Spotify Technology SA Q3 FY2024 earnings call

Opening Remarks - Daniel Ek: Welcomed new CFO Christian Luiga, highlighted Q3 as a standout in the year of monetization, outperformed on MAU and subs, achieved first full year of profitability, and discussed focus on monetization and innovation including video expansion and audiobooks. - Christian Luiga: Joined Spotify, discussed strong Q3 results with MAU and sub growth, revenue figures, profitability including gross margin beat, and provided Q4 guidance. Also emphasized efficient capital allocation and scaling towards long-term goals.

MAU grew by 14 million to 640 million, net subscribers added 6 million to finish at 252 million. Total revenue grew 21% year-on-year on a constant-currency basis to EUR4 billion. Premium revenue rose 24% year-on-year on a constant-currency basis. Advertising business saw currency-neutral growth of 7% year-on-year. Gross margin was a record 31.1%, operating income was EUR454 million, and free cash flow was a record EUR711 million. MAU contributed significantly to the user base, with premium revenue driven by subscriber growth and ARPU acceleration, while advertising was affected by market volatility.

Q4 Guidance - Forecasts MAU at 665 million (increase of 25 million from Q3), 260 million subscribers (increase of 8 million from Q3), and total revenue at EUR4.1 billion. - Notes favorable foreign exchange rate movements created a headwind, but expects gross margin of 31.8% and operating income of EUR481 million. - Incorporates low churn from recent price increases and ongoing efforts to drive subscriber monetization.

Risks - Share price appreciation impacted operating income by EUR54 million more than forecast as share price movements are outside of control. - Macro environment volatility affecting advertising market spending. - App store constraints potentially limiting podcaster subscription upsell opportunities.

Q: How are you thinking about a multi-year approach to capital allocation as your profitability levels continue to scale?

A: Daniel Ek emphasized focusing on LTV over SAC ratio and investing in areas like audiobooks to create sustainable growth.

Q: Can you provide more color on what drove the gross margin beat versus your outlook?

A: Christian Luiga cited marketplace program development, streaming/delivery and payment cost scaling, and US publishing rate favorability as drivers.

Q: How are you thinking about setting price in relation to the broader industry?

A: Daniel Ek stated Spotify focuses on adding value to consumers and tracking metrics like churn and engagement to determine price increases.

Q: Can you provide an update on audiobooks usage and engagement?

A: Daniel Ek said audiobook title count has more than doubled, with strong adoption and increased consumption per user in the US.