Spotify(SPOT) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents Spotify Technology S.A.'s interim condensed consolidated financial statements and management's discussion and analysis for the three months ended March 31, 2025 Item 1. Financial Statements This section presents Spotify Technology S.A.'s interim condensed consolidated financial statements for the three months ended March 31, 2025 and 2024, including the statement of operations, comprehensive income, financial position, changes in equity, and cash flows, along with detailed notes explaining accounting policies, estimates, and specific financial line items Interim Condensed Consolidated Statement of Operations This statement details the company's revenues, costs, gross profit, operating income, and net income for the three months ended March 31, 2025 and 2024 | Metric | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Revenue | 4,190 | 3,636 | | Cost of revenue | 2,864 | 2,632 | | Gross profit | 1,326 | 1,004 | | Operating income | 509 | 168 | | Net income attributable to owners of the parent | 225 | 197 | | Basic EPS | 1.10 | 0.99 | | Diluted EPS | 1.07 | 0.97 | - Revenue increased by €554 million (15%) year-over-year, driven by growth in both Premium and Ad-Supported segments[7][128] - Operating income significantly increased from €168 million in Q1 2024 to €509 million in Q1 2025[7] Interim Condensed Consolidated Statement of Comprehensive Income This statement presents the net income and other comprehensive income components, leading to total comprehensive income for the reporting periods | Metric | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | | :------------------------------------------ | :------------------------------------------ | :------------------------------------------ | | Net income attributable to owners of the parent | 225 | 197 | | Other comprehensive income (net of tax) | 197 | 269 | | Total comprehensive income attributable to owners of the parent | 422 | 466 | - Total comprehensive income decreased from €466 million in Q1 2024 to €422 million in Q1 2025, primarily due to a decrease in other comprehensive income, despite an increase in net income[9] Interim Condensed Consolidated Statement of Financial Position This statement provides a snapshot of the company's assets, liabilities, and equity as of March 31, 2025, and December 31, 2024 | Metric | March 31, 2025 (€ millions) | December 31, 2024 (€ millions) | | :-------------------------------- | :-------------------------- | :----------------------------- | | Total assets | 12,687 | 12,005 | | Equity attributable to owners of the parent | 6,247 | 5,525 | | Total liabilities | 6,440 | 6,480 | - Total assets increased by €682 million, and equity attributable to owners of the parent increased by €722 million from December 31, 2024, to March 31, 2025[11] - Non-current Exchangeable Notes of €1,539 million as of December 31, 2024, were reclassified to current liabilities (€1,654 million) as of March 31, 2025, due to their upcoming maturity[11][57] Interim Condensed Consolidated Statement of Changes in Equity This statement outlines the movements in the company's equity attributable to owners of the parent for the three months ended March 31, 2025 | Metric | Balance at Jan 1, 2025 (€ millions) | Balance at Mar 31, 2025 (€ millions) | | :-------------------------------- | :---------------------------------- | :----------------------------------- | | Equity attributable to owners of the parent | 5,525 | 6,247 | | Net income for the period | - | 225 | | Other comprehensive income | - | 197 | | Issuance of shares | - | 204 | | Share-based compensation | - | 42 | | Income tax impact associated with share-based compensation | - | 114 | - Equity attributable to owners of the parent increased by €722 million from €5,525 million at January 1, 2025, to €6,247 million at March 31, 2025, primarily driven by net income, other comprehensive income, and share issuances[12] Interim Condensed Consolidated Statement of Cash Flows This statement presents the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2025 and 2024 | Metric | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net cash flows from operating activities | 539 | 211 | | Net cash flows used in investing activities | (314) | (114) | | Net cash flows from financing activities | 126 | 202 | | Net increase in cash and cash equivalents | 351 | 299 | | Cash and cash equivalents at March 31 | 5,019 | 3,451 | - Net cash flows from operating activities significantly increased by €328 million to €539 million in Q1 2025 compared to Q1 2024[14][161] - Net cash flows used in investing activities increased by €200 million, primarily due to higher net cash outflows from purchases and sales of short-term investments[14][162] Notes to the Interim Condensed Consolidated Financial Statements These notes provide detailed explanations of the accounting