Spotify Technology S.A.

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

Thanks, Operator, and welcome to Spotify's first quarter 2025 earnings conference call. Joining us today will be Daniel Eck, our CEO, Alex Nordstrom, our co-president and chief business officer, Gustav Soderstrom, 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 SpotifyEarningsQ125. 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 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. And with that, I'm going to turn the floor over to Daniel.

All right. Thanks, Brian. And hi, everyone. I'm really pleased to report that this was another solid quarter, largely in line with our expectation with one clear standout, the outperformance in our subscriber growth. It was a fairly straightforward quarter, so I'll let Alex and Christian take you through the numbers and share their insights. So instead of going over what's already working, I want to use this time to talk about two things that are more top of mind for me right now. The first thing I want to acknowledge is the broader macro environment. There's a lot of uncertainty in the world, and when volatility rises, it's natural to ask who might be affected and how. And from where I sit, Spotify is faring better than most. But of course, if something truly extreme happens, we may be impacted too. That said, I don't believe anything we're seeing today changes the long-term picture for Spotify. The business is solid, our model holds up, and the direction we're heading in remains clear. People still want to listen to music. They want to learn, they want to be entertained, and they want to be inspired. That fundamental demand hasn't changed since we started Spotify, and the engagement we're seeing now suggests we've become even more central to people's lives. That only happens when you consistently solve real problems and meet more of their needs. The underlying data at the moment is very healthy. Engagement remains high, retention is strong, and thanks to our freemium model, people have the flexibility to stay with us even when things feel more uncertain. So yes, the short term may bring some noise, but we remain confident in the long-term story and the direction we're heading in feels clearer than ever. April 1st marked my 19th year working here. And that kind of milestone naturally leads to reflection. And one thing that stands out is that while the emphasis on what we prioritize may shift, the core strategy has stayed remarkably consistent. Our focus has always been on delivering the best possible experience to users and creators and solving the real problems they face. For me, it's never been either or when it comes to the short term or the long term. The way I see it, the long term is built one day at a time. We focus on the inputs we can control, solving real problems, improving the experience, and moving with speed. And we trust that if we keep doing that, the outcomes will follow. My co-founder, Martin, has this line that I keep coming back to. The value of a company is the sum of all problems solved. And that's how we think about our job. Just keep solving meaningful problems every day, and the long term takes care of itself. And that's also why we came into this year with a clear commitment to accelerate our pace of innovation. We're calling 2025 the year of accelerated execution. And so far, we're delivering on that promise. We support now more than 2000 partner devices. And as you can imagine, this comes with complexity. We've now decreased the time spent rolling out across all of our Ubiquiti apps by 10x. And timing for scaling new features on Ubiquiti devices has shrunk 6x. So what used to take us years to deliver is now taking months. From behind the scenes upgrades to visible new offerings, these are already creating the significant impact. One great example is the Spotify Partner Program, our new monetization system for video podcasters, which launched in January and complements our growing podcasting ads business. In record time, we've expanded it to nine new markets, and we're seeing strong traction with users spending 44% more time with video content overall. And as we work to scale quickly, the program has enabled us to pay out over $100 million to podcast creators in Q1 alone. We also continue to expand audiobooks in premium, rolling it out to more regions and introducing innovations that are driving higher user and author engagement. And what's particularly exciting is that I think it's only the beginning. Internal tooling and AI system we've been building over the past few years, combined with new ways of working across teams, are now enabling us to execute faster and smarter. And the compounding effect of that shift is something I believe will become even more visible in the quarters ahead. And with that, I'll hand it over to Alex.

Daniel, I will dig a little deeper on MEU and subs, and I'll also touch on our ad strategy. This was our highest Q1 subs net ad since 2020, and our second highest Q1 ever. And a huge part of this boost came from emerging markets. These markets drove two-thirds of the subs outperformance, with the places like Latin America and Asia Pacific coming in especially strong. But it's not just the emerging markets that are doing well. Developed markets are also seeing solid growth. We are growing organically, and our data also shows that we are taking market share in these regions. So looking at the global picture, we really can ask for a better position. We've been doing a few key things to drive this sub's growth forward. First, it's our product itself. It's industry-leading, and it just keeps getting better with all the new features and enhancements we're constantly adding. The second is our best-in-class value-to-price ratio. We continue to drive strong conversion from our promotional campaigns, which, as you know, are designed to move users through our funnel. Our promotions can be highly localized and targeted. They're geared at converting new and long-time free users that have seen the exceptional value that Spotify Premium really provides. The bottom line, we have a number of different tools available to us to continue to drive healthy subscriber growth, and you saw some of those at play in Q1. When we look at the full year of 2025, we are confident in our expectations, especially given the notable growth and engagement that we continue to see across our content offerings, with listeners spending more time with Spotify than on any other audio platform. Turning to our ads business, this is an area where we've been laying the foundation over the last several years. And importantly, 2025 will be a year where we are now able to build on this foundation, which really puts us in a strong position for more growth. But even in Q1 of this year, our ads business did better than expected, and we're starting to see early benefits from the automated features that we've been introducing. These tools give advertisers more flexibility to buy ads, to create them easily and cost-effectively, and also achieve measurable results. In Q1, we had over 10,000 advertisers leveraging these new tools, representing a 21% year-over-year increase and marking the first Q1 to exceed Q4 in active advertisers. So while it's early, I feel confident about where this part of the business is headed. I will now turn it over to Christian to take you through the numbers.

