas the places like Latin America, and Asia Pacific coming in especially strong, but it's not just the emerging markets that are doing well.
Alex: What markets are also seeing solid growth we are growing organically in our data also shows that we are taking market share in these regions.
Alex: Looking at the global picture, we really can ask for a better position.
Alex: We've been doing a few key things that drive this subs growth forward first.
Alex: It's a product itself its industry, leading it just keeps getting better but all the new features and enhancements we're constantly adding the second is our best in class value to price ratio. We continue to drive strong conversion from a promotional campaigns, which as you know are designed to move users through our funnel.
Alex: Our promotions can be highly localized and targeted geared at converting new and longtime free users that have seemed exceptional value that Spotify premium really provides the bottom line. We have a number of different tools available to us to continue to drive healthy subscriber growth and you saw some of those have played in Q1.
Alex: When we look at the full year of 2025, we're confident in our expectations, especially given the notable growth in engagement and we continue to see across our content offerings listener spending more time with Spotify than on any other audio platform.
Alex: Turning to our ads business. This is an area, where we've been laying the foundation over the last several years and.
Alex: And importantly, 2025 will be a year, where we are now able to build on this foundation, which really puts us in a strong position for more growth.
Alex: But even in Q1 of this year, our asbestos did better than expected and we're starting to see early benefits from the automated feature that we've been introducing east.
Alex: These tools give advertisers more flexibility by ads to create them easily and cost effectively and also achieve measurable results. In Q1, we had over 10000 advertisers leveraging these new tools, representing a 21% year over year increase in marking the first Q1 to exceed Q4 in active advertise.
Alex: <unk>.
Alex: So while it's early I feel confident about where this part of the business is headed.
Alex: I will now turn it over to Christian to take you through the numbers.
Christian: Thanks, Alex and thanks, everyone for joining us let me dive into the quarter one results and then share some perspective on the outlook.
Christian: Overall, we're pleased with how the business delivered in the quarter EMEA grew by 3 million to 670 $78 million in total and we added 5 million net subscribers, finishing at 268 up 12% year on year.
Christian: Total revenue was $4 2 billion and grew 15% year on year on a constant currency basis, our premium revenue rose, 16% year on year on a constant currency basis, driven by continued subscriber growth and ARPA gains associated with price increases.
Christian: Our advertising business delivered currency neutral growth of 5% year on year.
Christian: If we exclude the near term impacts from strategic initiatives like optimization of our licensed podcast and rollout of the Spotify partner program, we had a low double digit advertising growth.
Christian: While these efforts involve short term adjustment to our advertising business. We are pleased with the early positive effects, they have and how it improves our position long term.
Christian: Moving to profitability gross margin came in at 31.6% surpassing guidance by approximately 10 basis points and expanding about 400 basis points year on year.
Christian: Favorability versus our plan was led by stronger than expected podcast AD sales and slight variances in content cost.
Christian: Operating income of 509 million Euro was aided by gross profit strength.
Christian: Operating income was impacted by $76 million in social charges in the quarter, which were 58 million higher than our forecast.
Christian: Excluding non forecasted social charges, we came in 18 million above our guidance.
Christian: As a reminder, we don't forecast share price movements in our outlook for the business since they are outside of control.
Christian: Finally free cash flow was $534 million in the quarter year on year performance here was driven by our growth in operating income as well as improving our networking capital. We ended the quarter with $8 billion in cash and short term investments.
Christian: Looking ahead to guidance in quarter, two we're forecasting 689 million Mou, an increase of 11 million from quarter, one and 273 million subscribers, an increase of 5 million over quarter one we.
Christian: We are also forecasting $4 3 million billion in total revenue, while we're seeing underlying outperformance in revenue our outlook incorporates an incremental headwind of approximately 100 million arising from currency movements over the last quarter.
Christian: We also anticipate the gross margin of 31, 5% and operating income of $539 million.
Christian: Regarding full year margins, we continue to expect improvement in 2025 at a more measured pace than last year's exceptional gains as we strategically invest to accelerate our long term growth ambitions.
Christian: As previously noted we expect our sequential gross margin cadence to be more variable over the course of the year.
Christian: With expectations for a seasonally stronger quarter for finish.
Christian: Naturally the exact trajectory will depend on the timing of strategic initiatives and to a lesser extent broader advertising market dynamics.
Christian: While our ads business has remained resilient we are closely monitoring market conditions to proactively adapt and any changes in the macroeconomic environment.
Christian: With respect to capital allocation, we remain focused on prioritizing internal growth opportunities that can drive attractive returns, while managing our balance sheet to support our long term strategy.
Christian: At the end of quarter, one our March 2026, exchangeable notes became a current liability with the current carrying value of $1 7 billion relative to the 8 billion cash and short term investments we had on hand.
Christian: While this upcoming maturity factor into our framework, we remain confident in our strong balance sheet position and to the extent excess capacity rises we will of course take our shareholders into consideration.
Christian: In conclusion, we delivered a solid quarter and we stand well positioned financially with that I havent things back to you Brian.