policies, estimates, and specific line items presented in the interim condensed consolidated financial statements 1. Corporate Information This section provides an overview of Spotify Technology S.A.'s legal status and primary business activities - Spotify Technology S.A. is a public limited company incorporated in Luxembourg, with its principal activity being audio streaming through Premium and Ad-Supported services[15][16] 2. Basis of Preparation and Summary of Material Accounting Policies This section outlines the accounting standards and principles used in preparing the interim financial statements - The interim financial statements are prepared in accordance with IAS 34 Interim Financial Reporting and are unaudited[17] - New IFRS 18 (effective Jan 1, 2027) and amendments to IFRS 9 and IFRS 7 (effective Jan 1, 2026) are being evaluated for impact[19][20] 3. Critical Accounting Estimates and Judgments This section highlights the significant judgments and key sources of estimation uncertainty applied in the financial statements - Significant judgments and key sources of estimation uncertainty remain consistent with those applied in the 2024 annual consolidated financial statements[22] 4. Finance Income and Costs This section details the components of finance income and expenses for the three months ended March 31, 2025 and 2024 | Metric | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Finance income | 71 | 59 | | Finance costs | (252) | (53) | - Finance costs significantly increased to €252 million in Q1 2025 from €53 million in Q1 2024, primarily due to fair value movements on Exchangeable Notes (€180 million) and foreign exchange losses (€58 million)[24][145] 5. Income Tax This section provides an analysis of the company's income tax expense or benefit and effective tax rates for the reporting periods | Metric | 3 Months Ended March 31, 2025 | 3 Months Ended March 31, 2024 | | :-------------------------------- | :---------------------------- | :---------------------------- | | Effective tax rate | 31.3% | (13.0)% | | Income tax expense/(benefit) | €103 million | (€23 million) | - The effective tax rate for Q1 2025 was 31.3%, higher than the Luxembourg statutory rate, mainly due to non-deductible losses from convertible debt (€47 million tax expense), partially offset by deferred tax benefits[25][26] - The effective tax rate for Q1 2024 was (13.0)%, lower than the statutory rate, primarily due to a €70 million tax benefit from recognizing deferred tax assets related to the Tencent Music Entertainment Group investment[25][27] 6. Earnings Per Share This section presents the basic and diluted earnings per share calculations for the three months ended March 31, 2025 and 2024 | Metric | 3 Months Ended March 31, 2025 | 3 Months Ended March 31, 2024 | | :-------------------------------- | :---------------------------- | :---------------------------- | | Basic EPS | €1.10 | €0.99 | | Diluted EPS | €1.07 | €0.97 | | Weighted-average ordinary shares outstanding (Basic) | 204,467,927 | 198,025,456 | | Diluted weighted-average ordinary shares | 210,243,478 | 203,773,043 | - Basic and diluted EPS increased year-over-year, reflecting higher net income and a moderate increase in weighted-average shares outstanding[33] 7. Leases This section details the company's lease right-of-use assets, lease liabilities, and finance lease receivables | Metric | March 31, 2025 (€ millions) | December 31, 2024 (€ millions) | | :-------------------------------- | :-------------------------- | :----------------------------- | | Lease right-of-use assets (net) | 223 | 226 | | Total lease liabilities | 524 | 537 | | Finance lease receivables | 78 | 76 | - The Group recorded €2 million in impairment charges for right-of-use assets in Q1 2025 due to a strategic decision to reduce its real estate footprint and initiate subleases[35] - Total lease commitments as of March 31, 2025, were €656 million, with €106 million due within one year[38] 8. Property and Equipment This section outlines the net book value, additions, disposals, and depreciation of the company's property and equipment | Metric | March 31, 2025 (€ millions) | January 1, 2025 (€ millions) | | :-------------------------------- | :-------------------------- | :--------------------------- | | Property and equipment (net) | 178 | 188 | | Additions | 6 | - | | Disposals | (9) | - | | Depreciation charge | (9) | - | - Net property and equipment decreased by €10 million from January 1, 2025, to March 31, 2025, primarily due to disposals and depreciation[41] 9. Goodwill and Intangible Assets This section presents the carrying amounts of goodwill and other intangible assets, including changes during the period | Metric | March 31, 2025 (€ millions) | January 1, 2025 (€ millions) | | :-------------------------------- | :-------------------------- | :--------------------------- | | Goodwill | 1,156 | 1,201 | | Intangible assets (net) | 43 | 48 | | Total (net) | 1,199 | 1,249 | - Goodwill decreased by €45 million, and intangible assets decreased by €5 million from January 1, 2025, to March 31, 2025, mainly due to exchange differences and amortization[43] 10. Restricted Cash and Other Non-Current Assets This section provides the balances of restricted cash and other non-current assets as of the reporting dates | Metric | March 31, 2025 (€ millions) | December 31, 2024 (€ millions) | | :-------------------------------- | :-------------------------- | :----------------------------- | | Restricted cash | 49 | 52 | | Other non-current assets | 16 | 16 | | Total | 65 | 68 | 11. Trade and Other Receivables This section details the company's trade receivables and other current receivables | Metric | March 31, 2025 (€ millions) | December 31, 2024 (€ millions) | | :-------------------------------- | :-------------------------- | :----------------------------- | | Trade receivables - net | 531 | 540 | | Other receivables | 218 | 231 | | Total | 749 | 771 | 12. Other Current Assets This section presents the balances of content assets, prepaid expenses, and derivative assets | Metric | March 31, 2025 (€ millions) | December 31, 2024 (€ millions) | | :-------------------------------- | :-------------------------- | :----------------------------- | | Content assets | 39 | 47 | | Prepaid expenses and other | 82 | 71 | | Derivative assets | 25 | 14 | | Total | 146 | 132 | - Content asset amortization of €34 million was included in cost of revenue for Q1 2025, a decrease from €51 million in Q1 2024[46] 13. Equity and Other Reserves This section provides details on the company's issued shares, treasury shares, and various other equity reserves - As of March 31, 2025, the Company had 207,985,215 ordinary shares issued and fully paid, with 2,928,882 held as treasury shares[47] - No share repurchases occurred in Q1 2025 under the $1.0 billion program, which expires on April 21, 2026[48] | Other Reserves Category | March 31, 2025 (€ millions) | March 31, 2024 (€ millions) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Currency translation | 72 | 85 | | Short term investments | 1 | (6) | | Long term investments | 813 | 476 | | Exchangeable Notes | (13) | (11) | | Cash flow hedges | 2 | (2) | | Share-based compensation | 2,125 | 1,617 | | Total Other Reserves | 3,000 | 2,159 | 14. Share-Based Compensation This section details the share-based compensation expense recognized across different categories and outstanding equity awards | Expense Category | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Cost of revenue | 1 | 1 | | Research and development | 23 | 39 | | Sales and marketing | 11 | 16 | | General and administrative | 7 | 13 | | Total | 42 | 69 | - Total share-based compensation expense decreased by €27 million to €42 million in Q1 2025, primarily due to a decrease in research and development expenses[53][139] - As of March 31, 2025, 1,703,435 RSUs and 5,533,591 stock options were outstanding[54][55] 15. Exchangeable Notes This section provides information on the company's Exchangeable Senior Notes, including their classification and fair value - The US$1,500 million 0% Exchangeable Senior Notes due 2026 were classified as current liabilities as of March 31, 2025[57] - The fair value of the Exchangeable Notes was €1,654 million as of March 31, 2025, accounted for at fair value through profit and loss[64] 16. Trade and Other Payables This section details the company's trade payables, value-added tax, sales taxes, and other current liabilities | Metric | March 31, 2025 (€ millions) | December 31, 2024 (€ millions) | | :-------------------------------- | :-------------------------- | :----------------------------- | | Trade payables | 693 | 933 | | Value added tax and sales taxes payable | 339 | 335 | | Other current liabilities | 32 | 74 | | Total | 1,064 | 1,342 | 17. Accrued Expenses and Other Liabilities This section presents the company's accrued fees to rights holders and accrued social costs for options and RSUs | Metric | March 31, 2025 (€ millions) | December 31, 2024 (€ millions) | | :-------------------------------- | :-------------------------- | :----------------------------- | | Accrued fees to rights holders | 1,852 | 1,695 | | Accrued social costs for options and RSUs | 237 | 217 | | Total Current Liabilities | 2,471 | 2,347 | 18. Provisions This section outlines the company's provisions for contingent losses, including current and non-current portions | Metric | March 31, 2025 (€ millions) | January 1, 2025 (€ millions) | | :-------------------------------- | :-------------------------- | :--------------------------- | | Total Provisions | 41 | 28 | | Current portion | 39 | 25 | | Non-current portion | 2 | 3 | - Provisions increased by €13 million to €41 million, primarily due to additional provisions for potential non-income