Thanks, Alex, and thanks, everyone, for joining us. Let me dive into the quarter one results and then share some perspective on the outlook. Overall, we're pleased with how the business delivered in the quarter. MAU grew by 3 million to 678 million in total, and we added 5 million net subscribers, finishing at 268, up 12% year on year. Total revenue was 4.2 billion and grew 15% year-on-year on a constant currency basis. Our premium revenue rose 16% year-on-year on a constant currency basis, driven by continued subscriber growth and ARPA gains associated with price increases. Our advertising business delivered currency-neutral growth of 5% year-on-year. If we exclude the near-term impacts from strategic initiatives, like optimization of our licensed podcast and rollout of the Spotify Partner Program, we had a low double-digit advertising growth. While these efforts involved short-term adjustment to our advertising business, we are pleased with the early positive effects they have and how it improves our position long-term. Moving to profitability, gross margin came in at 31.6%, surpassing guidance by approximately 10 basis points and expanding about 400 basis points year on year. Favorability versus our plan was led by stronger than expected podcast ad sales and slight variances in content cost. Operating income of 509 million euro was aided by gross profit strength. Operating income was impacted by 76 million in social charges in the quarter, which were 58 million higher than our forecast. Excluding non-forecasted social charges, we came in 18 million above our guidance. As a reminder, we don't forecast share price movements in our outlook for the business since they are outside of control. Finally, free cash flow was $534 million in the quarter. Year-on-year performance here was driven by our growth in operating income, as well as improving our networking capital. We ended the quarter with $8 billion in cash and short-term investments. Looking ahead to guidance, in quarter two, we're forecasting 689 million MAU, an increase of 11 million from quarter one, and 273 million subscribers, an increase of 5 million over quarter one. We're also forecasting 4.3 billion in total revenue. While we're seeing underlying outperformance in revenue, our outlook incorporates an incremental headwind of approximately 100 million arising from currency movements over the last quarter. We also anticipate a gross margin of 31.5% and operating income of 539 million. Regarding full-year margins, we continue to expect improvement in 2025 at a more measured pace than last year's exceptional gains as we strategically invest to accelerate our long-term growth ambitions. As previously noted, we expect our sequential gross margin cadence to be more variable over the course of the year with expectations for a seasonally stronger Q4 finish. Naturally, the exact trajectory will depend on the timing of strategic initiatives and, to a lesser extent, broader advertising market dynamics. While our ads business has remained resilient, we are closely monitoring market conditions to proactively adapt and any changes in the macroeconomic environment. With respect to capital allocation, we remain focused on prioritizing internal growth opportunities that can drive attractive returns while managing our balance sheet to support our long-term strategy. At the end of quarter one, our March 2026 exchangeable notes became a current liability with a current carrying value of $1.7 billion relative to the $8 billion in cash and short-term investments we had on hand. While this upcoming maturity factors into our framework, we remain confident in our strong balance sheet position. And to the extent excess capacity rises, we will, of course, take our shareholders into consideration. In conclusion, we delivered a solid quarter, and we stand well positioned financially. With that, I hand things back to you, Brian.

All right. Thanks, Christian. Again, if you've got any questions, please go to slido.com, hashtag SpotifyEarningsQ125. We're going to be reading the questions in the order they appear in the queue with respect to how people vote up their preference for questions. And our first question today is going to come from Matt Thornton on the 2025 outlook. Do you still expect fourth quarter 2025 gross margin to be up year over year and the high point for 2025? And secondly, do you expect 2025 MAU net ads to be within the range of the past four years? And if so, does this require incremental marketing investment?

