Q2 2025 Spotify Technology SA Earnings Call

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Operator: Good day and welcome to Spotify's second quarter 2025 earnings call and webcast. All participants are in a listen-only mode. If you require operator assistance at any time, please press star zero. As a reminder, this conference call is being recorded.

Good day and welcome to spotify's second quarter, 2025 earnings call and webcast. All participants are now listen-only mode. If you require operator assistance at any time, please press star zero.

Bryan Goldberg: I would now like to turn the call over to Brian Goldberg, Head of Investor Relations. Thank you. Please go ahead. All right.

As a reminder, this conference call is being recorded.

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's second quarter 2025 earnings conference call.

Bryan Goldberg: Joining us today will be Daniel Ek, our CEO, Alex Norstrm, our co-president and chief business officer, Gustav Sderstrm, our co-president and chief product and technology officer, and Christian Luiga, our CFO. We'll start with opening comments from the team, and afterwards, we'll be happy to answer your questions. Questions can be submitted by going to slido.com, S-L-I-D-O.com, and using the code hashtag SpotifyEarningsQ225. Analysts can ask questions directly into Slido, and all participants can then vote on the questions they find the most relevant.

All right, thanks, operator, and welcome to Spotify's second quarter 2025 earnings conference call. Joining us today will be Daniel Ek, our CEO; Alex Nordstrom, our co-president and chief business officer; Gustav Söderström, our co-president and chief product and technology officer; and Christian Luiga, our CFO. We'll start with opening comments from the team, and afterwards, we'll be happy to answer your questions. Questions can be submitted by going to slido.com.

Bryan Goldberg: If for some reason you don't have access to Slido, you can email investorrelations at IR at Spotify.com, and we'll 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. These statements are based on current expectations and assumptions that are subject to risks and uncertainties.

Bryan Goldberg: Actual results could materially differ because of factors discussed on today's in our shareholder deck and in filings with the Securities and Exchange Commission.

Bryan Goldberg: During this call, we'll also refer to certain non-IFRS financial measures. Reconciliations between our IFRS and non-IFRS 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.

Ido.com, and using the code hashtag, Spotify earnings Q2 2025, analysts can ask questions directly into Slido, and all participants can then vote on the questions they find the most relevant. If for some reason you don't have access to Slido, you can email investor relations at spotify.com, and we'll add in your question. Before we begin, let me quickly cover the Safe Harbor. During this call, we'll be making certain forward-looking statements including projections or estimates about the future performance of the company. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed on today's call, in our shareholder deck, and in filings with the Securities and Exchange Commission.

Daniel Ek: And with that, I'll turn the call over to Daniel. All right, hey everyone and welcome to our Q2 earnings call. Overall, it was a solid quarter, especially when you look at our strong user growth across both subs and MEU. In fact, looking at the first half of 2025, subs net ads grew more than 30% versus the first half of 24.

During this call, we'll also refer to certain non-IFRS financial measures. Reconciliations between our IFRS and non-IFRS financial measures can be found in our shareholder deck in the financial section of our investor relations website, and also furnished today on Form 6-K. With that, I'll turn the call over to Daniel.

Daniel Ek: This quarter also marked a huge milestone for us as we hit over 100 million subscribers in Europe, our largest region. And it was our second highest Q2 for MEU net additions. User engagement also continues to strengthen. And this clearly demonstrates that the enhancements we made to both expand our content and improve our product are having the intended impact on our business. People come to Spotify and they stay on Spotify. And by constantly evolving, we create more and more value for the almost 700 million people using our platform. And this value not only benefits users, but it's attracting more people to streaming.

All right. Hey, everyone and Welcome to our Q2 earnings call. Uh, overall, it was a solid quarter, especially when you look at our strong user growth across both subs and mu. In fact, looking at the first half of 2025 subsets ads, grew more than 30% versus the first half of 24.

This quarter also marked a huge milestone for us as we hit over a 100 million subscribers in Europe, our largest region, and it was our second highest Q2 for Mao. Next editions user engagement, also continues to strengthen and this clearly demonstrates that the enhancements we made to both expand. Our content and improve our products are having the intended impact on our business.

Daniel Ek: And as a result, it also boosted the industries of music and podcasts and audiobooks.

Daniel Ek: However, as I look at our progress, the one area that hasn't yet met our expectations is our ads business. We've simply been moving too slowly and it's taken longer than expected to see the improvements we initiated to take hold. It's really an execution challenge, not a problem with the strategy.

People come to Spotify and they stay on Spotify. And by constantly evolving, we create more and more value for the almost 700 million. People using our platform. And this value, not only benefits users but it's attracting more people to streaming. And as a result, it also boosted the industries of music and podcasts and audio books.

Daniel Ek: And while I'm unhappy with where we are today, I remain confident in the ambitions we laid out for this business. And we're working quickly to ensure we're on the right path. And we are seeing some promising signs in our programmatic business, which I think will set us up nicely for 26.

However, as I look at our progress, the one area that hasn't yet met expectations is our ads business. We've simply been moving too slowly, and it's taken longer than expected to see the improvements. We initiated to take hold; it's really an execution challenge, not a problem with the strategy. While I'm unhappy with where we are today, I remain confident in the ambitions we laid out for this business, and we're working quickly to ensure we're on the right path.

Daniel Ek: Alex and Christian will share more details on that shortly. As you also look at the underlying fundamentals of the business, this year is largely playing out as we expected.

And we are seeing some promising signs in our programmatic business which I think will set us up nicely for 26, Alex and Christian will share more details on that shortly.

Daniel Ek: But in the spirit of transparency, you'll see a few places in our Q3 forecast where we probably are a bit lighter than you may have anticipated. So let me talk about that.

Daniel Ek: First, big picture. The business is solid and our model holds up. And I feel really good about where we stand and how consumers view Spotify. We still expect 2025 to be a standout year for Spotify. And this quarter brings us up one step closer to that goal of a billion subscribers. And looking ahead, we'll keep pushing boundaries through innovation, bringing even more value to users and creators.

Daniel Ek: And this, of course, expands the overall Spotify network as we build a larger, more vibrant platform that will benefit everyone, where fans gain access to more of what they love and creators will have a global audience to reach.

Daniel Ek: But let me also take a step back to remind you how we run Spotify. Our approach has always been and will continue to be the focus on creating lifetime value rather than optimizing for quarter-to-quarter performance. Lifetime value is such a powerful metric because it inherently captures the balance and trade-offs between chasing short-term opportunities and driving long-term strategic initiatives.

And creators will have a global audience to reach.

But let me also take a step back to remind you how we run Spotify.

Daniel Ek: It really acknowledges that not every decision will yield immediate returns and that our progress is not always linear. Many of the initiatives driving today's strong user and subscriber growth were started several quarters or sometimes even years ago. And the exact timing of when these efforts flow into tangible results can vary. Sometimes that's within our control and sometimes not.

Our approach has always been and will continue to be the focus on creating lifetime value rather than optimizing for quarter to quarter performance. Lifetime value is such a powerful metric because it inherently captures the balance and trade-offs between chasing short-term opportunities and driving long-term strategic initiatives.

Daniel Ek: But the most important takeaway for you all is that we don't make decisions to achieve specific short-term quarterly outcomes.

Alex Norstrm: But zooming out, we are very well positioned and I feel very good about our And with that, I'll hand it over to Alex. Thank you Daniel. So I want to cover a couple of things and as you heard we are super excited about the user and subscriber growth we saw this quarter.

It really acknowledges that not every decision will yield immediate returns and that our progress is not always linear. Many of the initiatives driving today, strong user and subscriber growth were started, several quarters, or sometimes even years ago, and the exact timing of when these efforts flow into tangible, results can vary sometimes that's within our control and sometimes not, but the most important takeaway for you all is that we don't make decisions that Chief specific short-term quarterly outcomes. But zooming out, we are very well positioned and I feel very good about our business. And with that I'll hand it over to Alex.

Alex Norstrm: First let me just set the stage in our subs growth story. Over three percent of the world's population subscribed to Spotify. That's pretty astounding, but also really encouraging when you think about how far we can still grow from here. And it's not implausible to imagine us reaching 10 or even 15% of the world's population. And it's also awesome to see that we continue to uncover new subs growth opportunities, even in our developed and mature markets. It's just great to see the business crushing it, striking the right balance with our marketing mix as well. We also see this in our conversion rate from free to paid users, which is healthy and just continues to take up nicely.

Thank you, Danielle. So I want to cover a couple of things, and as you heard, we are super excited about the user and subscriber growth. We saw this quarter

First, let me just set the stage in our subscriber growth story: over 3% of the world's population is subscribed to Spotify.

That's pretty astounding but also really encouraging when you think about how far we can still grow from here, and it's not implausible to imagine us reaching 10, or even 15% of the world's population.

As also awesome to see that we continue to uncover new Subs growth opportunities, Even in our developed and mature markets,

It's just great to see the business crushing it, striking the right balance with our marketing mix as well. We also see this in our conversion rate from free to paid users, which is healthy and just continues to tick up nicely.

Alex Norstrm: Secondly, I want to expand on Daniel's comments on our ad. Bottom line, we see a ton of potential in this business and I believe in the strategy, but we are recalibrating because we have to move faster to accelerate its contribution to our financial. I've spent a lot of time over the last couple of months meeting with brand partners and there's a lot of excitement about working with Spotify, especially with the automated ads and all of the new tools that we've recently introduced. We have an enviable brand and a highly engaged loyal user base that advertisers want to tap into.

Secondly, I want to expand on Daniel's comments on our ads business.

Bottom line. We see a ton of potential in this business and I believe in the strategy but we are recalibrating because we have to move faster to accelerate its contribution to our financials.

I spent a lot of time over the last couple of months meeting with brand partners and there's a lot of excitement about working with Spotify, especially with the automated ads and all of the new tools that we've recently introduced

Alex Norstrm: In fact, we've grown monthly active advertisers by more than 40% year over year.

