Spotify Technology S.A.

Welcome to the Spotify Q2 24 earnings call. All lines have been placed on mute to prevent any background noise. I would now like to turn the conference over to Brian Goldberg, head of investor relations. You may begin.

All right, thanks, operator, and welcome to Spotify's second 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 SpotifyEarningsQ224. 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 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 shareholder deck, and in filings with the Securities and Exchange Commission. During the 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 hello, everyone. I want to start by saying it was a very strong quarter across most of our key metrics. As you will recall, a few quarters ago, I said that while many believe that Spotify has a great product, we needed to prove that we could also be a great business. I think we're really starting to show this now. Thanks to the hard work of our teams, we beat on subs, we also expanded gross margin, and had our highest free cash flow quarter ever. This quarter also marks three consecutive quarters of profitability as we continue to execute on what you've heard be described as a year focused on monetization. So how have we done this? Well, we have expanded our subscription offerings to consumers who might be looking for different types of content. By introducing new subscription plans, we are successfully giving subscribers even more listening choices with options like the audiobooks, access and basic tiers that also builds on our already robust list of premium plans around the world, including individual, duo, student, family and mini passes. In addition to this expansion, we also implemented a price increase in several key markets, including in the US, which we're rolling out now with great success. In fact, we're seeing less churn in this round of increases than we did in our prior one, which was already very low by any measure. I attribute this to the tremendous value we've added to our service over the last several years. Our subscribers now get access to 250,000 audiobooks, more than 6 million podcasts, and of course, pretty much the world's entire music catalog in one experience. In the US today, access to all of this content would cost a user approximately $26, significantly more than a Spotify subscription. Spotify remains a pretty outstanding deal. But there's one exception to our overall outperformance this quarter, and that's in our MAU. So I do want to get into that. As a reminder, the easiest way to understand Spotify's business is through the lens of our free and paid development markets where growth today is driven by net subscriber additions and strategic pricing. On the other hand, the growth of our free ad supported segment is focused today on developing markets where we see potential to convert these users into subscribers, but on a much longer time horizon. So looking at where we are today, the changing market dynamics play a role in how we think about our user acquisition strategy. And while we talked about the importance of reinvesting in marketing to attract new users to Spotify, we're only going to spend money to attract listeners if it meets our ROI expectations. And while our developed markets see high ROI from our marketing spend, we already have strong penetration and broad awareness in these markets. So it's really about carefully targeting our acquisition resources here. In these markets, paid subscriptions aren't showing signs of slowing down, even from historically high levels. On the flip side, we have significant potential to attract a large number of new users in developing markets. However, these users can be a little bit more inconsistent. Engagement looks different in these markets, as do the channels to acquire them, and conversion to paid can be a bit slower. This makes it difficult to get the same level of ROI effectiveness from our marketing spend. So to tackle our MEU challenge, we're doing two things. First, we're intensifying our efforts to improve the impact of our marketing, and we believe there are a number of levers to pull over the upcoming quarters. Second, we are prioritizing enhancements in our free product pipeline that based on existing performance in certain markets should boost engagement and retention, especially in our developing markets. Further additional improvements will be integrated into our free experience in the coming months. While I am disappointed with our MAU miss, I see the reversal as more of a when rather than an if. The reason I feel so confident is that overall, we're seeing healthy MAU engagement trends year over year. So the users we are now acquiring, we're also retaining, which is a great leading indicator for value and future monetizations. I know the impact of MAU on our subscriber growth will be top of mind for some of you, so I want to discuss what I think this means in the short to mid-term. Historically, our conversion funnel was quite straightforward. A listener would come in as a free user and over time convert to our standard premium tier. This process has evolved given the bifurcation between developed and developing markets and the increased number of subscription offers we now offer. This means the relationship from free to paid is no longer a one-size-fits-all scenario, and we're less dependent on new free users to fuel our revenue growth in the short to midterm. Take, for example, our developed markets. With both the widespread awareness of our offerings driving directly to our paid tiers without any trial period. Additionally, the high engagement in these markets gives us tremendous confidence in our ability to raise prices, allowing for strong revenue growth even as those markets continue to mature. To close, I want to go back to how it opened. We set out a very ambitious goal to transform our business, and there are many ways to grow Spotify today. It's not a linear path dependent on any one metric. We have more options than ever. But to also be very clear, I have no doubt that we focus on monetization. I'll now turn it over to Ben to provide more detail, and then Brian will open it up for Q&A.