So, thank you, Matthew. I think I just went through it in my remarks that we do expect both the cadence to be more variable over the course of the year, but also that the quarter four will be a seasonally stronger quarter four than the rest of the year. And we do expect that the full year 2025 will be stronger than 2024 as a whole. And when it comes to the 2025 MAU ads, yes, we still believe that it will be in the range of the last four years. And that means a stronger second half, which is very typical to the Spotify journey where we have seasonality that not always is following the logic of the subs. The question is if this is going to require additional marketing. The answer is we don't see any reason to have higher marketing in relationship to sales this year than we had previous years. So we continue to drive this in the way we've done.

All right, next question from Michael Morris on superfans. Daniel, in February, you referenced your excitement for a superfan product that you had been using. Can you share more details about what makes you enthusiastic about the product and when it may be available on the market?

Alex here. I'll start and then Daniel can chime in. If you'll allow me, let me just pull back the lens for a second. So, yes, we do have a great position with regards to monetization. And as you know, this is because of our sort of intense focus on increasing our value to price ratio, our premium offering. And we will continue to do so with all the features and investments into music. You've heard us talk about video podcasts and across our verticals. And we will raise the price when it makes sense for the business, as we've said before. Now, with regards to higher tiers, we see great potential in them, as we've mentioned before. So creating higher tiers around new offerings is something we are working towards as it really opens up new opportunities to delight users. It matters. A new value to price ratio, if you will. And, of course, we need alignment and support from our industry partners to offer these kinds of new experiences to our users. And I think it's also worth noting that we will continue to look for new ways to invest in our premium offering, as we've done all along.

Yeah, maybe I could just sort of jump in and add to that too. You know, if you sort of look at the overall picture, Spotify is now a quite sizable business, but also a sizable platform. And typically what's interesting is that we've kind of gotten here pretty much with just the same freemium model that we launched and started working on now 19 years ago. And so what naturally happens as the market evolves is that you typically end up segmenting the markets. And that's always been a very good business strategy. And we're just in the early innings of doing that here. So I think you should expect for the near term and midterm growth when it comes to Spotify, just working on our existing subscriptions, the family plans, all of these things is plenty enough for us. It's going to be really great. But for the very, very long term, It is an upside opportunity for Spotify, but I think one where if I look at it from a music industry standpoint, this is a huge part for the music industry. But for the near term, the way to think about it for Spotify is we're not dependent on that for growth, but we want to make it happen. So this is really one where I would put, again, the emphasis is For the superfan, we do need the partners to come to the table and be part of this journey.

All right, our next question is going to come from Justin Patterson on AI. Companies like Shopify and Duolingo are now prioritizing being AI first to enable employees to work more efficiently while also limiting headcount growth. How are you thinking about AI as a means of enabling both product velocity and introducing more efficiencies throughout your organization?

Thank you, Justin. This is Gustav. Already back in 2018, we said internally that machine learning, as AI was called back then, was the product. What we're fundamentally trying to do as a company is to understand you as a user. That's really the chief reason that you stay around. So we've invested and we keep investing towards that. And AI is really the next step in evolution of that, where machine learning allowed personalization. AI also allows for real-time interactivity and reasoning on top of your data. Early examples of this are, for example, AI Playlist that recently rolled out to over 40 markets. And this is really the first time that we actually allow our users to talk to us and tell us what they want and how they feel about Spotify in plain English. That's very exciting for us on the product side. On the internal productivity side, there is the obvious usage of coding tools, which we are leveraging fully as a company. Right now, this is mostly useful when writing net new code, which is why you see such speedups in startups that mostly write net new code. But the tools are quickly getting much better at understanding large code bases and making them much more useful for the things that we do that are often about peer reviewing of code and large code bases and refactoring. But we're also seeing AI being used in the rest of the product development cycle, specifically in prototyping of new experiences that move much more quickly and with higher fidelity and then less dependence on key engineering resources. So I expect that this will help us accelerate product development. I expect that the next place we'll see impact of AI is probably in the planning process, which is an important part for our quite specific execution model. In general, I would say that as in previous technology shifts at Spotify, I haven't found the need to actually force our organization to adopt new tools or AI at all. On the opposite, our staff is usually very excited about all new technology and they're usually way ahead of the curve. So the real job for me and us as managers is to enable them to use AI. by signing the right tools, removing legal blockers around data usage, exposing the right data sets, etc., for these tools to actually be useful and safe, used for our employees, on top of proprietary company data. So that's where we invested the last few years, actually, and the adoption itself is not a challenge for us. I'm very excited about that.

Okay, our next question is going to come from Jessica Reef Ehrlich on podcaster payouts. The $100 million in payouts to podcasters is a milestone. Can you provide color on the economics of this business? What are the KPIs we should focus on to monitor this business, and how would you define success?