Brian: Alright, Thanks Christian again, if you've got any questions. Please go to slide <unk> Dot Com hashtag Spotify earnings Q1, 25, we're going to be reading the questions in the order they appear in the queue with respect to help people vote up their press preference for questions.
Speaker Change: And our first question today is going to come from Matt Thornton on the 2025 outlook do you still expect fourth quarter 2025 gross margin to be up year over year in the high point for 2025, and secondly, do you expect 2025 Miu net adds to be within the range of the past four years and.
Brian: If so does this require incremental marketing investment.
Brian: So thank you Matthew I think I just went through it in my remarks that we do expect them both.
Brian: The cadence to be more variable over the course of the year, but also that the quarter four will be a seasonally stronger.
Brian: Quarter four than the rest of the year and we do expect that the full year 2025 will be stronger than 2024 as a whole.
Brian: And when it comes to the 2000 and twenty-five Miu ads, yes, we still believe that it will be in the range of the last four years and that means a stronger second half which is very typical.
Brian: To the the Spotify journey, where we have seasonality that not always is is following and the logic of the subs.
Brian: Yes.
Brian: The question is if this is going to require additional marketing and the answer is we don't see any reason to have higher marketing and relationship to sales. This year than we had in previous years. So we continue to drive this and the way it was done.
Speaker Change: Alright next question from Michael Morris on Super fans.
Speaker Change: Daniel in February you referenced your excitement for a superfan product that you had been using can you share more details about what makes your enthusiastic about the product and when it may be available in the market.
Speaker Change: Alex here I'll start and then Daniel can chime in.
Speaker Change: So if you'll allow me let me just pull back the lens for second.
Speaker Change: So yes, we do have a great position with regards to monetization.
Speaker Change: And as you know this is because of our intense focus on increasing our value to price ratio our premium offering.
Speaker Change: And we will continue to do so with all the features and investments.
Speaker Change: To music.
Speaker Change: Let's talk about video podcasts and across our verticals.
Speaker Change: And we will raise the price when it makes sense for the business estimates had before.
Speaker Change: Now with regards to higher tiers, we see great potential in them as we've mentioned before so creating higher tiers around new offerings is something we are working towards is it really opens up new opportunities to delight users powders.
Speaker Change: Our new new value to price ratio, if you will.
Speaker Change: And of course, we need alignment and support from our industry partners to offer these kinds of new experiences to our users.
Speaker Change: And I think it's also worth noting that we will continue to look for new ways to invest in our premium offering asthma done all along.
Speaker Change: Yes, maybe I could just sort of jump in and add to that too.
Speaker Change: If you sort of look at the overall picture Spotify is now a quite sizable.
Speaker Change: Business, but also a sizable platform and typically what's interesting is that we've kind of gotten here pretty much with just the same premium model that we launched and started working on now 19 years ago.
Speaker Change: And so what naturally happens as the market evolves is that you typically end up segmenting the markets.
Speaker Change: And that's always been a very good business strategy and we're just in the early innings of doing that here.
Speaker Change: So I think you should expect for the near term and midterm growth when it comes to Spotify, just working on our existing subscriptions. The family plans. All of these things is plenty enough for us it's going to be really great, but for the very very long term.
Speaker Change: It is an upside opportunity for Spotify, but I think one where if I look at it from the music industry standpoint does this this is a huge part for the music industry, but for the near term the way to think about it for Spotify is we're not dependent on that for growth.
Speaker Change: But we want to make it happen. So this is really one where.
Speaker Change: I would put it again the.
Speaker Change: Emphasis for the Super fan, we do need the partners to come to the table and be part of this journey.
Speaker Change: Alright. Our next question is going to come from Justin Patterson on AI.
Speaker Change: Companies like Shopify, and Duolingo are now prioritizing being AI first to enable employees to work more efficiently. While also limiting head count growth. How are you thinking about AI as a means of enabling both product velocity and introducing more efficiencies throughout the organization.
Speaker Change: Yes. Thank you Justin this is good stuff.
Speaker Change: So we're already back in 2018, we said internally that machine learning as a I was called back then was the product for.
Speaker Change: Dominantly trying to do as a company is to understand you as a user and that's really the chief reason that is stay ramp.
Speaker Change: So we've invested and we keep investing towards that and AI is really the next step in evolution of that where our machine learning allowed personalization AI also allows for real time interactivity and reasoning on top of your data.
Speaker Change: Examples of this are for example, a playlist that recently rolled out to over 40 markets and this is really the first time that we actually allow our users to talk to us and tell us what they want and how they feel about Spotify in plain English.
Speaker Change: It's very exciting for us on the on the product side.
Speaker Change: The internal sort of product productivity side there.
Speaker Change: There is the obvious usage of coding tools, which we are leveraging fully as a company right.
Speaker Change: Right now this is mostly useful when writing net new code, which is why you see such speed ups and start ups are mostly right net new code, but the tools are quickly getting much better at understanding large code basis, and making them much more useful for the things that we do that are often about peer review of code and large code bases and refactoring.