We have an enviable brand and a highly engaged, loyal user base that advertisers want to tap into.

Alex Norstrm: We will continue to build on this growth in the second half of 25, which will be focused on improving our execution. And with the heavy lifting on our ad tech largely complete, we're now focused on driving adoption, launching even more new tools for advertisers and improving the performance of all of our inventory in order to fully monetize our new biddable channels. We are creating a stronger, more sustainable ads business by accelerating our automation efforts and enhancing our world-class brand operation.

In fact, we've grown monthly active advertisers by more than 40% year-over-year. We will continue to build on this growth in the second half of 25, which will be focused on driving a um uh on improving our execution.

And with the heavy lifting on our adtech largely complete, we're now focused on driving adoption launching. Even more new tools for advertisers and improving the performance of all of our inventory. In order to fully monetize, our new buildable channels. We are creating a stronger more sustainable ads business by accelerating our automation efforts and enhancing our world-class brand operations.

Gustav Sderstrm: Now, I'll pass it to Gustav to share some insights around some of the ways that we're increasing the value for users and creators, Gustav. Thanks, Alex. So our overall user growth story is really a testament to our teams who have been really hard at work to deliver the best possible experience to users, artists, creators, and authors. We're solving for real problems that they face, while also driving meaningful impact to our business. And there's no question that this multi-format strategy is working. The data clearly shows that the more content formats that we deliver for our users, the more engaged they become.

Now, I'll pass it to Gustav to share some insights around some of the ways that we're increasing the value for users and creators. Good stuff.

Thanks Alex. So our overall user growth story is really a testament to our teams who have been really hard at work to deliver the best possible experience to users artists creators and authors.

We're solving for real problems that they face while also driving meaningful impacts to our business.

And there's no question that this multi format strategy is working.

Gustav Sderstrm: And this is especially true with the super users, who are not only spending more time, but also more days on Spotify. Looking at our core business of music, excluding China and Russia, 45% of people who pay for music streaming service subscribe to Spotify, according to media research. and that percentage has been steadily growing over the years.

The data clearly shows that the more content we deliver for our users, the more engaged they become. This is especially true with our super users, who are not only spending more time but also more days on Spotify.

Looking at our Core Business of Music, excluding China and Russia.

According to media research, 45% of people who pay for a music streaming service subscribe to Spotify.

Gustav Sderstrm: Now, as you know, in 2024. We went all-in on video, and there are now more than 430,000 video podcasts on Spotify. And video continues to outperform, with consumption trending higher and higher, growing 20 times faster than audio-only consumption since 2024. and more than 350 million users have streamed the video podcast on our platform. And that's a 65% increase year-over-year.

And that percentage has been steadily growing over the years.

Now, as you know, in 2024,

We went all in on video, and there are now more than 430,000 video podcasts on Spotify.

And video continues to outperform with consumption turning higher and higher growing 20 times faster than all. The only consumption since 2024

And more than 350 million users have streamed the video podcast on our platform.

And that's a 65% increase year-over-year.

Gustav Sderstrm: Now, as we look to understand impact, obviously, user engagement is a critical metric. And as we rebuild our stack for the generative AI age and bring personalization to a whole new level, we're seeing it improve significantly. For example, listeners have been telling us just how much they love Spotify's DJ. And user engagement with DJ has nearly doubled over the last year. Spotify Premium users wanted more than just a one-way channel with the DJ. They wanted a dialogue. So we delivered that. And now, in more than 60 markets, DJ takes music requests, serving up suggestions, using AI, and also insights from our global editorial experts.

Now, as we look to understand impact, obviously user engagement is a critical metric for us.

And as we rebuild our stack, for the generative, AI age and bring personalization to a whole new level.

We're seeing it improve significantly.

For example, listeners have been telling us just how much they love spotify's DJ and user engagement. With DJ has nearly doubled over the last year.

Then just a 1-way Channel with the DJ they wanted the dialogue. So we delivered that

And now in more than 60 markets, DJ takes music's requests.

Gustav Sderstrm: So now, you can ask the DJ questions that require Spotify to understand the wider world. Like, for example, play me that song where Bruce Springsteen invites up that fan on stage in the music video. and DJ Will Understand that you are requesting Dancing in the Dark. We also clearly see that the more people interact with DJ the better and longer their sessions get. This has resulted in a nearly 45% increase in DJ streams globally, driving tens of millions of interactions to date. We also continued to expand our popular AI playlist to premium listeners, bringing it to over 40 new markets.

Serving up suggestions using Ai and also insights from our Global editorial experts.

So now you can ask the DJ questions that require Spotify to understand the wider world. Like for example play me that song where Bruce Springsteen invites up that fan on stage in the music video.

And DJ will understand that you are requesting Dancing in the Dark.

We also clearly see that the more people interact with DJ the better and longer their sessions get

This has resulted in a native, 45% increase in DJ streams globally, driving tens of millions of interactions today.

Gustav Sderstrm: And millions of users have responded by creating playlists with this tool.

We also continue to expand our popular AI playlist with the premium listeners bringing it to over 40, new markets.

Gustav Sderstrm: So, previously... When we constructed algorithmic playlists for our users, we were sort of confined to guessing the tracks that the user would want based only on the user's past listening, so signals like plays, saves, and skips. Now, with generative AI, the user can finally tell us, in plain English, what they actually want, what's on their mind, and even what they're doing right now. These are often things that would have been impossible for us to understand from listening data. So imagine, for example, trying to guess make me a playlist with songs to pump you up on earnings day in late July, when your family is on summer holiday without you, just by looking at my listening history, it's pretty hard.

And millions of users have responded by creating playlists with this tool.

so previously,

When we constructed algorithmic playlists for our users, we were sort of confined to guessing the tracks that the user would want based only on the user's past listening, so signals like plays, saves, and skips.

Now with generative AI the user, can finally tell us in plain English, what they actually want what's on their mind and even what they're doing right now.

These are often things that would have been impossible for us to understand from listening data.

Gustav Sderstrm: Now this is a big deal because we can now use these data sets to iteratively improve these products continuously after launch in a virtuous loop, something called preference optimization. without any additional product or feature development needed. We've already done our first round of optimization on AI playlists, and we saw clear jumps in performance, such as people listening longer to the resulting playlist or saving them more often and so forth.

So imagine for example, trying to guess, make me a playlist with Songs to pump you up on earnings day in Late July. When your family is on summer holiday without you, just by looking at my listening history, it's pretty hard.

Now, this is a big deal because we can now use these data sets to Italy improve these products. Continuously after launch in a virtuous Loop, something called preference optimization

without any additional product or feature development needed.

Gustav Sderstrm: So, because of the experience we deliver and the combined strength of our subscription and features, it's no surprise that, according to Luminate, 65% of global audio music streams happen on Spotify now.

We've already done our first round of optimization on the AI playlist, and we saw clear jumps in performance, such as people listening longer to the resulting playlist or saving them more often, and so forth.

So because of the experience we deliver and the combined strength of our subscription and free tips.

It's no surprise that, according to Luminate,

Christian Luiga: Now, let me turn it over to Christian to walk you through the numbers. Thank you, Gustav, and thanks, everyone, for joining us today. Let me cover first the quarter two results and then I'll come back a bit on perspective on our outlook. So first, starting quarter two, MEU grew by 18 million to 696 million in total, exceeding our guidance by 7 million. We added 8 million net subscribers, finishing at 276 million, up 12 percent year on year and 3 million ahead of our guidance. Total revenue was 4.2 billion and grew 15% year-on-year on a constant currency basis.

65% of global audio music streams happen on Spotify. Now,

Now, let me turn it over to Christian to walk you through the numbers.

Thank you Gustav and thanks everyone for joining us today. Let me have a first to quarter to 2 results and then I'll come back a bit on perspective on our Outlook. So, first starting quarter 2, mu grew by 18 million, to 696 million in total exceeding, our guidance by 7 million, we added 8 million, net subscribers finishing at 270

To $6 million up, 12% year on year, and $3 million ahead of our guidance.

Christian Luiga: Currency movements during the quarter impacted reported revenue by 104 million relative to our guidance. Our premium revenue rose 16% year-on-year on a constant currency basis, driven by subscriber growth and ARPA gains associated with price increases. Our advertising business delivered currency-neutral growth of 5% year-on-year. Our automated sales channels were the largest contributor to overall advertising growth. If we exclude the near-term impact from the strategic initiatives, like the optimization of our licensed podcast and the rollout of the Spotify Partner Program, we had a low double-digit constant currency advertising growth. As Daniel and Alex mentioned, we believe there is an opportunity to grow our advertising business more quickly.

Total revenue was $4.2 billion and grew 15% year on year on a constant currency basis.

Currency movements during the quarter impacted reported Revenue by 104 million relative to our guidance.

Our premium revenue rose 16% year-over-year on a constant currency basis, driven by subscriber growth and robust gains associated with price increases.

Our advertising business delivered, in current currency, neutral growth of 5% year-on-year.

Our automated sales channels were the largest contributor to overall advertising growth.

If we exclude in the near-term impact from the strategic initiatives, like the optimization of our licensed podcast and the rollout of the Spotify Partner Program, we had low double-digit constant currency advertising growth.

Christian Luiga: And 2025 is very much a transition year onto a new tech stack.

Christian Luiga: Moving to profitability. Gross margin came in at 31.5% in line with guidance and expanding roughly 230 basis points year-on-year as we strategically invest to accelerate our long-term growth ambitions. Our margin expansion was driven by premium revenue growth, outpacing music and audiobook costs. Partially also offset by the Spotify Partner Program costs. Additionally, our ad-supported margin expanded due to podcast and music games.

As Daniel and Alex mentioned, we believe there's an opportunity to grow our advertising business more quickly. And 2025 is very much a transition year onto a new tech stack.