Maybe I'll start, and then Alex can chime in. So overall, on the economics of this side, this is all factored in to all the forecasts that we've been doing, and it's pretty much in line with what we expected. So I do want to make that clear. And that sort of should be dovetailed into Christian's comments around where we believe the business will be over the coming quarters, but also where we'll finish the year. So we feel really good about this part. Now, you asked about sort of the KPIs here. The real KPIs that certainly I'm focused on that I think is an important one, and this is important maybe too to contextualize, this isn't a pivot to video. But actually the way to think about this is that every time we're adding new formats to the service, it expands the time spent by our users. So there are more times during a day where we become more valuable to consumers. If you think about it and put it by historical analogies, so obviously we started as a music-first service. When we added podcasts, there was a lot of uh questions and concerns i think from everyone that a podcast would cannibalize music and so on but actually net net what ended up happening is we just saw more hours spent by these consumers which meant of course higher retention which then of course meant lower assurance so all of these things are net added and so as we then added um audiobooks we yet again saw a very similar trend, which is if you're listening to music, you're listening to podcasts, and you're listening to audiobooks, you're spending more time than ones who are just doing either one of these things or even music and podcasting. And so with video, although it's early days, I expect the same thing to be true again, which is people will just spend more time with Spotify. It is actually additive to the overall times when we are now relevant to a consumer's life. That's the primary success metric in KPI you should be looking at. Engagement in that segment and engagement totally on the Spotify service. And that's very much what we're looking at.

And the only thing I have to add is that the 100 million payout that you're referencing, audio and video podcast, includes both SPP payouts and advertising revenue that we turn to free. So while we hope to see SPP grow, to Daniel's point, it drives engagement.

This is all in line with our expectation of margin expansion for

All right, we've got another question from Jessica Reeferlick on advertising. Can you provide some commentary on your overall advertising business? Your shareholder letter mentions softness in advertising pricing, and on the other hand, you're seeing significant new demand from programmatic advertising with the addition of multiple DSPs.

Hey, Jessica, Alex here again. So first, if you'll let me, I want to point something out, and that's that there may be uncertainty in the world, but with regards to ads at Spotify, we're seeing strong internal tailwinds. There's lots of potential thanks to the unified ad stack that we've built. For some of you who attended the advertising event that we threw here in New York, you saw us talking about how advertisers now have new ways to create, buy, and measure. It's really about offering advertising clients more choice. They can now buy from us directly. They can buy via APIs. They can buy programmatically via DSPs, like you're mentioning here, and also, of course, self-serve. So really, we've gone from thousands to tens of thousands of advertisers on the platform. And this is the reason why we have momentum in revenue growth. But maybe the most important takeaway, I think, is that by now welcoming all sorts of demand, instead of limiting and capping to brand sales and sales teams, we now have a very strong foundation for future revenue growth in the ads business.

All right, our next question is going to come from Rich Greenfield on subscriber growth. You reported your second highest Q1 net ads in premium subs despite a continued reduction in marketing spend year over year. Help us understand how you're adding more subs that meaningfully exceeded your expectations while spending less to acquire those subs. What's driving that dynamic?

I'll start by saying this, Rich. With regards to our overall subs growth, the encouraging thing is that even in uncertain times, the underlying performance is really strong. Right now, the underlying data at the moment is super healthy. Engagement remains high with strong retention, and the premium model really provides flexibility. And as far as the dynamic you're talking to, it really goes back to how we sort of intensely focus on the value-to-price ratio. So what we've found is a truism is that whenever you add more value to our subscribers and whenever this value-to-price ratio goes up, what we're seeing is that there's incrementality in growth. And this is all of the time a better way to spend a dollar than to spend an incremental dollar in marketing. So it's a much more efficient investment. But I also want to say that what you're seeing right now is really the result of us developing a very strong product market fit in developed markets. The market continues to grow, and we're taking a larger share of the market. And this is happening in parallel with price increases.

really hard to ask for better i i just should add also on the marketing side i think um you know there's sort of two tailwinds um i think the team has really gotten a lot better on uh organic uh media and and uh just being really smart around how we leverage that um you know the fc barcelona partnership is a great example where although we're sponsoring the club itself, much of the media itself around it is social media and discussions because of dynamics we're doing, such as the music partnerships, et cetera. So I'm really happy to see that. And then when you layer on top of that, of course, like many others, we're using more and more AI tools that increases targeting and efficiency. So I think that's a more general trend than Spotify specific trend though, but that should definitely help drive this.

All right, our next question is from Justin Patterson on the Spotify Partner Program. The Spotify Partner Program strikes us as counter-cyclical for creators since it provides more revenue certainty than ad-based models. As we head into a choppier macro environment where ad models could be pressured, how are you thinking about investment levels to attract more creators?

Sorry, Justin. It's a good question.

