Spotify Technology S.A.

Good afternoon, and thank you for standing by. At this time, I would like to welcome everyone to Spotify's fourth quarter 2021 earnings call and webcast. I would now like to turn the call over to Brian Goldberg, head of investor relations. You may begin your conference.

Great, thanks, and welcome to Spotify's fourth quarter 2021 earnings conference call, and I apologize for the slight delay. We were having a technical issue. Joining us today will be Daniel Ek, our CEO, and Paul Vogel, our CFO. We'll start with opening comments from Daniel and Paul, 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 SpotifyEarningsQ421. 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 to 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.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 thanks for joining us. Obviously, it's been a few notable days here at Spotify. When we entered into the podcast space in 2019 with the intent to help modernize and grow the space for all types of creators, we assumed it would challenge and test our teams in new ways. And there's no doubt that the last several weeks have presented a number of learning opportunities. And I hope that you had a chance to read our response that addressed many of the questions we've received from creators and partners and employees and the medical and scientific communities. There's still work to be done, but I'm pleased that Spotify is already implementing several first-of-its-kind measures to help combat misinformation and provide greater transparency. We believe we have a critical role to play in supporting greater expression while balancing it with the safety of our users, and we will continue to partner with experts and invest heavily in our platform functionality, teams, and product capabilities to meet this evolving need head-on. Moving on to our results, 2021 was an eventful year for Spotify and the world in general. Throughout the pandemic, businesses have seen enormous disruption in consumer behavior, causing demand curves to shift. And Spotify, of course, has been no exception to this. In our case, these shifts mostly played to our advantage in 2020, but we did see some headwinds in the first half of 2021. And by the end of Q2, we saw a reversal back to positive momentum, and this trend continued throughout Q3 and Q4. Historically, Q4 has been our biggest quarter, and 2021 was no exception. In fact, Q4 was our largest quarter of MEU growth in Spotify's history. It's a significant MEU driver, and a significant MEU driver was our seventh annual Wrapped campaign, which was our most successful to date. With 120 million users, we saw unprecedented engagement up 29% year-over-year, with the highest levels coming from the Gen Z audience. And on launch day, rap was the number one worldwide trending topic on both Twitter and TikTok, proving that it's more of a cultural phenomenon than ever before. Ads? Well, it continued its remarkable growth trajectory, turning in 40% growth year over year. Advertising is showing more proof points of being the second key revenue driver for their overall business, climbing to a record 15% of our total revenues this quarter. And while the ad business is more prone to seasonal blips, I see this momentum continuing in 2020 and beyond. And as a result of this strong performance, we will continue to test different windowing strategies for our exclusive podcast partnerships to get the advantage of that broader audience reach. Q4 also saw strong performance across podcast metrics, and we've amassed highly engaged audience that is listening more than ever. And last quarter, we confirmed that Spotify had become the number one podcast platform U.S. listeners use the most, and we continue to see meaningful market share gains. So overall, I'm feeling very good about 2022. But let's move to the long term, which is where I try to focus my time. We're building a category-defining company, and this takes patience. And some may still describe us as the leading music subscription service, and while this surely reflects where we've been, it doesn't encompass all the advancement we've been making in audio. And further, I don't think it properly captures all the future initiatives that we're working on either. It is, as Jim Barksdale described it, constantly about bundling and unbundling on the Internet. So what are we focused on then? Well, the best way to describe it is a subset of the creator economy. People have been talking about the creator economy for some time, and it has taken on many different meanings. For us, the single largest trend to keep track of is the rapid professionalization of creators. And I see this as one of the biggest opportunities on the Internet. And for all the millions of artists and creators that have leveraged Spotify to date, I think we've only scratched the surface of the creative potential in audio. To become the preferred destination for audio creators, we will accelerate the move from a one-size-fits-all model to a much more dynamic and open platform. And we will give them greater flexibility and the power to be more entrepreneurial, which will, of course, unlock the extraordinary potential of their business and communities. We will provide greater reach. We will provide tools and access to diverse revenue streams that can be personalized to meet the needs of each creator. I believe this will all lead to the creation of millions of jobs for the creator economy. And while this is not limited to Spotify, we are building the platform that will enable the whole ecosystem to work together on a global scale. And we think that the Spotify ecosystem alone will encompass more than 50 million active creators, which is a significant increase from the 11 million total that we have today. So think of it as 50 million small and medium-sized businesses that we can support by giving them the infrastructure and resources to grow. And this evolution will take time, but I know some of you are wondering what this means in the near term. and the work there is already well underway. This opportunity started to crystallize for me around our acquisition of Anchor, and it's only grown from there with increasing momentum. It was clear to me from the feedback we heard that Anchor creators wanted more flexibility and more options to do business. And one recent example of this includes the Spotify Open Access platform. We brought it to market last year to enable creators with existing paid content businesses to activate their subscriber base on Spotify. And this means those creators, whether they're an independent podcaster, a major news outlet, an audiobook publisher, or creator platform, can retain full control over their subscription base while leveraging the reach of Spotify to grow their audience. And based on the early success, you should expect us to continue to invest in an ever-growing number of tools, resources, and services for a broad range of creators, not one by one, by many in parallel, moving faster and faster to bring them to market. While many will be competing to seize a piece of this opportunity, I believe that we're uniquely well positioned to adapt to this changing environment and deliver for the good of the entire audio creator ecosystem. So now before we go to Q&A, Paul, I believe you're also going to add a few thoughts. So over to you.