tax obligations[67][70] - The Group records provisions for contingent losses when a liability is probable and estimable, including for legal proceedings and non-income tax obligations[68][70] 19. Financial Instruments This section describes the company's use of derivative financial instruments and the fair value of its financial assets and liabilities - The Group uses foreign exchange forward contracts for cash flow hedges, with notional principal amounts of approximately €1,633 million for revenue and €1,019 million for cost of revenue as of March 31, 2025[71] | Financial Instrument Category | March 31, 2025 Fair Value (€ millions) | | :-------------------------------- | :------------------------------------- | | Total financial assets at fair value | 8,307 | | Total financial liabilities at fair value | 1,676 | - The Group's 9% investment in Tencent Music Entertainment Group (TME) is carried at fair value through other comprehensive income, valued at €1,884 million as of March 31, 2025[75][76] 20. Segment Information This section provides financial data for Spotify's two reportable segments: Premium and Ad-Supported - Spotify operates two reportable segments: Premium (subscription fees) and Ad-Supported (advertising sales)[83] | Segment | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Premium Revenue | 3,771 | 3,247 | | Premium Gross profit | 1,262 | 979 | | Ad-Supported Revenue | 419 | 389 | | Ad-Supported Gross profit/(loss) | 64 | 25 | | Consolidated Revenue | 4,190 | 3,636 | | Consolidated Gross profit | 1,326 | 1,004 | - Premium revenue increased 16% year-over-year, and Ad-Supported revenue increased 8%; Consolidated gross profit increased 32% to €1,326 million[84][128][136] 21. Commitments and Contingencies This section outlines the company's contractual commitments and potential liabilities from legal actions and claims | Commitment Type | March 31, 2025 (€ millions) | December 31, 2024 (€ millions) | | :-------------------------------- | :-------------------------- | :----------------------------- | | Minimum guarantees (content) | 4,357 | 4,420 | | Purchase obligations (services, podcast, marketing) | 1,492 | 1,687 | - The Group is subject to various legal actions and claims, including a lawsuit by the Mechanical Licensing Collective (MLC) regarding royalty payments for its Premium Service bundle, which could result in additional royalties of approximately €205 million plus penalties and interest if the MLC's appeal is successful[89][90] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Spotify's financial condition and operating results for the three months ended March 31, 2025, compared to the same period in 2024. It covers key performance indicators, revenue generation, components of operating results, and a detailed analysis of financial performance, liquidity, and capital resources Special Note Regarding Forward-Looking Statements This section cautions readers that the report contains forward-looking statements subject to various risks and uncertainties - The report contains forward-looking statements based on current expectations, subject to numerous risks and uncertainties, including user attraction/retention, competition, international operations, and macroeconomic conditions[92][93][104][105] Overview This section provides a general description of Spotify's business, market position, and recent strategic initiatives - Spotify is the world's most popular audio streaming subscription service, operating in 184 countries with 678 million MAUs and 268 million Premium Subscribers as of March 31, 2025[98] - The company monetizes its service through subscriptions and advertising, with Premium Subscribers growing 12% YoY and MAUs growing 10% YoY[99] - New initiatives include the Spotify Partner Program for video podcasts (launched Jan 2025) and expanded audiobook availability on Premium Service (launched April 2025)[102][103] Current Macroeconomic Environment This section discusses the ongoing global economic uncertainties and their potential impact on the company's operations - The global macroeconomic environment remains uncertain due to inflation, interest rate changes, trade policies, and geopolitical conflicts, which the company continues to monitor[105] Key Performance Indicators This section presents the key metrics used to evaluate the company's operational performance, including MAUs, Premium Subscribers, Ad-Supported MAUs, and Premium ARPU MAUs This section reports the monthly active users and their year-over-year growth | Metric | As of March 31, 2025 (millions) | As of March 31, 2024 (millions) | Change (millions) | Change (%) | | :-------------------------------- | :------------------------------ | :------------------------------ | :---------------- | :--------- | | MAUs | 678 | 615 | 63 | 10 % | - MAUs increased by 10% year-over-year, driven by consumer marketing campaigns, enhanced content, and