It comes back to how we're really thinking about our catalog and what that does for our users. We believe in catalog maximization, so the more catalog we add, the more ways to interact with that catalog, it just drives more engagement. And the way to do that when it comes to audio and video podcasting, really to create something that's good for our creators. As long as we can make them want to add more content, it will be a good thing when it comes to engagement.

And that's how we're going to dial our investment level.

All right. Our next question is going to come from Matt Thornton on video. Daniel, as we think about video content that could be accretive to engagement, retention, monetization, and gross margin, is there any reason why a free ad-supported streaming TV offering wouldn't work on Spotify?

I'll start, and maybe Gustav can chime in. But I think structurally, there's obviously no reason why it wouldn't work. But maybe to contextualize and describe our video strategy, the most important reason why we have added video is because creators are asking us for it. So while I'm sure at some point there will be an opportunity for us to add entirely new creators onto the platform, the real goal that we've been going after is what we realized is so many of our existing creators wanted to express themselves in different ways. And you've seen us over the past few years now add that with everything from music creators now being able to have full-length music videos onto the platform and with the start of Rogan, but then subsequently several others wanted to upload more videos to the platform too. And that's really where this started. And I would generally observe and say, the best things at Spotify has started like that, where people are literally telling us, why aren't you doing this? And this is kind of how this began. But obviously with the success of that, we can go from there. I don't know, Gustav, if you had anything else to add.

I think you covered most of it. We're very happy with the TV experiences that we have and the engagement that we see. And we've updated and improved our TV experience significantly during this year. In many markets, you also have not just podcast video, but also music video, which is performing really well. So this is very interesting for us.

All right, our next question comes from Michael Morris on financials. Do your first quarter results fully reflect any financial impact from your recent rights renewal with Universal and Warner Music? Did your new direct publishing relationships impact your costs and did you one reflect a full quarter of impact?

Thank you, Michael. Of course, we have audited IFRS statements that we submit to the market, and we follow all the regulations at hand. And, of course, yes, everything that we have signed and contracted is reflected on our financial numbers in the way we have agreed with and in the way we have entered the contract. So the answer is yes to that.

All right, another question from Justin Patterson on audiobooks. Audiobooks industry stats suggest Spotify's bundling initiative is helping expand the market. As you look toward driving more growth in 2025 and beyond, what do you view as the next major product updates to make audiobooks more habitual, and how important is non-English content for international growth?

I can take that, Gustav here, Justin. So I think if you look at it big picture, there is tremendous opportunity for just sort of old school product development within audiobooks. It's a category that has been stagnant from user experience for a long time. And we consider ourselves a good product company. So that is definitely one of our strategies, just improving the experience. That can be done in several ways. As you mentioned, the ability to quickly understand and get back into a book is something that we think we can improve through better personalization. We think discovery of books can be drastically improved as well using AI and personalization. And when it comes to non-English content, you've seen that we've announced that we're working with 11 Labs, which we think is a great opportunity for authors to get their books from text-to-audio in the first place, but also potentially from one language to another. So we think there's plenty of opportunity in the combination of product development and AI here.

The next question is going to come from Rich Greenfield on pricing. Daniel, in the Q1 recap video you released this morning, you mentioned Spotify is 19 years old. When we think about the pricing, the cost of Spotify has only risen $2 from $10 to $12 since you launched. How big of an opportunity is pricing over the next several years?

Maybe just to contextualize this, and Alex is clearly the expert here, but I'll start. I think it's really important to understand that there's various levers you can pull at various stages. The first inning of Spotify, and I've talked about this in prior earnings, having more legs to the stool, It's really all only growth, growth, growth. And in fact, at the very first inning, we didn't even bother all that much about conversion because the key goal was just getting people in the door, which is why we focused really on just a very strong free experience and a very basic sort of subscription experience. Then over time we kind of added one more level to the stool where we got a lot better at converting people from free to paid. We did so by adding things like the family plan and student plans and so on. But the story I'm really here trying to paint is that in the very early innings the primary way to grow is probably to keep that value at an insanely good deal. And that's really where we started with Spotify. It was just an insanely good deal. It was just too good to be true. And that's what led to much of the early growth. And in that stage, when you're still growing super fast, raising prices is not a smart strategy. As growth then sort of modulates, as you get larger and larger into the market, then pricing becomes another part of the stool, leg to the stool, another lever to pull. And so that's the way to think about that. And that's what we started showing and flexing beforehand. And we're just in the early innings. And I talked about it in the last answer. I still believe there will be more segmentation. It's just one example in the future. But yeah, I think the opportunity is big. I don't know, Alex, if you've got more things to add.