Speaker Change: But we're also seeing AI being used in the rest of the product development cycle, specifically and prototyping of new experiences that move much more quickly and with higher fidelity and then less dependence on key engineering resources.
Speaker Change: I expect that this will help us accelerate product development I expect that the next place we will see impact of AI is probably in the planning process, which is an important part for our quite specific execution model.
Speaker Change: In general I would say that as in previous technology shifts at Spotify I Havent found the need to actually force our organization to adopt new tools or at all on the opposite our stuff is usually very excited about all new technology and they're usually way ahead of the curve. So the real job for me and US as managers is to <unk>.
Speaker Change: Enable them to use AI by signing the right tools, removing legal brokers around data usage, exposing the right datasets et cetera for these tools to actually be useful and safe use program. Please on top of proprietary company data.
Speaker Change: So that's where we invested the last two years actually and the adoption itself is not a challenge for us I'm very excited about that.
Speaker Change: Okay. Our next question is going to come from Jessica Reif Ehrlich on podcast or payouts, the $100 million in payouts to podcast yours is a milestone can you provide color on the economics of this business what are the Kpis, we should focus on to monitor this business and how would you define success.
Speaker Change: David I'll start and then Alex can chime in so overall on the economics of this slide this is all factored in to all the forecast that we've been doing and it's pretty much in line with what we expected. So I do want to make that clear.
Speaker Change: And that sort of should be dovetailed tailed into christian's comments around where we believe the business.
Speaker Change: Over the coming quarters, but also where we will finish the year. So we feel really good about this part.
Speaker Change: Now.
You asked about sort of the kpis here the real Kpis.
Speaker Change: That certainly I'm focused on that I think is an important one and this is important maybe to to contextualize. This isn't a pivot to video.
Speaker Change: But actually the way to think about this is that <unk>.
Speaker Change: Every time, we are adding new formats to the service.
It expands the time spent by our users so theyre more times during the day, where we become.
Speaker Change: More valuable to consumers. So if you think about it.
Speaker Change: And put it by historical analogies. So obviously, we started as a music first service when we added podcast there was a lot of <unk>.
Speaker Change: Questions and concerns I think from everyone that podcasts will cannibalize music and so on both actually net net what ended up happening is we just saw more hours spent by these consumers, which meant of course higher retention, which then of course net lower churn. So all of these things are net added and so as we then added <unk>.
Speaker Change: <unk> books, we yet again saw a very similar trend, which is if you're listening to music you're listening to podcasts and you listen to audio books, you're spending more time than ones, who are just doing either one of these things where even music and podcasting.
Speaker Change: And so with video although it's early days I expect the same thing to be true again, which is people will just spend more time with Spotify.
Speaker Change: Is actually additive to the overall times when we are now relevant to our consumers life. So that's the primary success metric and Kpis you should be looking at engagement in that segment and engagement totally.
Speaker Change: The Spotify service and that's very much what we're looking at.
Speaker Change: Yes, and the only thing I have to add is that the 100 million payout prefinancing.
Speaker Change: Audio and video podcasts includes both SPP payouts and advertising revenue that was from the fleet.
Speaker Change: So while we hope to see SPP grow to Daniel's point. It drives engagement. This is all in line with our expectation of margin expansion.
Speaker Change: We've got another question from Jessica Reif Ehrlich on advertising can you provide some commentary on your overall advertising business. Your shareholder letter mentions softness in App advertising pricing and on the other hand, youre seeing significant new demand from programmatic advertising with the addition of multiple DSP.
Speaker Change: Yes.
Alex: Hey, Jessica Alex here again, so firstly, if you let me I want to point something out.
Speaker Change: And that's that there may be uncertainty in the world, but with regards to adds a spotify were seeing strong internal tailwind.
Alex: And there's lots of potential thanks to the unified AD stack that we built.
Alex: For some of you attended.
Speaker Change: Advertising event that we through here in New York.
Speaker Change: I was talking about how advertisers now are new ways to create buy and measure it is really about offering advertising advertising clients more choice.
Speaker Change: They can now buy that from us directly they can buy via our API. It can buy programmatically via Dsp's like you're mentioning here and also of course, a self serve so really we've gone from thousands to tens of thousands of advertisers on the platform and this is the reason why we have momentum in our revenue growth.
Speaker Change: But maybe the most important takeaway I think is that by now welcoming all sorts of demand instead of limiting and capping to brand sales and sales teams. We now have a very strong foundation for future revenue growth and the Aspen.
Speaker Change: Alright. Our next question is going to come from rich Greenfield on subscriber growth you reported your second highest Q1 net adds in premium subs. Despite a continued reduction in marketing spend year over year.
Speaker Change: Help us understand how you are adding more subs that meaningfully exceeded your expectations, while spending less to acquire those subs, what's driving that dynamic.
Speaker Change: I'll start by saying this rich.
But with regards to our overall subs growth the encouraging thing is that even in uncertain times. The underlying performance is really strong.
Speaker Change: But right now the underlying data at the moment is super healthy engagement remains high with strong retention and the premium all really provides flexibility.