product enhancements[109] Premium Subscribers This section details the number of Premium Subscribers and their growth drivers | Metric | As of March 31, 2025 (millions) | As of March 31, 2024 (millions) | Change (millions) | Change (%) | | :-------------------------------- | :------------------------------ | :------------------------------ | :---------------- | :--------- | | Premium Subscribers | 268 | 239 | 29 | 12 % | - Premium Subscribers grew by 12% year-over-year, with Family Plan, Duo Plan, free trial offers, and global campaigns being significant contributors[112] Ad-Supported MAUs This section reports the monthly active users for the ad-supported service and their growth | Metric | As of March 31, 2025 (millions) | As of March 31, 2024 (millions) | Change (millions) | Change (%) | | :-------------------------------- | :------------------------------ | :------------------------------ | :---------------- | :--------- | | Ad-Supported MAUs | 423 | 388 | 35 | 9 % | - Ad-Supported MAUs increased by 9% year-over-year, benefiting from continued investment in the Ad-Supported Service through marketing and content enhancements[114] Premium ARPU This section analyzes the average revenue per user for the Premium segment and its contributing factors | Metric | 3 Months Ended March 31, 2025 (€) | 3 Months Ended March 31, 2024 (€) | Change (€) | Change (%) | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Premium ARPU | 4.73 | 4.55 | 0.18 | 4 % | - Premium ARPU increased by 4% year-over-year, primarily due to price increases (€0.31 increase), partially offset by changes in product and market mix (€0.13 decrease)[116] How We Generate Revenue This section describes the revenue generation models for both the Premium and Ad-Supported segments Premium This section explains how revenue is generated from Premium subscriptions, including direct sales and partner bundles - Premium segment revenue is generated through direct sales of subscriptions and through partners (e.g., telecommunications companies) that bundle the service[118] Ad-Supported This section describes the revenue generation from advertising sales across various formats - Ad-Supported segment revenue primarily comes from selling display, audio, and video advertising, typically on a cost-per-thousand-impressions (CPM) basis, through agencies, direct advertisers, and automated exchanges[119] Components of Our Operating Results This section defines the key expense categories that contribute to the company's operating results Cost of Revenue This section outlines the primary expenses included in the cost of revenue, such as royalties, distribution, and processing fees - Cost of revenue primarily includes royalty and distribution costs for music, podcasts, and audiobooks, credit card processing fees, advertising serving costs, and cloud computing expenses[121][122][123] - Royalty calculations vary by service (Premium vs. Ad-Supported) and are influenced by factors like revenue percentage, per-user amounts, subscriber targets, and country-specific rates[121] Research and Development This section describes the company's investment focus in R&D to enhance user experience and develop new features - Investments in R&D focus on driving user engagement, customer satisfaction, and developing new products and features for the platform and advertising offerings[124] Sales and Marketing This section details the expenses related to promoting the service, acquiring customers, and brand building - Expenses include employee compensation, public relations, branding, customer acquisition, advertising campaigns, and costs associated with free trials and content promotion[126] General and Administrative This section covers the overhead expenses for support functions and corporate operations - Covers employee compensation for support functions (finance, legal, HR), consulting fees, facility costs, and directors' and officers' liability insurance[127] Results of Operations This section provides a detailed analysis of the company's revenue, cost of revenue, gross profit, operating expenses, finance income/costs, and income tax for the reporting periods Revenue This section analyzes the revenue performance of the Premium and Ad-Supported segments, including growth drivers and foreign exchange impacts | Segment | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | Change (€ millions) | Change (%) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------ | :--------- | | Premium | 3,771 | 3,247 | 524 | 16 % | | Ad-Supported | 419 | 389 | 30 | 8 % | | Total | 4,190 | 3,636 | 554 | 15 % | - Premium revenue increased by 16% due to higher Premium Subscribers and ARPU; Ad-Supported revenue increased by 8% due to growth in music impressions sold and podcast ad sales[129][130] - Foreign exchange movements had a net favorable impact of approximately €9 million on total revenue for Q1 2025[131] Cost of Revenue