Spotify(SPOT) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Spotify surpassed 700 million monthly active users (MAU), exceeding guidance by 3 million, and added 5 million net subscribers, reaching a total of 281 million, up 12% year-on-year [4][24] - Total revenue for Q3 was EUR 4.3 billion, growing 12% year-on-year on a constant currency basis, with premium revenue rising 13% year-on-year [24][25] - Gross margin was 31.6%, 50 basis points ahead of guidance, and operating income was EUR 582 million, EUR 97 million above forecast [25][26] - Free cash flow for the quarter was EUR 806 million, with cash and short-term investments totaling EUR 9.1 billion [26] Business Line Data and Key Metrics Changes - In music, Spotify helped artists reach massive global audiences, breaking multiple streaming records and launching new in-app experiences [10] - In podcasts, over 390 million users streamed video podcasts, a 54% increase year-on-year, with time spent on video content more than doubling [11] - In audiobooks, the number of listeners rose 36% year-on-year, with over half of eligible Premium users having played an audiobook [13] Market Data and Key Metrics Changes - Spotify continues to take market share in competitive markets, with steady retention rates following price increases across more than 150 markets [9] - The global rollout of the enhanced free experience significantly contributed to user growth and engagement [9] Company Strategy and Development Direction - The company focuses on long-term value rather than quarterly results, emphasizing lifetime value and smart investments [5][6] - Spotify's multi-format strategy is proving effective, driving user engagement across music, podcasts, video, and audiobooks [4][5] - The leadership transition is set for January 1st, with Alex Norström and Gustav Söderström stepping into co-CEO roles, indicating a continued focus on growth and innovation [7][46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term strategy for the advertising business, expecting growth to improve in the latter half of 2026 [25][56] - The company is optimistic about the impact of AI on user experience and content creation, aiming to responsibly integrate AI tools for artists and creators [40][71] Other Important Information - Spotify has launched significant enhancements to its free tier and introduced lossless audio for Premium users, which have been well-received [18][19] - The partnership with Netflix for video podcasts is seen as a strategic move to enhance creator offerings and expand distribution channels [41][66] Q&A Session Summary Question: Can you talk through the puts and takes around gross margins across your premium and advertising segments in the third quarter? - Management noted that gross margin expansion is occurring, with pressure on the premium side due to the shift of podcast content costs to premium [32] Question: Will the premium superfan tier be created by major labels for all DSPs or a Spotify-specific product? - Management confirmed deep collaboration with rights holders and positive uptake on add-on subscriptions, indicating a strong strategy for premium offerings [34] Question: What impact do you believe AI will have on the music ecosystem? - Management highlighted that AI will enhance recommendations and user control, with Spotify integrating AI tools to benefit creators [36][39] Question: How does the partnership with Netflix impact your overall strategy for video consumption? - Management emphasized a creator-first approach, stating that the partnership enhances distribution opportunities for creators [41][66] Question: Have you seen any changes to the rate of upgrade from free to premium due to recent upgrades? - Management indicated that increased usage and engagement are expected to lead to higher conversion rates from free to premium [43][45] Question: What do you think you've achieved with the new deals with major labels? - Management stated that modernized deals with top publishers provide broader video rights and support innovation in product offerings [60]