Speaker Change: And as far as the dynamic youre talking to.
Speaker Change: It's really the it.
Speaker Change: Goes back to how we sort of intensely focus on the value to price ratio. So what we've found is a truism is that whenever you add more value to our subscribers and whenever there's value to price ratio goes up what we're seeing is that is that there is incremental growth and this says.
Speaker Change: All of the time, a better way to spend a dollar spent on incremental dollars in marketing so it's much more efficient.
Efficient investment.
Speaker Change: But I also want to say that what you're seeing right now.
Speaker Change: It's really the result of us developing a very strong product market fit in developed markets. The market continues to grow and we're taking a larger share of the market and this is happening in parallel with price increases.
Speaker Change: It's really hard to ask for better.
Speaker Change: I should add also on the marketing side I think.
Speaker Change: There's sort of two elements.
Speaker Change: The team is re.
Speaker Change: Really got them.
Speaker Change: A lot better on organic media and just being really smart around how we leverage that.
The FC Barcelona partnership is a Great example, where although.
Speaker Change: Although we are sponsoring the club itself much of the media itself around it is social media and discussions because of dynamics, we're doing such as the music partnerships et cetera. So I'm really happy to see that and then when you layer on top of that.
Speaker Change: Of course like many others, we are using more and more AI tools that increase is targeting an efficiency.
Speaker Change: No.
Speaker Change: I think that's a more general trend in Spotify specific trend, though but that should definitely help drive this.
Speaker Change: Alright. Our next question is from Justin Patterson on the Spotify partner program.
Speaker Change: The Spotify partner program strikes us.
Speaker Change: As counter cyclical for creators since it provides more revenue certainty than AD based models as we head into a choppy macro environment, where AD models could be pressured how are you thinking about investment levels to attract more creators.
Speaker Change: Sure Justin.
Speaker Change: That's a good question.
Speaker Change: Comes back to how we're really thinking about our catalog and what that does for our users. We believe in catalog mass maximization. So the more catalog, we add the more ways to interact with that catalog.
Speaker Change: It just drives more engagement.
Speaker Change: And the way to do that when it comes to the audio and video podcasting really to create something that's good for for our creators awesome. So as long as we can make them.
Speaker Change: I want to add more content it will be a good thing when it comes to engage them and thats, how were going to Tyler investment level.
Speaker Change: Alright. Our next question is going to come from Matt Thornton on video Daniel as we think about video content that can be accretive to engagement retention and monetization and gross margin is there any reason why a free AD supported streaming TV offering wouldn't work on Spotify.
Speaker Change: I'll start and maybe Christophe can chime in but I think structurally has already seen the reason why it wouldn't work, but maybe to contextualize and describe our video strategy.
Speaker Change: The most important reason why we have added video is because traders are asking us for it so while I'm sure at some point there will be an opportunity for us to add entirely new craters onto the platform. The real goal that we've been going after is what we realize there's so many of our existing creators wanted to express themselves.
Speaker Change: In different ways.
Speaker Change: And you've seen us over the past few years now add that with everything from music creators now being able to have full length, the music videos onto the platform and.
Speaker Change: With the startup Brogan, but then subsequently several others wanted to upload more videos to the platform too and that's really where this started and I would generally observe in say the best things at Spotify has started like that where there is people are literally telling us why aren't you doing this and this is kind of how this began but obviously with the success of that weekend.
We can go from there I dunno guest of if you had anything else to add.
Speaker Change: I think you covered most of it were very happy with the TV experiences that we have and the engagement that we see.
Speaker Change: We've.
Speaker Change: Updated and improved activity experienced significantly during this year.
In many markets you also have not just podcasts video, but also music video, it's performing really well. So this is very interesting for us.
Speaker Change: Alright. Our next question comes from Michael Morris on financials to your first quarter results fully reflect any financial impact from your recent rights renewal with Universal and Warner Music did your new direct publishing relationships impact your costs and did Q1 reflect a full <unk>.
Speaker Change: Quarter of impact.
Speaker Change: Thank you Michael.
Speaker Change: Of course, we have audited <unk> statements that we submit to the market then and now.
Speaker Change: We follow all the regulations that at hand, and and of course, yes, we everything that we have signed and contracted is reflected on our financial numbers in the way we have have agreed with and in the way we have entered the contract so with answers yesterday.
Speaker Change: Alright, another question from Justin Patterson on audio books.
Speaker Change: Audio books industry stats suggest Spotify is bundling initiative is helping expand the market as you look towards driving more growth in 2025 and beyond what do you view as the next major product updates to make audiobooks more habitual and how important is non English content for international growth.
Speaker Change: I can take that because there Justin.
Speaker Change: So I think if you look at it Big picture there is tremendous opportunity for just sort of old school product development within audiobooks. It's a category that has been stagnant from user experience for a long time.
Speaker Change: And we consider ourselves.