This section examines the changes in cost of revenue for both segments, highlighting key drivers such as royalties and production costs | Segment | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | Change (€ millions) | Change (%) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------ | :--------- | | Premium | 2,509 | 2,268 | 241 | 11 % | | Ad-Supported | 355 | 364 | (9) | (2) % | | Total | 2,864 | 2,632 | 232 | 9 % | - Premium cost of revenue increased by 11% due to higher music royalties, audiobook licensing, and Spotify Partner Program costs; Ad-Supported cost of revenue decreased by 2% due to reduced podcast production costs, partially offset by increased music royalties[133][134] - Foreign exchange movements had a net unfavorable impact of approximately €2 million on total cost of revenue for Q1 2025[135] Gross Profit and Gross Margin This section analyzes the consolidated and segment-specific gross profit and gross margin performance | Metric | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | Change (€ millions) | Change (%) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------ | :--------- | | Consolidated Gross profit | 1,326 | 1,004 | 322 | 32 % | | Consolidated Gross margin | 32 % | 28 % | - | - | | Premium Gross margin | 33 % | 30 % | - | - | | Ad-Supported Gross margin | 15 % | 6 % | - | - | - Consolidated gross profit increased by 32%, and gross margin improved from 28% to 32%; Both Premium and Ad-Supported segments saw significant gross margin improvements[136][137][138] Consolidated Operating Expenses This section provides an overview of the company's operating expenses, including research and development, sales and marketing, and general and administrative costs Research and Development This section details the changes in R&D costs and their primary drivers | Metric | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | Change (€ millions) | Change (%) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------ | :--------- | | Research and development | 379 | 389 | (10) | (3)% | | As a percentage of revenue | 9 % | 11 % | - | - | - R&D costs decreased by 3%, primarily due to a €16 million decrease in share-based compensation[139] Sales and Marketing This section analyzes the changes in sales and marketing expenses | Metric | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | Change (€ millions) | Change (%) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------ | :--------- | | Sales and marketing | 314 | 324 | (10) | (3)% | | As a percentage of revenue | 7 % | 9 % | - | - | - Sales and marketing expenses decreased by 3%, mainly due to a €9 million reduction in advertising costs[140] General and Administrative This section reports on the stability and slight increase in general and administrative expenses | Metric | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | Change (€ millions) | Change (%) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------ | :--------- | | General and administrative | 124 | 123 | 1 | 1 % | | As a percentage of revenue | 3 % | 3 % | - | - | - General and administrative expenses remained relatively stable, with a slight increase of 1%[141] Finance Income This section analyzes the increase in finance income, primarily from interest on cash and investments | Metric | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | Change (€ millions) | Change (%) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------ | :--------- | | Finance income | 71 | 59 | 12 | 20 % | | As a percentage of revenue | 2 % | 2 % | - | - | - Finance income increased by 20%, primarily due to a €20 million increase in interest income from cash and short-term investments[143] Finance Costs This section details the significant increase in finance costs, mainly driven by fair value movements on Exchangeable Notes and foreign exchange losses | Metric | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | Change (€ millions) | Change (%) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------ | :--------- | | Finance costs | (252) | (53) | (199) | 375 % | | As a percentage of revenue | (6)% | (1)% | - | - | - Finance costs increased significantly by €199 million, mainly due to a €145 million increase in fair value movements on Exchangeable Notes and €58 million in foreign exchange losses[145] Income Tax Expense/(Benefit) This section explains the shift from an income tax benefit to an expense, citing non-deductible losses and deferred tax benefits | Metric | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | Change (€ millions) | Change (%) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | :------------------ | :--------- | | Income tax expense/(benefit) | 103 | (23) | 126 | NM* | | As a percentage of revenue | 2 % | (1)% | - | - | - The company recorded an income tax expense of €103 million in Q1 2025, compared to a benefit of €23 million in Q1 2024, primarily due to non-deductible