Spotify Technology S.A.

Thank you for standing by. My name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the Spotify first quarter 2024 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw your question, again, press star one. Thank you. I would now like to turn the conference over to Brian Goldberg, head of investor relations at Spotify. Brian, you may begin.

Thanks, Operator, and welcome to Spotify's first quarter 2024 earnings conference call. Joining us today will be Daniel Ek, our CEO, and Ben Kung, our interim CFO and VP of Financial Planning and Analysis. We'll start with opening comments from Daniel and Ben, 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 SpotifyEarningsQ124. Analysts can ask questions directly into Slido, and all participants can then vote on the questions they find the most relevant. Thank you very much. in our shareholder deck 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 shareholder deck, in the financial section of our Investor Relations website, and also furnished today on Form 6K. And with that, I'll turn it over to Daniel.

All right. Thanks, Brian. And hey, everyone. And thanks for joining us. I hope you've had the opportunity to review our shareholder deck. Overall, this was a solid quarter driven by strong revenue growth, expanding gross margin and the largest operating income we've ever posted. Our performance speaks to what I covered last quarter when I described our outlook for 2024, a year of solid progress with monetization and resourcefulness taking center stage. But let's discuss our MAU growth this quarter. We missed our target due to a bit of a slowdown at the start of the year. So I want to directly address the three main factors contributing to this outcome and how we're adjusting over the next few quarters. First, the MEU and subscription growth we achieved in 2023 not only surpassed our most ambitious forecast, but also set a record for the most significant user growth in Spotify's history. While we anticipate continuous robust growth going forward, 2023 was a truly standout year and should not be a based on expectation for every subsequent year. Another significant challenge was the impact of our December workforce reduction. Although there's no question that it was the right strategic decision, it did disrupt our day-to-day operations more than we anticipate. It took us some time to find our footing, but more than four months into this transition, I think we're back on track. I expect to continue improving on our execution throughout the year, getting us to an even better place than we've ever been. The third issue is related to marketing spend. In hindsight, we probably pulled back too significantly throughout 2023, and as such, we're already correcting this as we move into Q2. To be clear, we're not going to go back to what we were doing before. We still continue to expect improving profitability over the course of this year and into the next. Any new funds are being directed towards acquiring and reactivating high-value users who enhance our base with their deeper engagement and loyalty. We expect to see good improvements in the second half of this year and are confident in our ability to deliver top-of-the-funnel growth at consistently high levels, maintaining our proven track record. So how do we expect this to impact our business in the coming months? Well, at Spotify, we don't rely on a single growth strategy, but rather adjust our focus based on what the business demands. For instance, two years ago, we really concentrated on our user growth. Then last year, we restructured our costs, and now we're focusing on accelerating revenue while improving our bottom line. Next year, our focus may return to top out of the funnel user growth, but in the near term, monetization remains our top priority. Bottom line, we are really good at pivoting our attention when it makes sense. When I say pivot, I really mean making tweaks that will get us to an even better outcome. And because of our ability to do this, I have no doubt that we will be able to recapture top of the funnel growth over time as it becomes more of a focus area for the team. And before I turn it over to Ben to provide more detail into the numbers, I also want to mention our new CFO, Christian Luiga. I've worked with Christian directly and I can tell you firsthand that he's a terrific leader and excels at driving both operational efficiency and growth. He has an impressive track record and his expertise will be incredibly valuable as we continue on this path. I look forward to you getting to know him when he joins later this year. But I also want to extend a huge thank you to Ben for stepping into the role of interim CFO and helping to ensure a smooth transition.