Speaker Change: A good product company. So that is definitely one of our strategies just improving the experience that can be done in several ways. As you mentioned the ability to quickly understand and get back into a book is something that we think we can improve through better personalization. We think discovery of books can be drastically improved as well using AI and personally.
Speaker Change: Jason.
Speaker Change: And when it comes to non English content.
Speaker Change: You've seen that we've announced that we're working with 11 labs, which we think is a great opportunity for others to get their books from text audio in the first place, but also potentially for.
Speaker Change: One language to another so we think there's plenty of opportunity in the combination of product development and AI here.
Speaker Change: And our next question is going to come from rich Greenfield on pricing.
Speaker Change: Daniel in the Q1 recap video you released this morning, you mentioned Spotify is 19 years old when we think about the pricing the cost of Spotify has only risen $2 from 10 to $12. Since you launched how big of an opportunity is pricing over the next several years.
Speaker Change: Yeah, maybe just to contextualize this in and Alex is clearly the expert here, but I'll start so I think.
Speaker Change: It's really important to understand that there is various levers you can pull at various stages. So the first inning of Spotify and I've talked about this in prior earnings having more legs to the stool.
Speaker Change: It's really all only growth growth growth and in fact at the very first inning, we didn't even bother all that much about conversion because the key goal was getting people in the door, which is why.
Speaker Change: You know we.
Speaker Change: We focus really on just our very strong free experience and a very basic sort of subscription experience.
Speaker Change: Then over time, we kind of added one more level to a store, where we got a lot better are converting people from free to paid we did so by adding things like the family plan and student plans and so on.
Speaker Change: The story I'm really here trying to paint is that in the very early innings. The primary way to grow is probably to keep that value at an insanely good deal.
Speaker Change: And that's really where we started with Spotify. It was just an insanely. Good deal. It was just too good to be true and that's what led to much of the early growth in that stage when youre still growing super fast raising prices is not a smart strategy.
Speaker Change: As growth than sort.
Speaker Change: Sort of modulate as you get larger larger into the market then pricing becomes another part of the store leg to the stool another lever to pull and so that's the way to think about that and that's where we started showing and flexing beforehand and we're just in the early innings and I talked about it in the last.
Speaker Change: The answer I still believe there will be more segmentation. That's just one example in the future but yeah.
Speaker Change: Yeah, I think the opportunity is big I don't know Alex as he has got more things to add.
Speaker Change: I think.
Speaker Change: No rich Spotify continues to be one of the absolute best value payment.
Speaker Change: And when we look at churn.
Speaker Change: It continues to be quite modest even as we raise prices in the markets.
Speaker Change: And as we've said many times before prices are now price increases are now part of our toolbox.
Speaker Change: And we take steps to balance the value to price ratio over time, adding value and then we adjusted pricing when it makes sense for the market just to give you a sort of a little bit of insight into how we how we deal with this and it's to Daniel's point, we certainly focus.
Speaker Change: More on value done on price.
Speaker Change: And the reason for that internally for US is that we know long term the customer should always win or the subscriber show in here.
Speaker Change: And so the more we sort of focus on value the more we will be able to.
Speaker Change: Alright next question from Jessica Reif Ehrlich on capital allocation.
Speaker Change: Cost position has grown two 8 billion euro what.
Speaker Change: What are your capital allocation priorities, including returns to shareholders.
And thank you Jessica I think.
Speaker Change: I did allude a little bit in my remark on this but I'll come back just to remind us a little bit that we are reduced last year made our first year of profitability. So when we look at Spotify, we do have a strong balance sheet, but we also just coming out.
Speaker Change: Becoming profitable and also.
Speaker Change: Having a sustainable cash flow. So so this is really in an early stage for us in that journey.
Speaker Change: That said also in the environment, we are today and in the future we want to continue to support and and have the flexibility to deliver on our strategy and that means that we want to be at all time be able to focus on our growth opportunities and we want to have a strong balance sheet to be able to do that and that's really our first.
Speaker Change: Our priority at this stage and then we will.
Speaker Change: As time goes here and to the extent of cash I mean, the exempt excess capacity arises we will of course take shareholders into consideration.
Speaker Change: The next question from Benjamin Black on revenue growth.
Speaker Change: At your Investor Day, you spoke about an annual constant currency revenue growth target of 20% year on year. It seems like that may be challenging. This year do you still think it's achievable and if so what gives you the confidence to reaccelerate growth.
Speaker Change: Yeah.
Speaker Change: Look the as.
Speaker Change: As much as.
Speaker Change: You know I know everyone likes to make this journey linear it's unfortunately, not and as you've heard from many of the answers by myself for Christian or Alex and good stuff. What we're relentlessly focused on first and foremost is.
Speaker Change: Increasing that value to consumers and while doing so and when we feel confident that we have increase that value.
Speaker Change: Both both in absolute number of users and in price comps.
Speaker Change: Now I wish I could say to you guys that this is sort of entirely linear this past and we can plot it out on a month by month basis in every quarter. We had some predictable price increase it's just not how it works.
Speaker Change: But what gives me that confidence going forward is when you look at it we've done it many times before.
Speaker Change: In fact, you know I think it was.