losses from convertible debt in 2025 and a deferred tax benefit from TME investment in 2024[147][148] Non-IFRS Financial Measure This section defines and presents Free Cash Flow as a supplemental non-IFRS measure, highlighting its components and changes - Free Cash Flow, defined as net cash flows from operating activities less capital expenditures and change in restricted cash, is used as a supplemental non-IFRS measure[150] | Metric | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net cash flows from operating activities | 539 | 211 | | Capital expenditures | (6) | (5) | | Change in restricted cash | 1 | 1 | | Free Cash Flow | 534 | 207 | - Free Cash Flow increased significantly by €327 million to €534 million in Q1 2025, driven by increased operating cash flows[153][164] Liquidity and Capital Resources This section discusses the company's sources of liquidity, capital requirements, share repurchase program, indebtedness, and cash flow activities - Principal liquidity sources are cash and cash equivalents, short-term investments, and cash from operating activities, which increased by €465 million to €7,913 million as of March 31, 2025[154] - The company believes existing liquidity sources are sufficient for at least the next 12 months, but future capital requirements may vary[155] - The company is optimizing its real estate footprint, leading to a reduction in leased office space, and relies on dividends from subsidiaries, which may be subject to restrictions[156][165] Share Repurchase Program This section provides an update on the company's share repurchase activities under its authorized program - A $1.0 billion share repurchase program, authorized until April 21, 2026, has seen €91 million in repurchases since its commencement, with no repurchases in Q1 2025[157] Exchangeable Notes This section highlights the US$1,500 million 0% Exchangeable Notes as a significant component of the company's indebtedness - The US$1,500 million 0% Exchangeable Notes due March 15, 2026, are a significant part of the company's indebtedness[159][166] Cash Flow This section summarizes the net cash flows from operating, investing, and financing activities | Metric | 3 Months Ended March 31, 2025 (€ millions) | 3 Months Ended March 31, 2024 (€ millions) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net cash flows from operating activities | 539 | 211 | | Net cash flows used in investing activities | (314) | (114) | | Net cash flows from financing activities | 126 | 202 | - Operating cash flows increased by €328 million, investing cash outflows increased by €200 million, and financing cash flows decreased by €76 million[161][162][163] Restrictions on Subsidiaries to Transfer Funds This section addresses potential limitations on subsidiaries' ability to transfer funds, which could impact the parent company's liquidity - The company relies on dividends from subsidiaries, but their ability to transfer funds may be limited by local laws and future indebtedness, potentially impacting the company's ability to fund obligations[165] Indebtedness This section identifies the primary component of the company's outstanding indebtedness - Outstanding indebtedness primarily consists of the 0% Exchangeable Notes due March 15, 2026[166] Off-Balance Sheet Arrangements This section confirms the absence of material off-balance sheet arrangements with unconsolidated entities - As of March 31, 2025, the company has no material off-balance sheet arrangements with unconsolidated entities[167] Contractual Obligations This section provides a detailed breakdown of the company's contractual obligations, including minimum guarantees and Exchangeable Notes | Contractual Obligation | Total (€ millions) | Less than 1 year (€ millions) | 1-3 years (€ millions) | 3-5 years (€ millions) | More than 5 years (€ millions) | | :-------------------------------- | :----------------- | :---------------------------- | :--------------------- | :--------------------- | :----------------------------- | | Minimum guarantees | 4,357 | 3,088 | 1,265 | 4 | — | | Exchangeable Notes | 1,387 | 1,387 | — | — | — | | Lease obligations | 693 | 108 | 193 | 143 | 249 | | Purchase obligations | 1,492 | 470 | 932 | 30 | 60 | | Deferred consideration | 3 | 3 | — | — | — | | Total | 7,932 | 5,056 | 2,390 | 177 | 309 | - Total contractual obligations amount to €7,932 million, with €5,056 million due within one year, primarily consisting of minimum content guarantees and Exchangeable Notes[168] Critical Accounting Policies and Estimates This section identifies the key accounting estimates and assumptions that require significant judgment and highlights their consistency with prior reports - Key accounting estimates and assumptions include revenue recognition, share-based compensation, deferred taxes, uncertain tax positions, goodwill impairment, content, provisions, impairment of real estate