I think, Rich, Spotify continues to be one of the absolute best values in entertainment. And when we look at churn, this continues to be quite modest, even as we raise prices in different markets. And as we've said many times before, price increases are now part of our toolbox. And we take steps to balance the value to price ratio over time by adding value. And then we adjust the price when it makes sense for the market. Just to give you sort of a little bit of insight into how we deal with this, and it's to Daniel's point, we certainly focus more on value than on price. And the reason for that internally for us is that we know that long term, the customer should always win or the subscriber should always win here.

And so the more we sort of focus on value, the more we'll be able to.

All right, next question from Jessica Reef Ehrlich on capital allocation. Your cash position has grown to 8 billion euro. What are your capital allocation priorities, including returns to shareholders?

Thank you, Jessica. I think I did a little bit in my remark on this, but I'll come back. Just to remind us a little bit that we just last year made our first year of profitability. So when we look at Spotify, We do have a strong balance sheet, but we're also just coming out and becoming profitable and also having a sustainable cash flow. So this is really in an early stage for us in that journey. That said also, in the environment we are today and in the future, we want to continue to support and have the flexibility to deliver on our strategy. And that means that we want to, at all time, be able to focus on our growth opportunities, and we want to have a strong balance sheet to be able to do that. And that's really our first priority at this stage. And then we will, as time goes here, to the extent the excess capacity rises, we will, of course, take shareholders into consideration.

Next question from Benjamin Black on revenue growth. At your investor day, you spoke about an annual constant currency revenue growth target of 20% year on year. It seems like that may be challenging this year. Do you still think it's achievable? And if so, what gives you the confidence to reaccelerate growth?

Yeah, look, as much as I know everyone likes to make this journey linear, it's unfortunately not. And as you've heard from many of the answers by myself or Christian or Alex and Gustav, What we're relentlessly focused on first and foremost is increasing that value to consumers. And while doing so, and when we feel confident that we have increased that value, growth both in absolute number of users and in price comes. Now, I wish I could say to you guys that this is sort of entirely linear, this path, and we could plot it out on a month-by-month basis, and every quarter we had some predictable price increase. It's just not how it works. But what gives me then confidence going forward is... When you look at it, we've done it many times before. In fact, I think it was a year ago or a year and a half ago, I got some similar conversations where people thought we were slowing down and we started showing that there was another leg to the stool, which was price increases and then our revenue growth then increased. as a consequence. And what was interesting back then, the revenue growth was just not entirely a function of price increases, but it was actually a function of price increases and much higher subscriber growth than people expected in the past as well. So I wish I could say to you guys that this is a linear journey. It's not, but... What I will say ultimately for us is we are focusing on speeding up our execution because if we are executing faster, we will solve problems faster. If we're solving problems faster, we will add more value. And if we're adding more value faster, then we'll have more opportunities to either take that in the concept of having a lower price but higher effective growth in certain markets or take it in terms of a price increase that then gives us growth that way. I still very much believe that this business is a lot bigger than most people give it credit for being. In fact, because it's 19 years, I do want to reflect back a little bit on history. I'm feeling in a little bit of a reflective mood today. I remember back in the day when we hit a million subscribers and we had an internal strategy days where I said the goal was to get to 100 million subscribers. And I communicated that around the same time to the music industry. And I think most of them thought I was completely nuts. And for them, I think it was even crazy to imagine that the whole industry, let alone one player, would have 100 million. And obviously, we're way past that now. And if you ask me, what is the North Star goal here on how many number of paying customers we could get? I don't know, but I don't see it impossible to get to a billion subscribers. And where does that plot us on a year-over-year growth rates? I don't really know. I'm not entirely focused on it, but it's a much, much larger business than the one we're currently operating.

Insane to say 100 million. I definitely believed in it.

You were one of few believers. I guess that's why you're still here. Thank you. Thank you.

All right, our next question is going to be from Benjamin Black. The topic is noise. Daniel, you spoke about near-term noise. Can you elaborate on that a little? What should investors be braced for financially? How long will the noise last? And how should this noise manifest itself in terms of new product launches or improved consumer value?

Yeah, maybe I should contextualize this too. When I talked about noise, I wasn't necessarily referring to Spotify. I was referring to the broader markets. So just for context, everyone, I don't see anything in our business right now that gives me any sort of pause or concern. Obviously, I can't know everything that's going on in a macro environment and what in the future may happen. But from where we sit right now, we don't see anything. And I'd be very surprised if long-term, we see any sort of major implications there. So long-term, the journey seems really good. We aren't seeing any short-term noise. That was more of my commentary around sort of macro environment that we're all facing at the moment, but nothing specific to Spotify.