Speaker Change: A year ago or year, and a half ago I got some similar.
Speaker Change: Conversations where people thought we were slowing down and we started showing that there was another leg to the stool, which was price increases and then.
Speaker Change: Our revenue growth and increased as a consequence, and what was interesting back then and the revenue growth was just not entirely a function of price increases, but it was actually a function of price increases and much higher subscriber growth than people expected in the past as well so I wish I could say to you guys that this is a linear journey it's not.
Speaker Change: <unk>.
Speaker Change: What I will say ultimately for US is we are focusing on speeding up our execution because if we are executing faster we will solve problems faster if we're solving problems faster, we will add more value.
Speaker Change: If we're adding more value faster then we will have more opportunities to either take that in the concept of having a lower priced but higher effective growth in certain markets or take it in terms of a price increase that then gives us growth that way.
Speaker Change: So I.
Speaker Change: I still very much believe that this business is a lot bigger than most people give it credit for being.
Speaker Change: In fact, because it's 19 years I do want to reflect back a little bit on the history I'm feeling a little bit of a reflective mood today, but.
Speaker Change: Aye.
Speaker Change: I remember back in the day.
Speaker Change: When we hit a million subscribers and we had an internal strategy days, where I said the goal was to get the 100 million subscribers and I communicated that around the same time to the music industry and I think most of them thought I was completely nuts.
Speaker Change: And for.
Speaker Change: For them I think it was even crazy to imagine that the whole industry. Let alone one player would have a 100 million and obviously, we're way past that now and you know.
Speaker Change: If you ask me what is the North star goal here on how many number of paying customers, we could get I don't know, but I don't see it impossible to get to 1 billion subscribers and you know where does that plot us on a year over year growth rates I don't really know and I'm not entirely focused on it but it's a much much larger.
Speaker Change: Your business than the one we're currently operating.
Speaker Change: And saying to say how honored I definitely believe that.
Speaker Change: They were one of few believers I guess, that's why you're still here. Thank you.
Speaker Change: Alright. Our next question is gonna be from Benjamin Black.
The topic is noise, Daniel you spoke about near term noise.
Speaker Change: Can you elaborate on that a little what should investors be braced for financially how long will the noise last and how should this noise manifests itself in terms of new product launches or improved consumer value.
Speaker Change: Maybe I should contextualize.
Speaker Change: This too when.
Speaker Change: I talked about noise I wasn't necessarily referring to Spotify was referring to the broader markets. So just for context everyone.
Speaker Change: I don't see anything in our business right now that gives me any sort of pause or concern.
Speaker Change: Obviously I cant.
Speaker Change: No.
Speaker Change: No everything that's going on in the macro environment and what in the future may happen, but from where we sit right now we don't see anything and I'd be very surprised if long term, we see any sort of major implications do so long term the journey seems.
Speaker Change: Really good we arent seeing any short term noise that was more of my commentary around sort of macro environment that all of us that we're all facing at the moment, but nothing specific to Spotify.
Speaker Change: Okay. Our next question comes from Deepak <unk>.
Speaker Change: On video can you give us an update on video podcast on the consumption side, where does penetration currently stand as a share of total consumption based on trends does your view on unit economics of podcasts have they changed in any capacity.
Speaker Change: Yeah.
Speaker Change: You want to maybe start with this one in in.
Simon: Simon on the economics sure.
Simon: What we've seen is tremendous growth in our video.
Simon: Upload metrics and also in consumption as Daniel shared before we've seen a 44% year over year growth in time spent with video content is driven mostly by a video podcast, obviously and specifically Gen. C are leading this growth spending at 81% more time.
Simon: With video in spite of a year over year, which.
Simon: Which is very important to us.
Simon: We've also seen.
Simon: Active monthly video podcasts. So video episodes published within the last 30 days have increased by 28% since SPP launched.
Simon: So we're very happy with the growth we're seeing.
Simon: And we expect it to continue.
Speaker Change: Do you have anything to say about the unit economics.
Simon: Not more than before.
Speaker Change: Total investment level up and down.
Simon: By looking at really.
Simon: How well, we do for creators and content there.
Simon: Our next question's from Doug Emmis on monthly active users.
Simon: It is curbing the first half twenty-five growth in MCU and how confident are you that product changes and marketing adjustments will drive more of a rebound in the second half of the year.
Simon: Hey, Douglas let me give you the backdrop to this the best way to predict MAA.
Simon: And for engagement.
Simon: So this trend is strong and the leading indicator of engagement internist product improvement.
Simon: As in features and content.
Simon: Content experiences, which is ultimately the way we have managed our business in the past two decades.
Simon: And the engagement, we're seeing right now suggests that become even more central to People's lives to Daniel's point and the marks and really that happens only when you consistently develop solutions that meet more of our users needs. We see this because people increase that increase the number of data spend in a month with us.
Simon: There are time, they're spending with us and you can see this as a result of us investing in launching features like jam the new offline mode that we have and are continuously updating the car experience is driving a lot of it.