assets, and Exchangeable Notes and warrants[184] - No material changes or additions to critical accounting policies and estimates compared to the 2024 Annual Report on Form 20-F[185] Recent Accounting Pronouncements This section confirms that no new IFRS or IFRIC interpretations materially impact the interim financial statements for Q1 2025 - No new IFRS or IFRIC interpretations effective for Q1 2025 have a material impact on the interim condensed consolidated financial statements[186] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details Spotify's exposure to various market risks, including currency, interest rate, share price, investment, and inflation risks, and outlines strategies to manage these exposures - The company is exposed to currency, interest rate, share price, investment, and inflation risks, and aims to minimize adverse effects on financial performance[171] - Volatile market conditions, including inflation, interest rate changes, and geopolitical conflicts, can significantly impact these risks[172] Currency Risk This section describes the company's exposure to foreign exchange fluctuations and its hedging approach - Currency risk arises from transactions and net investments in foreign operations; the company hedges transaction exposure on a case-by-case basis but not translation risk[173] | Currency | Impact on Income before tax of 10% strengthening (€ millions) | | :-------------------------------- | :---------------------------------------------------------- | | Swedish krona (SEK) | (11) | | British pound (GBP) | (13) | | U.S. dollar (USD) | 67 | - A 10% weakening of the Euro against all translation exposure currencies would impact equity by approximately €208 million[177] Interest Rate Risk This section discusses the company's exposure to interest rate changes on its interest-bearing assets - Exposure relates to interest-bearing assets (cash, short-term debt securities); a hypothetical 100 basis point change in interest rates would result in a €19 million change in interest income for Q1 2025[178] Share Price Risk This section identifies the company's exposure to fluctuations in its ordinary share price, particularly concerning Exchangeable Notes and share-based compensation - Risk primarily relates to Exchangeable Notes and social costs on share-based compensation awards[179] - A 10% change in the company's ordinary share price would result in a €33 million change in the accrual for social costs on share-based compensation[180] Investment Risk This section addresses the exposure to changes in the market value of long-term investments, specifically the Tencent Music Entertainment Group - Exposure to changes in market value of long-term investments, mainly Tencent Music Entertainment Group (TME)[181] - A 10% change in TME's share price would result in a fair value range of €1,696 million to €2,072 million for the investment at March 31, 2025[181] Inflation Risk This section discusses the potential adverse effects of inflationary pressures on the company's costs and pricing strategies - Inflationary pressures could adversely affect results if higher costs cannot be offset by price increases for Subscription Offerings or advertisements[182] PART II - OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, equity sales, and other disclosures Item 1. Legal Proceedings This section reiterates that the company is subject to various legal claims and lawsuits, with potential liabilities that are difficult to estimate, and refers to Notes 18 and 21 for detailed discussions - The company is involved in various legal actions and claims, with potential liabilities that are difficult to predict and estimate[188] - Provisions for contingent losses are recognized when a liability is probable and reasonably estimable[188] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 20-F - No material changes to the risk factors previously disclosed in the Annual Report on Form 20-F[190] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's activities related to unregistered sales and repurchases of equity securities, specifically mentioning the issuance and repurchase of ordinary shares for stock option and RSU plans - On January 23, 2025, the company issued and repurchased 500,000 ordinary shares at par value from its Netherlands subsidiary to facilitate stock option exercises and RSU releases[191] - No ordinary shares were repurchased from the open market during the three months ended March 31, 2025[192] Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred[193] Item 5. Other Information This section indicates that there is no other information to report under this item - No other information to report[194] Signatures This section contains the required signatures, certifying the submission of the report on behalf of Spotify Technology S.A - The report is signed by Christian Luiga, Chief Financial Officer, on April 29, 2025[199]