Okay, our next question comes from Deepak Paravanan on video. Can you give us an update on video podcasts on the consumption side? Where does penetration currently stand as a share of total consumption? Based on trends, does your view on unit economics of podcasts, have they changed in any capacity?

Yeah, Gustav, do you want to maybe start with this one and chime in on the economics?

Sure. What we've seen is tremendous growth in our video upload metrics. And also in consumption, as Daniel shared before, we've seen a 44% year-over-year growth in time spent with video content. That's driven mostly by video podcasts, obviously, and specifically Gen Z are leading this growth, spending 81% more time with video on Spotify year-over-year, which is very important to us. We've also seen active monthly video podcasts, so video episodes published within the last 30 days have increased by 28% since SPP launched. So we're very happy with the growth we're seeing, and we expect it to continue.

Alex, do you have anything to say about the unit economics?

Not more than before. The investment level is up and down. by looking at really how well we do for creators and content.

Our next question is from Doug Emmeth on monthly active users. What is curbing the first half 25 growth in MAU, and how confident are you that product changes and marketing adjustments will drive more of a rebound in the second half of the year?

Douglas, let me give you the backdrop to this. The best way to predict MAU is to look at the trend for engagement. This trend is strong, and the leading indicator of engagement in turn is product improvement, as in features and content experiences, which is ultimately the way we've managed our business in the past two decades. And the engagement we're seeing right now suggests that becoming even more central to people's lives, to Daniel's point in the remarks. And really that happens only when you consistently develop solutions that meet more of our users' needs. We see this because people increase the number of days they spend in a month with us, they increase their time they're spending with us. And you can see this as a result of us investing in launching features like Jam, the new offline mode that we have, and are continuously updating the car experience. It's driving a lot of increased engagement time. And then also, obviously, the expansion on video podcast content and audiobooks as well. So all of this is growing time on platform. And so we, I mean, I think it's early, but we anticipate the 2025 MEU net ads to be in range of what we delivered over the last four years, like we mentioned before, and sort of expect the majority of the growth to come in the back half of the year. And this is, again, like driven by the continued focus on accelerated execution.

maybe just one added thing so if you look at sort of the softness in q1 part of that is driven by the outperformance in q4 because of wrapped so if you look at wrapped wrapped in itself is probably one of the big drivers why we're so confident that that trend of season outlet will end up happening again on the back half of the year So, you know, Wrapped is a huge, huge cultural thing, not just at Spotify, but it's become a global thing on the internet where people talk about it. So it is distorting the numbers and that sort of leads to that both softness, certainly in Q1, but also general outperformance that's been in now many, many years in Q4. So I just wanted to add that I think that's a quite reliable metric to go by, and that's been a very strong growth driver for the company.

All right, our next question comes from Eric Sheridan on the industry and our overall strategy. Can you discuss the current state of your relationship with the broader industry, meaning the content providers, and how should investors think about the prospect of more regular pricing actions, product tiering, and gross margin impacts in the years ahead?

I have an easy answer to that. And it's that we are now in a situation where the relationship between us and our industry partners is better than ever. Better than ever it's been in our history. And that really means that we're really aligned on the incentives here. We're all of us trying to grow the music industry. And as such, we're really sort of in constant conversation with each other to think about all these things that you're talking about here and asking about. And so I foresee this to continue to be the case, and there's going to be even more improvements in the years ahead.

All right, we've got time for a couple more questions. The next one's going to come from Stephen Cahal. It looks like ad-supported users declined quarter on quarter in the first quarter. Was this due to churn from wrapped conversion to premium subs or spot no longer chasing lower value monthly active users? Can you help us think through the trend?

Well, thank you very much. I wish we could give you a more detailed answer of how the trend looks like, but the MAU ads in our business and industry has been a little bit more volatile and seasonal than maybe we would like to. So we can see that we have very strong quarter fours and second half and weaker first half. And if we remember what we said also leaving last year, we said that we had a very, very strong, as you indicate here in your question, we had a very strong quarter with Wrapped and also some competitors in certain markets that left. That drove a strong growth that also led to a churn that we expected into quarter one. So that is the reason why we do deliver on our MEU number in quarter one, but it is lower than maybe some of you have expected from the beginning.

To add to that, there's really the two first ones you talked about, Steven, that are the drivers. The outperformance on Wrapped, when you have such a big effect, where we do see Sharn is obviously in that sort of first month or two, and then it sort of asymptotes out and becomes much more stable. That's one part of the answer. The conversion rate that we saw, especially in emerging markets, is a positive one overall because it means more subscribers, but it does impact the ad-supported tier. Typically, conversion rates in emerging markets is lower than in our developed markets. So when we do better on conversion there, you probably see it more impacted in MEU.

