Spotify Technology SA(SPOT) - 2023 Q2 - Quarterly Report

User Metrics - Monthly Active Users (MAUs) reached 551 million, with net additions of 36 million, exceeding guidance by 21 million and marking an all-time high for the company [3] - Total Monthly Active Users (MAUs) grew 27% year-over-year to 551 million, exceeding guidance by 21 million [39] - Premium Subscribers grew to 220 million, an increase of 17% year-over-year, and 3 million above guidance [8] - Premium Subscribers increased 17% year-over-year to 220 million, with the largest Q2 net additions in company history [42][44] Financial Performance - Total Revenue for Q2 2023 was €3.177 billion, reflecting an 11% year-over-year growth, consistent with guidance [9] - The company reported a net loss of €302 million for Q2 2023, with a loss per share of €1.55 [74] - The company reported a net loss of €302 million for the three months ended June 30, 2023, compared to a net loss of €225 million for the previous quarter, resulting in a basic and diluted loss per share of €1.55 [77] - IFRS revenue for the quarter was €3.177 billion, reflecting an 11% year-over-year increase, while revenue excluding foreign exchange effects was €3.271 billion, showing a 14% increase [78] Cash Flow and Liquidity - Free Cash Flow for the quarter was €9 million, indicating a strong liquidity position with €3.5 billion in cash and cash equivalents [12] - Free Cash Flow was €9 million in Q2, a decrease year-over-year, but averaged approximately €200 million of positive Free Cash Flow over the past three years [32][33] - The company generated net cash flows from operating activities of €13 million, up from €5 million in the previous quarter [76] - Free cash flow for the quarter was €113 million, a significant improvement compared to a cash outflow of €12 million in the previous quarter [76] - The company has generated €1.4 billion of cumulative Free Cash Flow since 2016, supporting a strong balance sheet with €3.5 billion in cash and cash equivalents [33] Operating Performance - Adjusted Gross Margin was 25.5%, up 22 basis points year-over-year, excluding one-time charges related to efficiency measures [19] - Operating Loss for Q2 was €247 million, impacted by €135 million in net charges, while Adjusted Operating Loss was €112 million, better than guidance [12] - Operating expenses for the quarter were €1.013 billion, a 13% increase year-over-year, with expenses excluding foreign exchange effects rising by 16% [79] - Operating Expenses increased by 13% year-over-year, primarily due to efficiency-related charges of €91 million [26] Revenue Streams - Ad-Supported Revenue grew 12% year-over-year, driven by double-digit growth in impressions sold despite softer pricing [14] - Spotify's advertising revenue is expected to benefit from improvements in podcasting and other cost efficiencies, contributing to overall revenue growth [61] Product Development - The company launched new personalized experiences for users and tools for advertisers, including a redesigned user experience and a new ad analytics tool [7] - The company plans to expand its AI DJ feature to Premium users in the UK and has announced a new original podcast with Trevor Noah [8] - Launched AI DJ feature for Premium users in the UK and Ireland, and redesigned the desktop experience to enhance user engagement [47] - Over 100,000 video podcasts are now available on Spotify, up from 70,000 in March 2023, indicating a significant increase in content offerings [53] Other Financial Metrics - The adjusted gross profit for the quarter was €810 million, with an adjusted gross margin of 25.5%, compared to 25.3% in the previous quarter [83] - The company incurred impairment charges on real estate assets amounting to €90 million during the quarter [76] - The weighted-average ordinary shares outstanding increased to 194,420,128, resulting in a diluted loss per share of €1.55 [77] - The company reported a net increase in cash and cash equivalents of €118 million, bringing the total to €2.550 billion at the end of the period [76] - The company highlighted that a 10% change in stock price could impact social charges by approximately €18 million, indicating sensitivity to stock price fluctuations [89] Future Outlook - The outlook for Q3 2023 includes expectations of 572 million total MAUs and 224 million Premium Subscribers, with total revenue projected at €3.3 billion [61]