Spotify Technology S.A.

Ladies and gentlemen, thank you for standing by and welcome to the Spotify Q2 2021 earnings conference call. At this time, all participants are in a listen only mode. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Brian Goldberg, head of investor relations. Thank you, sir. You may begin.

Thank you, and welcome to Spotify's second quarter 2021 earnings conference call. Joining us today will be Daniel Ek, our CEO, and Paul Vogel, our CFO. We'll start with opening comments from Daniel, and afterwards, Daniel and Paul will 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 SpotifyEarningsQ221. Analysts can ask questions directly into Slido, and all participants can then vote on the questions they find the most relevant. We ask that you try and limit yourself to one to two questions, and to the extent you've got follow-ups, we'll be happy to address them, time permitting. If for some reason you don't have access to Slido, you can email investorrelations at ir 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 letter to shareholders, and in filings with the Securities and Exchange Commission. 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 letter to shareholders, in the financial section of our investor relations website, and also furnished today on Form 6K. And with that, I'll turn it over to Daniel.

All right. Hi, everyone, and thank you so much for joining us. I will touch briefly on the quarter and then offer context for some of the opportunities I see across our business. All along, we've been pretty clear that our outlook for 2021 included a higher degree of variability, given the ongoing uncertainties of the pandemic and the uneven recovery worldwide. And with the exception of MEU, we've had another strong quarter, which is apparent in the solid outperformance of all other metrics. And while I'm disappointed that our MAU growth was softer in the last half of Q1 and the first half of Q2, the good news is that we've seen the trend line reverse and all the leading indicators I'm seeing show that we're back on track. And there's a lot to learn for us on the MEU shortfall. Markets like India, Brazil, and parts of Southeast Asia lag behind our expectations. And we've also seen slightly slower adoption rate in some of our newly launched markets. All these regions have been hard hit by COVID. Ultimately, we lost about a quarter of growth between Q1 and Q2. And in hindsight, we likely underestimated the acceleration we saw in MEU growth in 2020. All that said, I feel really, really good about what we're seeing. Taking a bigger picture view and looking at the last two years averaged together, we're still on track to outpace our MEU growth in these two previous years. 2020 was a bit of an outlier. Companies rarely grow in a straight line, and nothing in our data changes our long-term outlook and the audio opportunity for Spotify. In fact, if there's one thing that has surprised me the most during COVID, it's been how effectively we've been able to dream up and accelerate the roll-up of new innovations in the midst of tremendous disruption, while also executing against our existing roadmap. And long-term, I believe speed of iteration will be a key competitive differentiator. So there's a lot of positives that we also bring with us from this. We've highlighted several of these innovations in our letter, but we've actually introduced more than 20 significant new features over the last few months. It's been on everything from collaborative listening worldwide to launching our new live audio experience, Spotify Greenroom. We also began rolling out paid podcast subscriptions and Spotify Open Access, both of which offer solutions for creators and publishers to earn revenue from their Spotify listeners. These product innovations unlock an entirely new class of content on Spotify. And I'm hearing from consumers and creators alike about their firsthand experiences with the changes they are seeing on the Spotify platform. And frankly, from where I sit, it's incredibly exciting to know that there are plenty of improvements we can deliver that will substantially enhance our offering and as a consequence, open new doors for Spotify as well. And all of this has been accomplished while our entire team has been remote, allowing more teams across the world to collaborate on each new release. And we've used our learnings to supercharge our velocity of shipping, and that impact is starting to show. Put in other words, the platform we're building is all about moving from 8 million to 50 million creators, and from 400 million to more than 1 billion users on our platform. For each improvement, we will turn more listeners into super fans, give voice to more types of creators, and offer users multiple ways to interact and engage with the talent they love. When we connect creators at every stage with fans around the world, our flywheel moves faster and faster, unlocking even more potential growth. We are still early in moving linear radio to on-demand audio, which just goes to show the growth opportunity still out there is significant. Then, of course, there's the growing strength and importance of our ad business. Admittedly, this is an area where I previously didn't spend much time, but it's becoming impossible to ignore. It's now safe to say it's becoming a second big revenue driver for Spotify. And I'm especially inspired by the early success of the Spotify audience network. While we are growing the overall ads business from a small base, the potential is significant and the trend line is clear. We saw strong growth of 110% year over year. Adjusting for FX, the growth is even more impressive, coming in at 126%. And looking at podcasts, podcast revenue was up over 627% year over year, or nearly 200% on an organic basis. And the continued outperformance is currently limited only by the availability of our inventory, which is something we're actively solving for. So it's clear to me that the days of our ad business accounting for less than 10% of our total revenue are behind us. And going forward, I expect ads to grow to be a substantial part of our revenue mix. So as you can see, there's a lot going on and there's a powerful pipeline of platform improvements that will benefit consumers, creators, and brand partners in Q3 and Q4. And now I'll turn it back to Brian and the questions.