Moving to profitability. Growth margin came in at 31.5%, in line with guidance and expanding roughly 230 basis points year on year as we strategically invest to accelerate our long-term growth ambitions.

Our margin expansion was driven by premium Revenue growth outpacing, music and audible costs.

Part partially also offset by the Spotify partner program cost.

Additionally, our ad, supported margin expanded. Due to podcast and music gains.

Christian Luiga: Our operating income of $406 million was $133 million below guidance, primarily due to social charges in the quarter, which were $98 million above forecast due to share price depreciation. As a reminder, we don't forecast share price movements in our outlook for the business since they are outside our control. The remaining variance to guidance was largely driven by a lighter ad sales contribution and a tax-related charge. Finally, pre-cash flow was €700 million in the quarter. Year-on-year performance here was driven by our growth in operating income as well as our improving net working capital. We ended the quarter with €8.4 billion in cash and short-term investment.

Our operating income of 406 million was 133 below guidance, primarily due to social charges in the quarter, which were 98 million above forecasts due to share price appreciation.

As a reminder, we don't forecast share price movements in our outlook for the business since they are outside our control.

The remaining variance to guidance was largely driven by a lighter ad sales contribution and a tax related charge.

Finally, free cash flow was 700 million in the quarter year. And year performance here was driven by our growth in operating income as well as our improving networking capital.

Christian Luiga: Looking ahead at our guidance, in Q3 we are forecasting 710 million MAU, an increase of 14 million from Q2, and 281 million subscribers, an increase of 5 million over Q2. We are also forecasting 4.2 billion in total revenue. Our revenue outlook incorporates a sizable headwind of approximately 200 million due to unfavorable currency movements over the last quarter. We are also forecasting ARPA to be flat year-on-year on a constant currency basis.

We ended the quarter with 8.4 billion Euro in cash and short-term Investments.

Uh, at our guidance in quarter 3, we're forecasting 710 million Mao, an increase of 14, million from quarter, 2, and 281 million subscribers, an increase of 5 million over quarter 2.

We are also forecasting $4.2 billion in total revenue.

Our revenue outlook incorporates a sizable headwind of approximately $200 million due to unfavorable currency movements over the last quarter.

Christian Luiga: Moving down the P&L, we expect a Q3 gross margin of 31.1% and an operating income of $485 million. Consistent with our previously stated expectations, our gross margin guidance reflects a more variable rate of sequential gross margin progression over the course of this year as we undertake strategic investment to support the long-term growth. Quarter 3 gross margin guidance also reflects a regulatory charge of 40 basis points, consistent with the prior year period. Excluding the regulatory charge, our expected Q3 gross margin is in line with Q1 and Q2 levels.

We also forecasting offer to be flat year in year on a constant currency basis.

Moving down the P&L, we expect Q3 gross margin of 31.1% and an operating income of $485 million.

consistent with our previously stated expectations, our gross margin guidance reflects, a more variable rate of sequential gross margin progression over the course of this year, as we undertake Strategic investment to support the long-term growth,

Quarter free, gross margin. Guidance also reflects a regulatory charge of 40 basis points consistent with the prior period.

Christian Luiga: We remain confident in our business, and while we are investing in the future group, we will deliver a full year margin expansion in 2025. Our operating income guidance reflects temporarily elevated growth in operating expenses in Q3, due to timing factors. And we remain well positioned to deliver year-on-year expansion in operating margin for the full year of 2025.

Excluding the regulatory charge, our expected quarterly gross margin is in line with Q1 and Q2 levels. We remain confident in our business, and while we are investing in future growth, we will deliver full-year margin expansion in 2025.

Our operating income guidance reflects temporarily elevated growth in operating expenses in quarter 3, due to timing factors and we remain. Well, positioned to deliver year-on-year expansion in operating margin for the full year of 2025.

Christian Luiga: With respect to capital allocation, our liquidity remains strong and we expect 2025 to see healthy year-on-year growth in free cash flow. We continue to focus on prioritizing growth opportunities while managing our balance sheet to support our long-term strategy. We are also planning for the upcoming maturity of our exchangeable notes in March of 2026. To the extent excess capacity rises above these needs, we will take our shareholders into consideration. In support of this, and as an initial step, the Board has approved an upsizing of our share repurchase authorization to a total of $2 billion, of which about $100 million had been utilized prior to Q2.

With respect to Capital, allocation, our liquidity remains strong, and we expect 2025 to see Healthy year-on-year Growth in free cash flow.

We continue to focus on prioritizing growth opportunities while managing our balance sheet to support our long-term strategy. We are also planning for the upcoming maturity of our exchangeable notes, in March of 2026.

To the extent excess capacity arises about these needs, we will take our shareholders into consideration.

Christian Luiga: The mandate is giving us enhanced flexibility to be opportunistic in this regard.

Christian Luiga: In conclusion, Q3 will be more reflective of our near-term investments and we anticipate that they will bring healthy returns over the medium and long term. Our top-off funnel and subscriber performance are strong and we remain confident in our ability to drive healthy growth.

In support of this, and as an initial step, the board has approved an upsizing share repurchase authorization to a total of $2 billion, of which about $100 million have been utilized prior to Q2. The mandate is giving us enhanced flexibility to be opportunistic in this regard.

Bryan Goldberg: With that, I'll hand it back to you, Brian. Great, thanks Christian.

In conclusion, Q3 will be more reflective of our near-term investments, and we anticipate that they will bring healthy returns over the medium and long term. Our top-of-funnel and subscriber performance are strong, and we remain confident in our ability to drive healthy growth. With that, I'll hand it back to you, Brian.

Bryan Goldberg: Again, if you've got any questions, please go to slido.com hashtag SpotifyEarningsQ225. We'll be reading the questions in the order they appear in the queue with respect to how people vote up their preference for questions.

Jessica Reeve Ehrlich: And today's first question is going to come from Jessica Reeve Ehrlich on product tiers. Can you provide an update on how you're thinking about introducing tiers, or a tier, whether it be SuperFan or something else, across your platform globally? How many tiers can be created without complicating the user experience?

Great. Thanks Christian. Again if you've got any questions please go to slido.com. Hashtag Spotify earnings Q2 25. We'll be reading the questions in the order they appear in the queue with respect to how people vote up their preference for questions. And today's first question is going to come from Jessica reif erlick on product tiers.

Can you provide an update on how you're thinking about introducing tiers or a tier? Whether it be superfan or something else across your platform globally? How many tiers can be created without complicating the user experience?

Alex Norstrm: Jessica, Alex here. Thanks for the question. We're really excited about engaging superfans, as you know, and we're building something great for them. But what investors really need to understand is how we are building out our products as Spotify. As long as I've been here, which is now, I think, close to 15 years, we've had very high value standards around what and when to release products. Now we're working towards these very high value standards, and we're making progress for sure, but it's taking time. And in music, of course, you know, we're reliant on our partners to a certain degree.

Hey Jessica, Alex here. Thanks for the question.

I will be really excited about engaging super fans, as you know, and we're building something great for them.

But what investors really need to understand is how we are building out our products at Spotify.

As long as I've been here, which is now I think close to 15 years, we've had very high value standards around what and when to release product.

Now, we're working towards these very high value standards. Um, and we're, we're making progress for sure, but it's taking time.

Alex Norstrm: But you have to know that superfans are everywhere, and not just in music.

And in music of course you know we reliant on our partners to a certain degree.

Alex Norstrm: So, for instance, right now we are in market with an audiobook add-on subscription, which is about getting more hours for the ones that run into the gate that we have in the premium allocation. We have this audiobook add-on subscription rolled out in 13 markets, and we're just excited to roll it out to more markets as we go. Now, this add-on really does two things. It better takes care of the demand from our superfans on books, and it's enabling access to audiobooks for our family plan sub-accounts as well, which we haven't had prior to this. Now the key thing to remember is that we remain very enthusiastic about building out these propositions, you know, across music, podcast and video, and we continue to just see great demand from our different superfan segments.

Uh, but you have to know that super fans are everywhere and not just in music. Um, so for instance, right now, we are in Market with an audiobook add-on subscription, uh, which is about getting more hours for the ones that run into the gate, uh, uh, uh, that we have in the premium allocation uh, we have this audiobook add-on subscription rolled out in 13 minutes and we're just excited to roll it out tomorrow markets as we go. Now this, this add-on really does 2 things.

It, uh, it better takes care of the demand from our super fans on books. And, um, it's enabling access to audiobooks for our family plans subaccounts as well, which we haven't had, uh, prior to this.

Now, the key thing to remember is that we remain, very enthusiastic about building out these propositions, you know, across music, uh, podcast and video, and we continue to just see great demand, uh, from a different Super Fan segments.

Benjamin Black: Alright, our next question is going to come from Benjamin Black on Gross Margin. Chris Gordia, Gross Margins didn't beat your guidance for the first time in a while. Has there been a change in your guidance philosophy and how should we be thinking about the trajectory of Gross Margins for the balance of the year and into 2026?

All right, our next question is going to come from Benjamin black on gross margin?

Christian Luiga: Thank you, Benjamin. I'm going to start by answering in the end and then go to the first question. So just as we have heard from Daniel and Gustav and Alex, I mean, we feel very strong about the way we are running the business and the foundation and the investments we're doing in future growth and future profitability. So just over time, we will, of course, seek to increase our margin, gross margin, and that will come from several building blocks. In music, there will be the marketplace and the ads monetization. Podcasts will be ad scaling monetization, SVP monetization, and audiobooks, we will continue to monetize over the experience we're doing.

This quarter, your gross margins didn't beat your guidance for the first team. Time in a while. Has there been a change in your guidance philosophy? And how should we be thinking about the trajectory of gross margins for the balance of the year and into 2026?