Simon: Increased engagement time, and then also obviously the expansion on video podcast content and audio books as well. So all of this is growing time on platform.
Simon: And so we.
Simon: I think it is early but we anticipate that 2025 and <unk> net adds to be in range of what we delivered over the last four years like we mentioned before and after.
Simon: We expect the majority of the growth to come in the back half of the year and this is again driven by the continued focus on an accelerated execution.
Speaker Change: Maybe just one added thing so if you look at sort of the softness in Q1.
Speaker Change: Part of that is driven by the outperformance in Q4 because of rats. So if you look at reps wrapped in itself is probably one of the big drivers why we're so confident that that trend of seasonality will end up happening again on the back half of the year. So.
Speaker Change: Wrapped is a huge huge cultural thing not just the Spotify that's become a global thing on the Internet where people talk about it. So it is a distorting the numbers and that sort of leads to that both softness certainly in Q1, but also.
Speaker Change: General outperformance thats been in now many many years before so just wanted to add that debt.
Speaker Change: I think thats, a quite reliable metric to go by.
Speaker Change: And that's been a very strong growth driver for the company.
Eric Sheridan: Alright, our next question comes from Eric Sheridan.
Eric Sheridan: On the industry and our overall strategy can you discuss the current state of your relationship with the broader industry, meaning the content providers and how should investors think about the prospect of more regular pricing actions product hearing and gross margin impacts in the years ahead.
Eric Sheridan: I have an easy answer to that and it's that.
Eric Sheridan: We are now in a situation where the relationship between us and our industry partners is better than ever.
Eric Sheridan: Better than ever it's been in our history.
Eric Sheridan: And that really means that we're really aligned on incentives here, where all of us trying to grow the music industry.
Eric Sheridan: And as such we're really sort of in constant conversation with your charter.
Eric Sheridan: To think about all these things that you are talking about here and asking about.
Eric Sheridan: So.
Eric Sheridan: See this to continue to be the case and there is going to be even more improvements in the years ahead.
Eric Sheridan: Alright, we've got time for a couple more questions.
Steven Chahal: The next one is going to come from Steven Chahal.
Eric Sheridan: It looks like AD supported.
Eric Sheridan: Users declined quarter on quarter and in the first quarter was this due to churn from rapt conversion to premium subs or spot no longer chasing lower value monthly active users can you help us think through the trend.
Eric Sheridan: Well.
Eric Sheridan: Thank you very much I wish we could give you more more detailed answer of how the trend looks like but the.
Eric Sheridan: <unk> adds in our business and industry has been.
Eric Sheridan: A little bit more volatile and seasonal than that maybe.
Eric Sheridan: We would like to so we can see that we have very strong quarter for us in second half in <unk> and.
Eric Sheridan: Weaker first half and half if we remember what we said also leaving last year. We said that we had a very very strong as you indicate here in your question, we had a very strong quarter with wrapped in and also some some competitors in certain markets that left that drove a strong growth that also lead to churn and that we expected in.
Eric Sheridan: Quarter, one so that is the reason why we do deliver on our Mou number in quarter, one, but it is lower than maybe some of you have expected from the beginning.
Eric Sheridan: Pass it up there's really the two first two once you've talked about Steven that are the drivers of the outperformance of rabbits when.
Eric Sheridan: When you have such a.
Eric Sheridan: Big effects.
Eric Sheridan: Where we do see churn is obviously in that sort of first month or two and then.
Eric Sheridan: It's sort of asymptotes al.
Eric Sheridan: It's much more stable as one part of the answer and then the conversion rate that we saw especially in emerging markets is a positive one.
Eric Sheridan: Overall, because it means more subscribers, but it does impact the AD supported tier typically conversion rates in emerging markets is lower than in our developed markets. So when we do better on conversion there you'd probably see it more impacted in EMEA.
Eric Sheridan: Got it.
Eric Sheridan: The also the reason why are we even we delivered a quarter on quarter and year on year growth in all regions.
Eric Sheridan: The majority of the $3 million.
Eric Sheridan: Above and subscribers was actually from emerging markets.
Speaker Change: Okay. Our next question comes from Maria Rips on.
Eric Sheridan: Subscription plans, where.
Speaker Change: Would it make sense for Spotify to introduce a lower priced subscription plan that offers more functionality than the current AD supported tier but still includes some level of advertising what are some of the puts and takes there.
Eric Sheridan: That's a great question Maria.
Eric Sheridan: I wish it was that easy that we can sort of look at on the industry other industries and how they are introduced.
Eric Sheridan: Lower priced subscription plans and.
Eric Sheridan: And including including adds in there, but it's more complicated than that the industries are sort of different and I'm alluding to obviously ethanol versus what we have which is primarily music.
Eric Sheridan: And so when we look at this internally with the teams we have what we call a value map that combines the dimensions of willingness to pay and then sort of how much.
Eric Sheridan: Rich.
Eric Sheridan: You can get for different features and different product skus and how we sort of package. These things and so when you look at.
Eric Sheridan: The more.