And that is the... Also, the reason why, even we delivered the quarter-and-quarter and year-on-year growth in all regions, the majority of the 3 million and above in subscribers was actually from emerging markets.

Our next question comes from Maria Rips on subscription plans. Would it make sense for Spotify to introduce a lower price subscription plan that offers more functionality than the current ad supported tier but still includes some level of advertising? What are some of the puts and takes there?

That's a great question, Maria. I wish it was that easy that we could sort of look at other industries and how they've introduced lower price subscription plans and including ads in there, but it's more complicated than that. The industries are sort of different, and I'm alluding to obviously SVOD versus what we have, which is primarily music. When we look at this internally with the teams, we have what we call a value map that combines the dimensions of willingness to pay and then how much reach you can get for different features and different product SKUs and how we package these things. And so when you look at the more basic functionality that's already out there in premium, this is what people expect today. So introducing something at a lower price and sort of a lesser skew doesn't really drive much incrementality to our overall model. But never say never. There may be a time when this makes sense. And also, you need to sort of take into account that now that we're superscaled, there's a geographical sort of dimension to this as well.

All right, and our last question today is going to come from Eric Sheridan on the growth strategy. How are you thinking about striking a balance between forward growth investments in the business when measured against continuing to deliver increased operating margins and higher rates of conversion of operating profit from gross profit dollars?

Maybe I'll start here, and then if Christian or anyone else wants to add, then please do that. To go back to the answer I said before, fundamentally, we believe this business to be much bigger than most other people believe it to be, and we still believe that there's plenty of growth left to be. So, that is sort of number one and two and three on our agenda is to prioritize growth initiatives. Now, with that said, as you guys know, one of our focuses was also not just having a great product but also having a great business. So we added to that also to prioritize showing that we have a great business, which is something that we have been delivering on for quite some time. And so as the balance goes forward, it's really kind of a measurement between these two things. I'll give you one example of a metric that we use quite a lot internally. One of the obsessions we have internally is we look at lifetime values. It's one of the big things that's driving not just the subscription business that we're doing, but even how we're thinking about product features and optimizing around product features as well. So the natural way to think about this and to kind of dumb it down into one metric that could be helpful is the SAC to LTV. How much does it cost us to grow and how much lifetime value does that customer give? And so you would naturally, any investor would naturally think that if you have a great delta between the SAC to LTV, meaning your SAC is much lower than your LTV, you should just invest. And you shouldn't too much focus on what the gross profit for that quarter will say. And I want to be very clear with that. When we see super healthy SAC to LTV numbers, we will aggressively invest. That's what I also talked about when I said that the business isn't linear. If we see great opportunities, we will certainly go for great opportunities. But what's really changed for us over the past few years is that we operate now way more than before, unless it's hell yes, it's no. And so the bar that we keep for thinking about new initiatives is much higher than before. So how will this play out? I think in the short term, the way it's going to play out is kind of more of what you're already seeing. We're focused on the top line, but we're also focused on the bottom line. Where we sit right now, I think we have great ways to improve both in the short term. But I am trying to signal to all of you as well that there may be times in the future where we see such an amazing way where, for instance, the SAC to LTV diverges And I do want us to have the flexibility then to really go after it because we think that over time that will drive a much better business. And as I think about the investments we've been doing, they were really painful, honestly, a few years back. And I know a lot of you guys were questioning whether it was the right strategies. But I can tell you we wouldn't be where we are right now if we didn't make those investments back then. And what I mean by that is the growth rate that you saw last year, the gross margin improvements, all of these things are the sum of all the problems we solved, to go back to my co-founder's comments. And we're obsessively going to do that. And if we can time trade, making something that's right for the long term by sacrificing a little bit on the short term, we will do that. We will try to the best of our ability to communicate to you guys when we do it and why we think this investment makes sense. But we are focused on the long term because we believe that this business has plenty of legs left and plenty of growth left. and that this is something that a lot of people in the world cares about, and we believe we're just early on in that journey. So that's how we should think about how we think about the business and going forward.

All right. Thanks, Daniel. That's going to conclude our Q&A session. Thanks, everybody, for submitting the questions. And now I'd like to turn the floor back over to Daniel for some closing remarks.

Yeah, thanks, Brian. Well, I think I pretty much did much of my closing remarks. We feel really good about the business. We're in the growth. We're having long term. Our fundamentals are strong. I think our mission is resonating. Consumers love the product. And we're really focused on building for the long term. So with that, I just wanted to say again, thank you, everyone, for joining. Look forward to catching up soon again.

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.

This concludes Spotify's first quarter 2025 earnings call and webcast. Thank you for your participation. You may now disconnect.