Christian Luiga: Same time, we have seen that in small numbers in this quarter, but also over the time, other cost of revenue like customer service and payment services, we are slightly scaling on that as well. So that's just what we see, and we don't guide to specifically a quarter four or 2026, but we naturally have a seasonally stronger quarter four. And the two things that I can point to at this stage is that ad supported gross margin usually hits its highest point in quarter four. And of course, we had a 40 basis points impact in quarter three that will not come back in quarter four.

Strong about the way we are running the business and the foundation and the Investments, we're doing in future growth and, and, and future profitability. So, so just over time, we will, uh, of course, seek to increase her margin, gross margin, and that will come from several building blocks in music. There will be the marketplace and the as monetization podcast will be at scaling, monetization and spp, monetization and audio books, we will continue to monetize of the experience. We're doing same time. We have seen that in small numbers in this quarter but but also over the time other cost of Revenue like customer service and and payment services, we are slightly SC scaling on that as well. So that that's just um what we see and we don't guide to specifically a quarter 4 or 2026 but we we naturally have a seasonally stronger quarter for and and the 2 things that I can point to uh at this stage is is that ad supported gross margin? Usually

Christian Luiga: And then back to your first question, then on how we if we have changed our philosophy. No, we haven't changed our philosophy at all. You can look at it a little bit like what kind of certainty we have and how we work with certainty when we do our guidance, which I think you would expect from yourself also in trying to figure out the guidance. When we do the guide for the quarter, we look at the certainty in our licensing deals or in the market or in other aspects that can hit the margin. And we don't go out with a typically a gross margin guidance that we feel uncertain about.

Hits its highest point in quarter 4. Uh, and of course, we had a 40 basis points, uh, impacting quarter 3. That will not, uh, come back in quarter 4 and then back to your first question, then on how we, if we have changed our philosophy. Now, we haven't changed our philosophy at all. Um, you can, you can look at it a little bit like, what, what kind of certainty we have and how we work with certainty? When we do our guidance, uh, which I think you, you would expect, uh,

Christian Luiga: So we try to calibrate into a more certain level when we guide on that. And if you do that, you usually will be above or on target. And now we are on target, which means we had very little issues in this quarter when it comes to uncertainty.

From from yourself also. And, and trying to figure out the guidance. When we do the guide, for for the quarter, we, we look at the certainty in in our licensing deals, or in the market or in other aspects that can hit the margin, and we don't go out with a, a typically, a gross margin guidance that we feel uncertain about. So, we try to calibrate into a more certain level when we guide on that. And if you do that, you usually, uh, will be above or On Target, and now we are on target, uh, which means we had very little, um, issues in this quarter when it comes to uncertainty.

Justin Patterson: All right, our next question is going to come from Justin Patterson on AI and for Gustav. Gustav, we enjoyed listening to your appearance on the Invest Like the Best podcast. Could you expand on how generative AI is influencing productivity and product development and how you think the consumer experience might change over time? I would be happy to, Justin. Thank you.

All right our next question is going to come from Justin Patterson on AI and for Gustav uh Gustav we enjoyed listening to your appearance on the invest like the best podcast. Could you expand on how generative AI is influencing productivity and product development and how you think the consumer experience might change over time?

Gustav Sderstrm: So if we take them in order, productivity, then product delivery and consumer experience. First on productivity, like most other companies, at least the companies who are adopting this technology, we are seeing significant speed ups, specifically right now in prototyping. And this is true, I know, for many other companies as well. So that early stage of you used to talk about a product, now you can much faster just prototype it and see if it actually works.

I would be happy to, Justin. Thank you.

Uh, so if we take them in order: productivity, then product delivery, and consumer experience. First on productivity, like most other companies—at least the companies who are adopting this technology—we are seeing significant speed-ups, specifically right now in prototyping.

Gustav Sderstrm: As we're seeing faster prototyping, we had a hack week this spring that we spent entirely on upskilling the entire workforce. And what was interesting there was that it was not only engineers and maybe product people and so forth and designers that adopted this, but also non-R&D functions. We saw actually a lot of adoption from finance and other departments.

Uh, and this is true. I know from any other companies as well. So that early stage of you used to talk about a product. Now, you can much faster, just prototype it and see if it actually works.

Gustav Sderstrm: So that's on productivity. We're seeing the sort of same sort of gains that most others are seeing. We're excited about on product delivery. This is a good observation.

Uh so we're seeing faster prototyping. We had a hack week this spring that we spend entirely on upskilling the entire Workforce and what was interesting there was that it was not only engineers and maybe product people and so forth and designers that adopted this but also non R&D functions. Uh, we saw actually a lot of uh, adoption from finance and and other departments.

So that's on productivity, we're seeing the sort of same sort of gains that most others are seeing. We're excited about them.

Gustav Sderstrm: It is a very big change to how you build products. For those who are interested, I think to summarize it in a sentence, the biggest change for a product person is that what is called the eval, the evaluation set is now the what is called the PRD. So the product requirements document. So Google eval is the new PRD, and you'll understand what the big change is.

On product delivery. This is a good observation. It is a very big change to how you build products.

For those who are interested, I think, to summarize it in a sentence, the biggest change for our product person is that what is called the eval, the evaluation set, is now what is called the PRD, the Product Requirements Document.

Gustav Sderstrm: in terms of consumer experience. I think to summarize it, I touched on this in my opening remarks, there is a fundamental difference that happened with generative AI versus the previous AI. We were confined to user signals, largely such as skips, plays and saves, and you can imagine that those are pretty blunt signals. So a skip could be a song that you love, but you're really tired of it. Could be a song that you love, you're not tired of it, but it's the wrong situation. Could be a song that you really don't like. All of those just result in a skip.

So Google eval is the new PRD and you'll understand what the big change is.

In terms of consumer experience.

I think to summarize it, I touched on this in my opening remarks.

There is a fundamental difference that happened with generative AI versus the previous AI. We were confined to user signals largely, such as skips, plays, and saves.

Gustav Sderstrm: So these are blunt signals. What's happening with generative AI is the user can finally speak to Spotify in plain English or any language for that matter. And so you can think of it as us getting a new data set. Spotify got this unique data set from all of its playlists, which was really song to song, like which song goes well with another song, kind of the Amazon, people who bought this also bought that. And we have the biggest of such data sets in the world, we're very happy with it. But we're getting a new data set now, which is what English sentence goes to this song.

And you can imagine that those are pretty blunt signals. So a skip could be a song that you love, but you're really tired of it; it could be a song that you love, you're not tired of it, but it's the wrong situation; it could be a song that you really don't like. All of those just result in a skip. So these are blunt signals. What's happening with generative AI is the user can finally speak to Spotify in plain English or any language for that matter.

And so you can think of it as us getting a new data set.

Spotify got this unique data set from all of its playlists, which was really so song to song, like which song goes well, with another song, kind of the Amazon people who bought this also bought that

Gustav Sderstrm: And that's completely new to us. And it's a very, very valuable data set that we're collecting very quickly. So this is the big change for us.

And we have the biggest of such data sets in the world. We're very happy with it but we're getting a new data set now which is what English sentence goes to this song and that's completely new to us. And it's a very, very valuable data set that we are collecting very quickly.

This is the big change for us.

Gustav Sderstrm: I would also say there was a question on what happens to user experiences. Obviously, as a result of this, I think they are going to get much more interactive. You can already write to Spotify, talk to Spotify. You're just going to see that expand.

Um,

Gustav Sderstrm: Lastly, I would say that. This technology allows you to go from what is today largely predicted user experiences, we predict which songs or playlists or podcasts or books you might want to listen to, to what is now called reason user experiences, where you actually reason over the user's listening history and actually what they said in the case of DJ. So I think user experiences will change quite a lot in the coming years. I'm not going to tell you how.

I would also say there was a question on what happens to user experiences. Obviously, as a result of this, I think they are going to get much more interactive. You can already write to Spotify, talk to Spotify. You're just going to see that expand

Uh, lastly, I would say that.

This technology allows you to go from what is today? Largely predicted user experiences. We predict which songs or playlists or podcasts are books. You might want to listen to

to what is now called reason user experiences where you actually recent over the users listening history. And actually what they said, in the case of the DJ,

So I think, uh, user experiences will change quite a lot in the coming years.

Gustav Sderstrm: I don't actually think that would be in the interest of the shareholders for me to reveal that right now.

Uh, I'm not going to tell you how I don't actually think that would be in the interests of the shareholders for me to reveal that right now.

Jessica Reeve Ehrlich: All right, our next question, we've got another one from Jessica Reeve-Herlich on capital allocation. You just doubled your share buyback authorization to $2 billion, with $1.9 billion now remaining. Do you expect to execute this by the expiration of April 2026? And even if you do, you still have a significant amount of financial flexibility.

Christian Luiga: How are you thinking about uses of capital over the next three to five years? Thank you, Jessica. I think it's good to start with a long-term view on this, and which is the same as a short-term view. Our first priority is growth to opportunities that we can drive attractive returns. So we want to invest in growth in this company foremost. And to do that, we do seek to have a balance sheet that supports our long-term strategy. And I think that's really important to understand in everything we do. On the other hand, also then now what we have declared is that we believe the buyback is a good tool to use opportunistically, and that that gives us additional flexibility.

All right. Our next question is we got another 1 from Jessica refer like on Capital allocation, you just doubled your share buyback authorization to 2 billion with 1.9 billion now remaining. Do you expect to execute this, uh, by the expiration of April 2026? And even if you, do you still have a significant amount of financial flexibility. How are you thinking about uses of capital over the next 3 to 5 years?

Christian Luiga: And so we're not going to talk about how much and when and how that will be utilized, but we do believe this is a good tool for us in addition to what we have declared before. And it was important for us to make that statement also to you in the market.