Eric Sheridan: Basic functionality, that's already out there in premium.
Eric Sheridan: This is what people expect today, so introducing something.
Eric Sheridan: Something at a lower price and sort of a lesser SKU doesn't really doesn't really drive much incremental.
Eric Sheridan: Our overall model.
Eric Sheridan: But never say never I think there may be a time when it makes sense and also sort of take into account that.
Eric Sheridan: Now that we're super scaled theres, a geographical sort of.
Eric Sheridan: They mentioned that as well.
Speaker Change: Alright, and our last question today is going to come from Eric Sheridan on the growth strategy.
Eric Sheridan: Are you thinking about striking a balance between forward growth investments in the business when measured against continuing to deliver increased operating margins and higher rates of conversion of operating profit from gross profit dollars.
Eric Sheridan: Yeah, maybe maybe I'll start here and then.
Eric Sheridan: Christian or anyone else wants to add then please do that.
Eric Sheridan: No.
Eric Sheridan: Maybe sort of to go back to the answer I said before fundamentally we believe this business to be much bigger than most other people believe it to be and we still believe that there is plenty of growth left to be.
Eric Sheridan: So that is sort of number one and two and three on our agenda is.
Eric Sheridan: To prioritize.
Eric Sheridan: Growth initiatives now with that said as you guys.
Eric Sheridan: No. One of our focuses was also not just having a great product, but also having a great business.
Eric Sheridan: We added to that also.
Eric Sheridan: So to prioritize showing that we have a great business, which is something that we have been delivering on for quite some time and so as the balance goes forward. It really kind of a measurement between these two things.
Eric Sheridan: And so I'll give you. One example of a metric that we use quite a lot internally.
Eric Sheridan: Internally so one of the obsession we have internally, we look at lifetime values.
Eric Sheridan: It's one of the big things, that's driving not just the subscription business that we're doing but even how we're thinking about product features and optimizing around product features as well. So the natural way to think about this into kind of dumb it down into one metrics that could be helpful. As the sector LTV, how much does it cost us too.
Eric Sheridan: Grow and how much lifetime value does that customer again, and so you would naturally any investor would naturally think that if you have.
Eric Sheridan: A great delta between the socket to LTV, meaning your stock is much lower than your LTV, you should just invest and you shouldnt too much focus on.
Eric Sheridan: The gross profit for that quarter, I will say and I want to be very clear with that when we see super healthy stock to LTV numbers, we will aggressively invest that's what I also talked about when I said that the business isn't linear area. If we see great opportunities. We will certainly go for great opportunities.
Eric Sheridan: But what's really changed for us over the past few years is that.
Eric Sheridan: We operate now way more than before unless as Hell, yes itself and so the bar that we keep for thinking about new initiatives is much higher than before.
Eric Sheridan: So how will this play out I think in the short term the way, it's going to play out as kind of more of what we're already seeing we're focus on the top line, but we're also focused on the Boston bottom line.
Eric Sheridan: Where we sit right now I think we have great.
Eric Sheridan: Ways to improve both in the short term, but I am trying to signal to all of you as well that there may be times in the future, where we see such an amazing way where for instance, the sector LTV diverges.
Eric Sheridan: And I do want us to have the flexibility then to really go after it because we think that over time that will drive a much better business.
Eric Sheridan: And as I think about the investments we have been doing and they were really painful honestly a few years back and I know a lot of you guys were questioning whether it was the right strategies, but I can tell you we wouldn't be where we are right now if we didn't make those investments back then.
Eric Sheridan: And.
Speaker Change: What I mean by that is the growth rate that you saw last year. The gross margin improvements all of these things are the sum of all the problems. We solve to go back to my co founders comments and we are obsessive, we going to do that and if we can time trade.
Speaker Change: Making something Thats right for the long term by sacrificing a little bit on the short term, we will do that we will try to the best of our ability to communicate to you guys. When we do it and why we think this investment makes sense.
Speaker Change: But.
Speaker Change: We are focused on the long term because we believe that this business.
Speaker Change: Has plenty of legs left.
Speaker Change: And plenty of growth left and that this is something that a lot of people in the world cares about and we believe we're just early on in that journey. So that's how we should think about.
Speaker Change: How we think about the business and going forward.
Speaker Change: Alright, Thanks, Daniel that's going to conclude our Q&A session. Thanks, everybody for submitting the questions and now I'd like to turn the floor back over to Daniel for some closing remarks, yes. Thanks, Brian.
Speaker Change: I think I.
Daniel: Pretty much did much of my closing remarks, we feel really good about the business. We're in the growth we're having long term.
Speaker Change: Our fundamentals are strong.
Speaker Change: I think our mission is resonating consumers love the product.
Speaker Change: And we're really focused on building for the long term so with that I just wanted to say again. Thank you everyone for joining.
Speaker Change: Look forward to catching up soon again.
Speaker Change: 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 replace thanks, everyone for joining.
Speaker Change: This concludes Spotify first quarter 2025 earnings call and webcast. Thank you for your participation you may now disconnect.
Speaker Change: [music].