Thank you, Jessica. Um, just I think it's good to start with the long-term view on this. Um, and and and which is the same as a short-term view. Our first priority is growth opportunities that we can drive that can drive attractive returns. Uh, so we want to invest in growth in this company, uh, for most foremost. And and to do that, we do seek to have a balance sheet, uh, that supports our long-term strategy. And I, I, I think that that's really important to understand, uh, in everything we do, on the other hand also, then now what we have declared is that we believe the buyback is a good good tool to be or to use opportunistically and that that gives us additional flexibility. Um and um, so so we're not going to talk about how much and when and how that will be utilized. But we do believe this is a good tool for us. Uh, in addition, uh, to what we have declared before and what's important for us to to make that statement also to you in the market

Benjamin Black: All right, our next question comes from Benjamin Black on ARPU. Could you help us understand the implied FX-neutral ARPU trends for the 3rd quarter, what are the puts and takes, and how should ARPU evolve for the 4th quarter? Well, I think in my statement before, I talked about that we would have a neutral currency, from a currency point of view also, a neutral ARPU in quarter three.

all right, our next question comes from Benjamin Black on arpu,

Could you help us understand the implied FX neutral, RP trends for the third quarter? What are the puts and takes, and how should ARPU evolve for the fourth quarter?

Christian Luiga: And there's some put and takes on that, of course. And the ARPU is driven by all our markets around the world. And in developed markets, of course, we see uplifts in ARPU. Meanwhile, in the emerging markets with a strong intake, that will, of course, have a more dilution to the ARPU in the short term. But over the long term, it creates a lot of value for Spotify.

Christian Luiga: When it comes to quarter four specifically, I will not comment on that.

Christian Luiga: And we're not going to give any guidance until we get to the fall.

In, in the the, uh, Emerging Markets with a strong intake that will, of course, have a more delusion to door in the short term, but over the long term, it creates a lot of value for Spotify. Um, when it comes to quarter 4 specifically, um, I will not comment on that and we're not going to give any guidance until we get to the fall.

Christian Luiga: Let me just jump in there and add to that a little bit.

Daniel Ek: I have a slightly different cut on it. So I want to re-remind everyone that we operate Spotify to optimize for the long-term and not quarterly gain, so to speak. There are going to be short-term fluctuations because of timing issues, but we've always put subscribers on a pedestal, and that's really worked out for us so far. And as far as pricing goes, we will raise price when it's appropriate for business. And I want to also remind you that we take a portfolio approach. So in a sense, you could say that we raise all the time. For instance, in the last quarter, we raised in France, Belgium, the Netherlands, and Luxembourg.

Hey, Christian, let me just jump in there and add that a little bit. I have a

Slightly different cut on it. So I want to re remind everyone that we operate Spotify to, to optimize for the long term and and not the not quarterly uh, quarterly gain so to speak. Now there are going to be short-term fluctuations because of timing issues, but we've always put subscribers on a pedestal and that's really worked out for us so far.

And as far as pricing goes, we will raise price when it's appropriate for business. And, you know, I want to also remind you that

Daniel Ek: And I can report to you that on Churn, we didn't see anything out of the ordinary for Spotify.

We take a portfolio approach. So in a sense, you could say that we raise all the time. For instance, in the last quarter, we raised in France, Belgium, the Netherlands, and Luxembourg. I can report to you that on churn, we didn't see anything out of the ordinary for Spotify.

Justin Patterson: All right, next question from Justin Patterson on investments in the business. You've spoken about Spotify being the R&D engine of the music industry and that pricing actions reflect that value.

Alex Norstrm: As you expand into audiobooks, video podcasts and education, how are you thinking about the size of investment and degree of engagement to support future pricing?

Right next question from Justin Patterson on investments in the business, you've spoken about Spotify being the R&D engine of the music industry and that pricing actions reflect that value. As you expand into audiobooks video, podcasts and education. How are you thinking about the size of investment and degree of Engagement to support future?

Pricing.

Alex Norstrm: I'll take this one, Brian. I'm absolutely psyched about where we are with our verticals across music, video and books. I think the important thing for everyone to understand is how we think about the outcome. And the outcome can be can be set with the following sort of backdrop like I think everyone on the planet has a relationship with music and you know possibly even before you have good language and so I think we have enormous runway still and with with video and books added on top of this it just expands the the opportunity even further and we've seen that the sort of multi-format works on our platform like Gustav mentioned in his remarks at the beginning.

I'll take this 1, Brian. I'm absolutely psyched about where we are with our verticals across music, video and books.

um, I think the important thing for everyone to understand is how we think about,

Alex Norstrm: Now we have now three percent of the world's population subscribing to Spotify. paying Spotify recurrently, every month, 3%. Now do we get to 90%? Unsure, but it's not implausible that we get to 10% or 15%. And this is why we've set our new BHAG at 1 billion subs, which Daniel has mentioned previously. And I can share some statistics to illustrate this even further, why we're so confident. Again, we have 45% subscriber market share where we operate today, and 65% of all music streams are on Spotify. So this is the backdrop and ambition that we invest against.

The outcome and the outcome uh can be can be set with the following sort of backdrop. Like I think everyone on the planet has a relationship with music and you know possibly even before you have it with language. And so I think we have a normal Runway still and with uh with video and books added on top of this uh it just expands the the, the opportunity even further. And we've seen that the sort of movie format works on our platform, like Gustav mentioned in his remarks at the beginning.

Now, we have 3% of the world's population subscribing to Spotify.

Paying Spotify we currently every month, 3%.

Now, do we get to 90%, unsure, but it's not implausible that we get to 10% or 15%.

And this is why we've set our new beehive at 1 billion Subs, which Daniel has mentioned previously.

And I can share some statistics to illustrate this even further while we're so confident, you know? Again we have 45% subscriber market share, uh, where we operate today and 65% of all music streams are on Spotify.

Alex Norstrm: We don't comment specifically with regards to the size of these investments, but clearly our proposition across the three verticals is working out.

So this is the backdrop and ambition that we invest against, we don't call it specifically with regards to uh uh, the size of those, the these Investments but clearly our proposition across the 3 vertical is working out.

Rich Greenfield: Okay, our next question is going to come from Rich Greenfield on music growth opportunities. Spotify has done a great job taking share from its less-innovative industry peers, but overall music industry subscriber growth in developed markets is now relatively nascent. Are there new products and packaging that you believe can re-accelerate the industry, or is it now more about pricing power?

Okay, our next question is going to come from Rich Greenfield on uh uh music growth opportunities.

Spotify's done a great job taking share from its less Innovative industry peers but overall music industry subscriber growth in developed markets is now relatively nent. Are there new products packaging that you believe can react the industry or is it now more about pricing power?

Alex Norstrm: Rich, Alex here again. I'll jump in on this. I think you sort of heard my response on the previous question. We are seeing amazing engagement growth in the last four or even to five years across these three formats that we have on the platform today. It is this engagement that we hold above everything else. So whether we package in one way or another, it's basically to help users get access to this proposition of ours.

Uh, Rich Alex here again, I'll jump in. Um, on this. Uh, I think you sort of heard my response on the on, on the previous question. And, you know, we are uh, seeing um, amazing engagement growth in the last 4 or even to 5 years uh around around the these 3 uh formats that we have on on the on the platform today. And it is this engagement that we hold above everything else. And so whether we package uh, in in in 1 of their, it's basically to help users get access to, to, uh, to what we this proposition of ours.

Doug Anmuth: Okay, our next question is going to come from Doug Anmuth on... on Apple. You stated in the May amicus brief related to the Apple court case that iOS US paid subconversions were improving.

Okay, our next question is going to come from uh, Doug anth on. Um,

Doug Anmuth: How does alternative payment expand the subscriber funnel and what other opportunities does it open up across purchase flow, communication, marketing, and potential new business lines? Yeah, Doug, as we mentioned in the amicus brief, it did impact positively our conversions. And you can see some of that in the quarter. Obviously, most of the growth was broad based and not just in the US or North America, but also in developing markets, too. So it was really a great quarter from a growth perspective, both on the sub side and the user side. But we certainly saw positive effects of the epic case in the US.

On, uh, Apple, you stated in the May Amicus brief related to the Apple, uh, uh, court case that iOS US paid sub. Conversions were improving.

How does alternative payment expand the subscriber funnel? And what other opportunities does it open up across purchase flow, communication marketing, and potential new business lines?

Doug Anmuth: Now, how does that impact us?

Doug Anmuth: Well, the simplest term would be if you think about the consumer experience pre the epic case. So at that point, if you would fail payment as a subscriber, we could notify you that your subscription had expired. But we couldn't tell you anything. So, we simply had to rely on alternative means for reaching the consumer. That included emails, that included, perhaps if we were lucky, some other retargeting of some form through advertising to then get the customer to redo it. But there was no way for us to directly communicate to the customer and there was no way for that customer to take action on when they hit the sort of subscriber wall inside of that experience.

From a growth perspective, both on the subside and the the user side. But we certainly saw positive effect, uh, of the, um, epic case, uh, in the US now. How does that impact us? Well, the simplest term would be if you think about the consumer experience, pre the Epic case. So at that point if you would fail um payment as a subscriber, we could notify you that your subscription had um expired but we couldn't tell you anything else.

Doug Anmuth: And that meant many people were not stopping to use Spotify, but simply were downgraded to the ad experience, sometimes without even knowing exactly what happened and why it happened if they were using third-party platforms like a car, etc., using the platform. So clearly not a great consumer experience.

Doug Anmuth: Now if you look at that. Today, obviously, we can now directly communicate and we can add a call to action in the app. It's not full-on payments, but it's still a way where we can directly communicate to the consumer.

Um, so we simply had to rely on alternative means for reaching the consumer that included emails. That included perhaps. If we were lucky, some other retargeting of some form through advertising to then get the customer to, to redo it. But there was no way for us to directly communicate to the customer. And there was no way for that customer to take action on, uh, when they hit, uh, the sort of subscriber wall, uh, inside of that experience. And that meant many people were not stopping to use Spotify, but simply were downgraded to the ad experience sometimes, without even knowing exactly what happened and why it happened if they were using third-party platforms, like a car, Etc, um, using the, the platform. So clearly not a great consumer experience. Now, if you look at that, um,

Doug Anmuth: Now, what are new products and how could that influence us? Well, you could imagine a la car transactions being a very big potential driver for future revenue growth. We've played around with that when it comes to books, for instance, where it makes a lot of sense if you're an author for us to be able to sell books, but you can also imagine new digital products that we could potentially introduce in the future as well. I think that this is such an important part.

Doug Anmuth: We said this several years ago when we were talking about monetization and the big theme around investors were thinking about pure play advertising platforms versus pure play subscription platforms, and our view was that it simply for any media platform didn't make any sense to be only subscriber-based or only be advertising-based. You needed both of these drivers. But now we can also add the third driver, which is a la carte transactions to that. We simply think that the big media platforms of the future will be the ones that have advertising, subscription, and a la carte as methods, and for that, in-app payments is a very important part.

Today, obviously, we can now directly communicate and we can add a call to action, um, uh, in the app. It's not full-on, um, payments, but it's still, uh, a way where we can directly communicate to the consumer. Now, uh, what are new products and how could that influence us? Well, you could imagine, uh, alacarte transactions being a very big potential driver uh for future Revenue growth and we played around with that when it comes to books for instance, where it makes a lot of sense. If um, you're an author for us to be able to sell books, but you can also Imagine new digital pro products, uh, that we could potentially introduce in the future as well. So, I think that this is such a, an important, um, part, uh, that you know. We, we said this several years ago when we were talking about, um,

Doug Anmuth: Now, we hope that what followed in the EPIC suits will happen in the EU with the DMA and the DMCC as well, that those get enacted and acted upon. If that's the case, then we would see some of that same benefit also in the other markets as well.

Monetization and the big sort of themed around investors were thinking about Pure Play, advertising platforms versus Pure Play subscription Platforms. In our view was uh that it simply for any media platform. Didn't make any sense to be only subscriber based or or only be advertising base. You need to both of these drivers. Um, but now we can also add the third driver which is alicart transactions to that. Uh, we simply think that the big media platforms of the future will be the ones that have advertising subscription and alacarte uh as methods. And for that um in-app payments is a very uh important part.

Now, we hope that, um, the Epic what, what followed in the Epic suits, uh, will happen in the, uh, EU with the dma and the dmcc as well. That those get enacted enacted upon. If that's the case, then we would see some of that same benefit also in the other markets as well.

Rich Greenfield: Okay, our next question is going to come from Rich Greenfield on the advertising business. How much of the changes that you've made to your podcasting business model negatively impacted your advertising growth in the second quarter? What is the organic growth underlying the 5% constant currency growth if we adjust for the podcasts that are no longer exclusive? and again.

Okay, our next question is going to come from Rich Greenfield on the advertising business?

How much of the changes that you've made to your podcasting business model, negatively impacted your advertising growth in the second quarter. What is the organic growth? Underlying the 5% constant currency growth? If we adjust for the podcast that are no longer exclusive,

Rich Greenfield: Funny you should not ask Rich, because I was just trying to figure out if there was a way for me to talk about this. I think certainly when you remove the inventory from the parts of our premium landscape around the world that has a lot of revenue against the inventory of course it's going to have an impact. Now I'm sure Christian is going to tell you what the actual impact is but I want to tell you right now we're really encouraged by what we are seeing in podcasts and videos on Spotify and so some of the reasons to why we did this I think it's important to sort I think Gustav or Daniel in the initial remarks told you video consumption is growing 20x faster than our audio consumption and I think it's 350 million users have now watched video on Spotify.

Let me start Christian and then finally, you should not ask Rich because I was just trying to figure out if if there were was a way for me to talk about this.

Um, I think certainly when you remove the inventory from um, the parts of our premium.

Landscape around the world. That has a lot of, you know, in Revenue against the inventor, of course, it's going to have an impact. Uh, now Chris, I'm sure Krishna is going to tell you what what the actual impact is. But I want to tell you right now, we're really encouraged by what we are seeing in podcast and video on Spotify. And so some of the reasons as to why we did this, I think it's important to sort of surface

And Gustav Orlando, in the initial marks, told you video consumption is growing 20x, faster than our audio consumption.

and,

Christian Luiga: What's more users who watch a podcast consume one and a half x more than users who just listen. So these are generally very good outcomes from our investments and to changing the portfolio. Yeah, and just to specifically, as I mentioned in my my also remarks, we have a low double digit growth if you exclude these more strategic short term impacts from from the inventory that we've taken away and the change in the SPP program.

I think it's 350 million users who have now watched video on Spotify. What's more, users who watch a podcast consume 1.5 times more than users who just listen.

Um, so these are generally very good outcomes from our investments and to changing the portfolio.

Yeah. And and just to specifically, as I mentioned in my, my also remarks, we have a low, uh, double digit growth if you exclude these more strategic short-term impacts, uh, from from the inventory that were taken away and and the change in the spt program.

Jason Bazinet: Okay, our next question comes from Jason Bazinet on gross margin.

Christian Luiga: Can you please discuss the key drivers of gross margin expansion after 2025? Yeah, thank you, Jason. And a little bit, I alluded to this before, and I just want to add something also to that. But long term, of course, we do believe there's going to be a gross margin expansion, and we will continue that. It comes from advertising business, as we talked about, that is both in the music side and the podcast side, but also how we monetize the marketplace in music and the SVP in the podcast side. And then we have the audiobooks monetization that we do continue to do.

Okay, our next question. Comes from Jason bazinet on gross margin.

Drivers of gross margin expansion after 2025.

Yeah.

Christian Luiga: And then Daniel, he just mentioned also the third leg in this, the a la carte that we will also introduce and can introduce, which will also be an expansion driver for the future.

Thank you Jason and a little bit. I alluded to this before and I just want to add something also to that, but long term of course. Uh, we do believe there's going to be a gross margin expansion and and we will continue that it comes from advertising business. As we talked about, that is both in the music side and the podcast side, uh, but also how we monetize um, the marketplace in music and and the spp in in the podcast side. And then we have the audio books, uh, monetization that we we do continue to do. And then Daniel, he just mentioned also the third leg in this the alacarte that we will also introduce and can introduce, which will also be an expansion uh driver for the future.

Rich Greenfield: All right, we've got a follow-up question from Rich Greenfield on the advertising business. Your global head of sales Lee Brown left yesterday for DoorDash.

Daniel Ek: Were you unhappy with the progress in advertising and made a change or was the departure unexpected? So I think the main point to emphasize here is that in 25, we've been recalibrating Spotify as a business, and we know we need to move faster, like we mentioned several times before now, that's the diagnosis. We believe in our strategy to build to build to welcome all of the programmatic demand that's out there for us next to our direct sales and I believe that we've got the pieces in place to move faster. And, you know, when I talk to advertisers from essentially big to small, they like our new ad stack.

All right, we've got a follow-up question from Rich Greenfield on the advertising business. Your Global Head of Sales, Lee Brown, left yesterday for DoorDash. Were you unhappy with the progress in advertising and made a change, or was the departure unexpected?

Yeah, so I think the main point to emphasize here is that in 25, we have been recalibrating the Spotify ads business, and we know we need to move faster, like we mentioned several times before. Now, that's the diagnosis.

um we believe in our strategy to build uh to build to welcome all of the programmatic demand that's out there for us next to our direct sales and

Daniel Ek: They say things like they can now buy in more ways and just it just lowers the friction. Right. And then obviously they can also now measure better. Now, to my mind. This is the momentum that we need to sort of ride on. We're behind on the plan, but we'll move faster. And we've been really clear that, you know, we have high expectations really across our business and we need to see more progress within ads. And unfortunately, that hasn't happened here.

I believe that we've got the pieces in place to move faster. And, you know, when I talked to advertisers, from essentially big to small, they like our new ad stack. They say things like they can now buy in more ways, and it just lowers the friction, right? And then, obviously, they can also now measure better.

Now, to my mind.

Uh, this is the momentum that we need to sort of ride on. Uh, we're behind on the plan, but we'll, we'll, we'll move faster. And

We've been really clear that, you know, we have high expectations really across our business and we need to see more progress within ads.

Daniel Ek: So we felt it was the right time for leadership change. And we, and I, and I think you too, I think highly of Lee, he's done great things for Spotify in the last six years he's been here, but right now we need to accelerate the transformation of this.

And unfortunately, that hasn't happened here. So we felt it was the right time for leadership change and we, and I, and I think you too. I think highly of Lee, he's done great things for Spotify in the last 6 years. He's been here, but right now we need to accelerate the transformation of this business.

Jessica Reeve Ehrlich: Okay, we've got another question from Jessica Reeve Ehrlich on engagement. What metrics or color can you provide on engagement and how it's grown by category over the past year? How do you view the opportunity to monetize this in highly engaged base? Is it conversion to premium advertising or something else?

Okay, we've got another question from Jessica. Reif Erik on engagement.

Gustav Sderstrm: Jessica, this is Gustav, I'll take that. So, sort of talking a little bit category by category, we already mentioned several times some metrics here around obviously market share in music subscriptions and both I and Alex and Daniel talked about the growth in video and we're very happy with what we're seeing in audiobooks as well. We have over 400,000 books now. We recently launched Germany, Austria, Switzerland, Liechtenstein and we also importantly released our first add-on subscriptions for UK, New Zealand, Australia and Switzerland. So, we're seeing growth in all of these categories and to your question of how we monetize them, I think Daniel answered this.

What metrics are color? Can you provide on engagement? And how it's grown by category over the past year? How do you view the opportunity to monetize this in highly engaged? Base is it conversion to premium advertising or something else?

Gustav Sderstrm: You're saying is it conversion to premium ads or something else and Daniel mentioned something else which could be a la carte. So, right now, we're actually doing all of them and as Alex said previously, when we feel it's the right time, we may make price raises on premium and that's one vehicle.

Thanks Jessica. This is Gustav. I'll take that. So, sort of talking a little bit category by category. We already mentioned several times, uh, some metrics here around, obviously market share in music subscriptions and, uh, both in Alex. And Daniel talked about the growth in video. And we're very happy with what we're seeing in audiobooks as well, we have over 400,000 books. Now, we recently launched, Germany, Austria, Switzerland lichenstein and we also importantly released our first add-on subscriptions for UK New Zealand Australian Switzerland. So we're we're seeing growth in all of these categories and to your question of how we monetize them. I think Daniel answered this you're saying is it, is it conversion to premium ads or something else? And Daniel mentioned, there's something else which could be out of the card. So right now we're actually doing all of them. And as Alex said, previously,

Gustav Sderstrm: The other vehicle is monetization through advertising and as Daniel mentioned, the third vehicle that is increasingly open up is also a la carte.

When we feel it's the right time, we may make a price increase on Premium, and that's one vehicle. The other vehicle is monetization through advertising. As Daniel mentioned, the third vehicle that is increasingly opening up is also a cart.

Deepak Madhavan: Okay, we've got a question now from Deepak Madhavan on operating expenses. Realizing the timing shifts on the second half OPEX this year, how should we think about expense growth for the next few quarters?

Deepak Madhavan: Are there any areas of incremental investments in headcount, marketing, or technology that you currently anticipate for 2026?

Daniel Ek: Yeah, so this is Daniel. I think the most important thing to realize is we're not at a steady state in the business world. I think for anyone at the moment, there's a lot of puts and calls that are happening. And I wanted to take a moment to sort of address that, both the principle and this sort of underlying change. I think the most straightforward thing that I think most investors should be seeing is that there's a trade-off between what is headcount-driven expenses and compute-driven expenses that is more and more being played out now in every company there is when it comes to the investments that you're making.

Okay, we've got a question now from Deepak Mavan on operating expenses, realizing the timing shifts on the second half Opex this year. How should we think about expense growth for the next few quarters? Are there any areas of incremental investments in headcount, marketing, or technology that you currently anticipate for 2026?

Daniel Ek: And this is true with Spotify too. So we're seeing with our engineers now for the very first time, more and more questions around how much compute they can actually use as they run into various things, whether it is for internal some of the new products that they're developing. And so I think that this will mean that we all as businesses are just early on starting to figure out how that how that's going to be playing out. Now, the most important thing for you as investors to be thinking about this, though, is that we don't try to optimize for reaching an arbitrary goal.

Some of the new products that they're developing.

And so, I think that this will mean that we all, as businesses, are just early on starting to figure out how that, um,

Daniel Ek: Instead, the number one thing that we're really actively focused on is driving that lifetime value metric that I talked about. And that includes the trade-off between short-term investments and long-term investments. And obviously, if there are long-term investments, those should be discounted back quite heftily. But if it still makes sense to do it, then we should do it.

Daniel Ek: So let me give you an example. Perhaps this is the clearest example. Let's take marketing as one example. So one of the ways we measure marketing is SAC to LTV ratio. So SAC stands for subscriber acquisition cost. And then you have the LTV, which, of course, is lifetime value. And the way to think about that is it's a ratio. And so you could imagine the SAC to LTV, if it's 2 to 1, it will elicit one type of response from Spotify. But let's hypothetically say that it would go to 5 to 1, meaning for every dollar we invest in marketing, we get 5 back.

How that's going to be playing out. Now the most important thing for you as investors to be thinking about this though is that we don't try to optimize for reaching an arbitrary goals instead. The number 1 thing that we're really actively focused on is driving that lifetime value of metrics that I talked about. And that includes the trade-off between short-term Investments, and long-term Investments. And obviously, if there are long-term Investments, those should be, um, you know, discounted back, uh, quite heavily but if it still makes sense to do it, then we should do it. So, let me give you an example. Uh, perhaps, this is the clearest example. Let's take part marketing is 1, example. So 1 of the ways we measure, um, marketing is sacked to LTV ratio. So Sac stands for subscriber, acquisition cost and then you have the LTV which, of course, is lifetime value. And the way to think about that is it's a ratio. Um, and so you could imagine the sacked LTV if its 2 to 1 um it will elicit 1 type of response from Spotify but let's hypothetically.

Daniel Ek: If you're an investor, you should feel very happy for us to invest, regardless of if that means that we will have short-term impacts on expenses for that. If you had a high degree of certainty that we were actually going to get 5 back. And so I think that is important to talk about, because the world we're entering in now, we talked about advertising just a short while ago. More and more of advertising is becoming programmatic. That means that there will be opportunities where, for some reason, people pull back from advertising where the prices for marketing comes down, and therefore efficiency might come up.

Say that it would go to 5 to 1 meaning for every dollar we invest in marketing, we get 5 back.

Yeah, if you're an investor, you should feel very happy for us to invest regardless, if that means, that we will have short-term um, impacts on, um, expenses, uh, for that if you had high degree of of of certainty, that we were actually going to get 5 back.

Daniel Ek: And that might mean that even though we generally are trying to become more efficient, we may see in certain quarters where it makes a lot of sense for us to even double or triple our marketing. Those will be very unlikely scenarios and don't happen very often, but it could happen. And I want you as investors to be aware of that. prepare that we will always, in those terms, do what we think is the right for the long-term business. And we will use the appropriate KPIs and discount metrics to be very disciplined as we do that with the SAC to LTV ratios.

And so, I think that is important to talk about because the world we're entering in now, uh, we talked about advertising just a short while ago, uh, more and more of advertising is becoming programmatic. That means that there will be opportunities where for some reason people pull back from advertising where, uh, the prices for, um, marketing comes down in and, and therefore efficiency might come up. And that might mean, that even though we generally are trying to become more efficient, we may see in certain quarters, where it makes a lot of sense for us to even double or triple our marketing. Those will be very unlikely, uh, scenarios and don't happen very often but it could happen. And uh, I want you as investors to be. Um,

Daniel Ek: That's just one example. So, in short, we generally expect to see more efficiencies as we're leveraging better and better tools. But sometimes that efficiency may mean that the right thing is to actually spend more in the short term to then get it back in the long term. And you should expect us to always focus on what's right to grow the franchise over time.

Prepared that we will always in those uh terms do what we think is the right for the long term business and we will use the appropriate kpis and discount metrics to be very disciplined, as we do that with the sack to LTV ratios. That's just 1 example. So, um, in in short, uh, we generally expect to see more if efficiencies, as we're leveraging better and better tools, but sometimes that efficiency May mean

Gustav Sderstrm: Hey, Daniel, do you mind if I try to jump in here and make the picture even more complete? Sure, go for it.

That the right thing is to actually spend more in the short term to then get it back in the long term, um, and you should expect us to always focus on what's right to grow the franchise over time.

Hey Daniel. Do you mind if I I try to jump in here and make the picture even more complete?

Gustav Sderstrm: So, here's how we see it. This is the flip side of what Daniel just discussed. So, the business has really never been in a better position. All signals are pointing in the right direction, I think. Now, one, we've got great subscriber growth, which we discussed at length earlier. User engagement is growing and people are just spending more time on Spotify. And three, we're gaining market share around the world. Really, all levers for growth are available for us to pull. And we're really happy about our position in the market, but we're not going to rest on our laurels.

Sure, go for it. So um,

So here's how we see it. This is the flip side of what Daniel just discussed. So the business has really never been in a better position.

Gustav Sderstrm: And that's sort of how we think about investing.

Gustav Sderstrm: to build even a better Spotify footage.

All signals are pointing in the right direction. I think, now 1 with got great subscriber growth which we discussed at length earlier. Um user engagement is growing and people are just spending more time on Spotify and 3. We're gaining market share around the world. Really all levers for growth are available for us to pull and we're really happy about our position in the market, but we're not going to rest on our Laurels. And that's sort of how we think about investing.

To build a even a better Spotify for the future.

Gustav Sderstrm: Okay, our next question is going to come from Eric Sheridan on video. How should investors think about the company's efforts to scale video content in the second half of 2025 and beyond? How critical is video to the company's broader efforts to drive advertising growth more in line with digital ad industry growth rates?

Okay, our next question is going to come from Eric Sheridan on video.

How should investors think about the company's efforts to scale? Video content in the second half of 2025 and beyond?

How critical is video to the company's broader efforts to drive advertising growth more in line with digital ad industry growth rates?

Gustav Sderstrm: This is Gustav. I'll start answering this.

Gustav Sderstrm: And I want to zoom out a second and say how you should really think about the video bet itself. What Spotify has always done is we just followed our users around is one way to think about it. They started listening to music. Then we actually saw them trying to listen to podcasts. We followed them there. Then we saw them trying to listen to audiobooks. And when I say try, I mean that people uploaded audiobooks as music even. And we saw them starting to watch these podcasts. So one way to think about it, we're following our users with what they want to do.

So this is Gustav. I I'll start answering this and I want to zoom out a second and say how you should really think about the video. Bet itself. Um, what Spotify has always done, is we've just followed our users around is 1 way to think about it. They started listening to music, then we actually saw them trying to listen to podcasts. We follow them there. Then we saw them trying to listen to audiobooks. And when I say try, I mean that people uploaded audiobooks as as music even

Gustav Sderstrm: They tell us what they want to do. We follow that and we scale it. And so video is a very exciting opportunity for us because, as we've said plenty of times now, our users are loving it. That doesn't mean that it's critical, it's just very exciting.

and then we saw them starting to watch these podcasts. So 1 way to think about it is we're following our users with what they want to do. They tell us what they want to do. We follow that and we scale it

And so video is a very exciting opportunity for us, because, as we've said, plenty of times, now, our users are loving it.

Gustav Sderstrm: Spotify is a very resilient company, we're doing really well. So I want to talk about video as an opportunity rather than a threat. We're very excited about the opportunity. If you ask me if it's critical or not, I would say not necessarily, but why wouldn't we go for it? We're very excited about it.

We're very excited about the opportunity. If you ask me, uh, if it's critical or not, I would say not necessarily, but why wouldn't we go for it? We're very excited about it.

Rich Greenfield: Okay, we've got time for a few more questions. Next one is going to come from Rich Greenfield on pricing.

Okay, we've got time for, uh, a few more questions.

Next 1 is going to come from Rich Greenfield on pricing.

Alex Norstrm: If Peacock, NBC's Peacock, can raise price by 38% with limited engagement, why can't Spotify raise pricing faster at a faster cadence in developed markets where you have robust daily engagement? So we have broached the framing that we use internally, I think many times during these calls, we talk about value to price and how we obsess over value to price ratio. So for us with, like I said earlier, always put subscribers on a pedestal. And again, that is what you see playing out in front of us now that you see the user growth surprising, even our internal measures.

if peacock NBC's peacock can raise price by 38% with limited engagement, why can't Spotify raise pricing faster at a faster Cadence in developed markets where you have robust daily engagement,

So, we have broached the, uh, the framing that we use internally. I think many times during these calls, we talk about value to price and how we obsess over the value-price ratio. So, for us, like I said earlier, we always put subscribers on a pedestal.

Daniel Ek: And again, like pricing is one tool and we will use it. And like I said earlier, we use it all the time. It's not binarily done once and then we wait for a long while and we don't do it. We take a portfolio approach and we look at the different markets. To your point here, you know, even developed markets are different from one to the other, depending on how much value we have there and what the engagement is. And again, we've raised price recently and we've seen very strong retention profile on those price raises. So we will use it again when we feel it's appropriate for this.

And again, that is uh, what you seeing playing out in front of us now that you see the user growth surprising. Even even our internal measures and again, like pricing, is 1 tool, and we will use it. And, like I said earlier, we use it all the time. Uh, it's not binary done once and then we wait for a long while and we don't do it. We take a portfolio approach and we look at the different markets, uh, to your point here. You know, even developed markets are different from 1 to the other, uh, depending on how much value we have there, and what they engage with is and um, again we've raised price recently and we've seen very strong churn um, retention profile on on those, on those price traces. So

Christian Luiga: Yeah, maybe Daniel, adding to Alex, I would also say that the biggest thing to realize as you're operating a subscriber service at scale is really managing for retention or lack of churn, I should say. So, again, I don't know about other sort of players and what their profiles look for, but what we're certainly noticing and certainly an advice for investors is it's a lot better to keep the customer around for a longer time than to lose the customer and then try to reacquire the customer back at a later point too. So, at scale, subscription business is really around retention, not new customer acquisition.

We will use it again when we fill it appropriately for the business.

Yeah, maybe this is Daniel adding to Alex. Um, I I would also say that the the biggest thing to realize as you're operating a subscriber um, service at scale is uh, really managing for retention or lack of sharing, I should say. So, um, again, I don't know about other, um, sort of players and what their profiles look for. But what we're uh certainly noticing and and certainly in the advice for investors is a lot better to um, you know, keep the customer around for a longer time than to, to lose the customer and then try to reacquire the customer back at a later Point too. So, uh, at scale the subscription business is really around retention. Not new customer acquisition.

Richard Kramer: Okay, we've got a question from Richard Kramer on the ads business. We've now seen a full year of single-digit growth in ad-supported sales, constant currency, while competition is reporting faster growth rates.

Daniel Ek: Is the advertising business really core to Spotify? Otherwise we wouldn't be in it.

Okay, we've got a question from Richard Kramer on the ads business. We've now seen a full year of single-digit growth in ad-supported sales in constant currency. While competition is reporting faster growth rates, is the advertising business really core to Spotify?

Daniel Ek: And like I said, 2025, and we've mentioned this before as well, is a year of transformation for the business. And, you know, the best proxy that I can see, whether it's going well or according to plan or not, really is like the adoption from advertisers. And we see all these tools that we've built have been adopted by advertisers. We see, you know, demand side platforms as we add them around the world that they're adding to the business. We see even on the direct sale side that we're now increasing with new formats like baked in advertising and helping, you know, creators on the video side with that is also performing really well.

Of course it is. Otherwise, we wouldn't be in it.

Um, and like I said, 2025 and we've mentioned this before as well, is it your transformation for the business and you know, the best proxy that I can see? Um, whether it's going well or according to plan or not really is like the adoption from advertisers. And we see all these tools that we've built have been adopted by, by advertisers. We see you, you know,

Daniel Ek: We just need to move faster. That is what's at stake.

The Mountainside platforms as we add them around the world that they're adding to the business. We see even on a direct sales side that uh, that we're now, you know, increasing with new formats like baked in advertising and helping you know, creators on the video side with that is also performing really well. So, um, um, we're we just need to move faster. That is, uh, what What's at stake here?

Deepak Madhavan: Okay, and our last question today is going to come from Deepak Madhavan on large language models. Can you talk about how Spotify is leveraging the advancements in LLMs with reasoning capabilities over the last six months into the core product experience? Beyond recommendations and curation, where do you see opportunities in the long term and what are the investments Spotify is making?

Okay, in our last question, today is going to come from, Deepak Medan.

On large language models. Can you talk about how Spotify is leveraging? The advancements in llms with reasoning capabilities over the last 6 months into the core product experience?

Gustav Sderstrm: This is Gustav. So I already talked quite a bit about this and specifically some of the examples that are not within recommendations or curations, which is the fact that you can now talk or even text to Spotify and how that gives us a completely new data set that we didn't have. And I talked a little bit about how I think that will change products.

Beyond recommendations and curation, where do you see opportunities in the long term, and what are the investments Spotify is making?

Thanks Deepak. This is Gustav.

Gustav Sderstrm: So maybe I'll talk a little bit more about what investments we're making. We are really retooling the entire company and the entire technology stack for a generative age. Concretely, this means that you wrap all the APIs in something called MCPs, Model Context Protocols, so that you can have an agentic infrastructure on top of all your old school tech infrastructure, so that you can basically create a product on the fly by just writing something in English. For example, when a user asks for the question I had about that song where Bruce Springsteen invited the fan, there is a little artificial software engineer that writes a program that actually goes out and searches the web for that information, figures out which music video is it, then goes in, searches through our catalog, and may even tailor it to your taste.

So, I already talked quite a bit about this and specifically, some of the examples that are not within recommendations or curations, which is the fact that you can now talk or even text to Spotify and how that gives us a completely new data set that we didn't have. And I talked a little bit about how I think that will change products. So, so maybe I'll talk a little bit more about what investments we're making. We are really retooling, the entire company and the entire technology stack for a generative age.

Concretely, this means that you wrap all the APIs and something called MCP's model context protocols.

So that you can have an agentic infrastructure on top of all your your old school Tech infrastructure. So that

You can basically create a product on the Fly by just writing something in English. For example, uh, when a user asks

Gustav Sderstrm: So this reasoning that I talked about is the opportunity.

For the question, I had about that song where Bruce Springsteen invited the fan, there is a little, uh, artificial software engineer that writes a program that actually goes out and searches the web for that information, figures out which music video it is, then goes in and searches through your catalog, searches through our catalog, and may even tailor it to your tastes.

Gustav Sderstrm: One last thing that I want to leave you with is that I talked about the difference between the non-generative AI age and the generative AI age, and I talked about how these products are now self-improving. I just want to emphasize that in the old world of recommendations, the deep learning-based world, it's making the models bigger and having more users and more usage actually did not improve those models. They had peaked out in terms of performance. So when you hear AI people talk about the scaling loss, what they mean is that LLMs, unlike the previous deep learning systems, they get better so far infinitely as you add more data and more usage.

This is this reasoning that I talked about is the opportunity 1. Last thing that I want to leave you with, is that I talked about the difference between the, the non-generic

Making the models bigger and having more users and more usage. Actually did not improve those models. They had peaked out in terms of performance.

So when you hear AI people talk about the scaling laws,

Gustav Sderstrm: So this creates an interesting dynamic where the application that has the most engagement gets better the fastest. And we think we're very well positioned because we have the most engagement. So that's maybe the most strategic impact of this technology.

What they mean is that llms? Unlike the previous deep Learning Systems, they get better, so far infinitely as you add more data and more usage. So this creates an interesting Dynamic where the application that has the most engagement, gets better. The fastest and we think we're very well positioned because we have the most engagement

So that's maybe the most strategic impact of this technology to us.

Daniel Ek: Alright, great. Thanks, everyone, for the questions.

Daniel Ek: That concludes our Q&A section of the call. I'd like to turn it back over to Daniel for some closing remarks. Yeah, thanks, Brian. It's really been a great first half of 25. And we're focused on delivering a strong finish. The business is healthy and well prepared. And I generally believe we're in the best position we've ever been to capture the opportunities ahead. So thank you everyone for joining us today.

All right, great. Thanks everyone for the questions that concludes our Q&A section of the call. I'd like to turn it back over to Daniel for some closing remarks.

Daniel Ek: Look forward to chatting to you soon again.

Yeah, thanks, Brian. It's really been a great first half of 2025, and we're focused on delivering a strong finish. The business is healthy and well prepared, and I genuinely believe we're in the best position we've ever been to capture the opportunities ahead. So thank you, everyone, for joining us today, and I look forward to chatting with you again soon.

Operator: Okay and that concludes today's call. A replay will be available on our website and also on the Spotify app under Spotify Earnings Call Replays. Thanks everyone for joining.

Okay, and that concludes today's call. A replay will be available on our website and also on the Spotify app under "Spotify Earnings Call Replays." Thanks, everyone, for joining.

Operator: This concludes Spotify's second quarter 2025 earnings call and webcast. Thank you for your participation.

Operator: You may now disconnect.

This concludes spotify's check-in quarter 2025 earnings call and webcast. Thank you for your participation you may now disconnect

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