Spotify Technology S.A. (NYSE:SPOT) Q2 2025 Earnings Call Transcript

Spotify Technology S.A. (NYSE:SPOT) Q2 2025 Earnings Call Transcript July 29, 2025

Spotify Technology S.A. misses on earnings expectations. Reported EPS is $-0.49476 EPS, expectations were $2.3.

Operator: Good day, and welcome to Spotify’s Second Quarter 2025 Earnings Call and Webcast. As a reminder, this conference call is being recorded. I would now like to turn the call over to Bryan Goldberg, Head of Investor Relations. Thank you. Please go ahead.

Bryan Daniel Goldberg: All right. Thanks, operator, and welcome to Spotify’s Second Quarter 2025 Earnings Conference Call. Joining us today will be Daniel Ek, our CEO; Alex Norstrom, 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, and using the code #SpotifyEarningsQ225. 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 e- mail investor relations at ir@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’ll turn the call over to Daniel.

Daniel G. Ek: All right. Hey, everyone, and welcome to our Q2 earnings call. Overall, it was a solid quarter, especially when you look at our strong user growth across both subs and MAU. In fact, looking at the first half of 2025, subs net adds grew more than 30% versus the first half of ’24. This quarter also marked a huge milestone for us as we hit over 100 million subscribers in Europe, our largest region, and it was our second highest Q2 for MAU net additions. User engagement also continues to strengthen. And this clearly demonstrates that the enhancements we made to both expand our content and improve our product are having the intended impact on our business. People come to Spotify and they stay on Spotify. And by constantly evolving, we create more and more value for the almost 700 million people using our platform.

Q&A Session

And this value not only benefits users, but it’s attracting more people to streaming. And as a result, it also boosted the industries of music and podcast and audio books. However, as I look at our progress, the one area that hasn’t yet better expectations is our Ads business. We’ve simply been moving too slowly and it’s taken longer than expected to see the improvements we initiated to take hold. It’s really an execution challenge, not a problem with the strategy. And while I’m happy with where we are today, I remain confident in the ambitions we laid out for this business, and we’re working quickly to ensure we’re on the right path. And we are seeing some promising signs in our Programmatic business, which I think will set us up nicely for ’26.

Alex and Christian will share more details on that shortly. As you also look at the underlying fundamentals of the business, this year is largely playing out as we expected. But in the spirit of transparency, you’ll see a few places in our Q3 forecast where we probably a little bit lighter than you may have anticipated. So let me talk about that. First, big picture. The business is solid and our model holds up and I feel really good about where we stand and how consumers view Spotify. We still expect 2025 to be a standout year for Spotify. And this quarter brings us up one step closer to that goal of 1 billion subscribers. And looking ahead, we’ll keep pushing boundaries through innovation, bringing even more value to users and creators. And this, of course, expands the overall Spotify network as we build a larger, more vibrant platform that will benefit everyone where fans gains access to more what they love and creators will have a global audience to reach.

But let me also take a step back to remind you how we run Spotify. Our approach has always been and will continue to be the focus on creating lifetime value rather than optimizing for quarter-to-quarter performance. Lifetime value is such a powerful metric because it inherently captures the balance and trade-offs between chasing short- term opportunities and driving long-term strategic initiatives. It really acknowledges that not every decision will yield immediate returns and that our progress is not always linear. Many of the initiatives driving today’s strong user and subscriber growth were started several quarters or sometimes even years ago. And the exact timing of when these efforts flow into tangible results can vary, sometimes that’s within our control and sometimes not.

But the most important takeaway for you all is that we don’t make decisions to achieve specific short-term quarterly outcomes. But zooming out, we are very well positioned, and I feel very good about our business. And with that, I’ll hand it over to Alex.

Alex Norström: Thank you, Daniel. So I want to cover a couple of things. And as you heard, we are super excited about the user and subscriber growth we saw this quarter. First, let me just set the stage on our subs growth story. Over 3% of the world’s population subscribes to Spotify. That’s pretty astounding, but also really encouraging when you think about how far we can still grow from here. And it’s not implausible to imagine us reaching 10% or even 15% of the world’s population. It’s also awesome to see that we continue to uncover new subs growth opportunities even in our developed and mature markets. It’s just great to see the business crushing it, striking the right balance with our marketing mix as well. We also see this in our conversion rate from free to paid users, which is healthy and just continues to tick up nicely.

Secondly, I want to expand on Daniel’s comments on our Ads business. Bottom line, we see a ton of potential in this business, and I believe in the strategy, but we are recalibrating because we have to move faster to accelerate its contribution to our financials. I spent a lot of time over the last couple of months meeting with brand partners, and there’s a lot of excitement about working with Spotify, especially with the automated ads and all of the new tools that we’ve recently introduced. We have an enviable brand and a highly engaged loyal user base that advertisers want to tap into. In fact, we’ve grown monthly active advertisers by more than 40% year-over-year. We will continue to build on this growth in the second half of ’25, which will be focused on driving — on improving our execution.

And with the heavy lifting and our ad tech largely complete, we’re now focused on driving adoption, launching even more new tools for advertisers and improving the performance of all of our inventory in order to fully monetize our new biddable channels. We are creating a stronger, more sustainable Ads business by accelerating our automation efforts and enhancing our world-class brand operations. Now I’ll pass it to Gustav to share some insights around some of the ways that we’re increasing the value for users and creators. Gustav?

Gustav Söderström: Thanks, Alex. So our overall user growth story is really a testament to our teams who have been really hard at work to deliver the best possible experience to users, artists, creators and authors. We’re solving for real problems that they face while also driving meaningful impact to our business. And there’s no question that this multi-format strategy is working. The data clearly shows that the more content formats that we deliver for our users, the more engaged they become. And this is especially true with the super users who are not only spending more time but also more days on Spotify. Looking at our core business of music. Excluding China and Russia, 45% of people who pay for music streaming service, subscribe to Spotify according to media research.

And that percentage has been steadily growing over the years. Now as you know, in 2024, we went all in on video, and there are now more than 430,000 video podcasts on Spotify. And video continues to outperform with consumption trending higher and higher, growing 20x faster than audio-only consumption since 2024. And more than 350 million users have streamed the video podcasts on our platform, and that’s a 65% increase year-over-year. Now as we look to understand impact, obviously, user engagement is a critical metric for us. And as we rebuild our stack for the generative AI age and bring personalization to a whole new level, we’re seeing it improve significantly. For example, listeners have been telling us just how much they love Spotify’s DJ and user engagement with DJ has nearly doubled over the last year.

Spotify Premium users wanted more than just a one-way channel with the DJ. They wanted a dialogue. So we delivered that. And now in more than 60 markets, DJ takes music requests, serving up [ suggestions ] using AI and also insights from our global editorial experts. So now you can ask the DJ questions that require Spotify to understand the wider world, like, for example, play me that song where Bruce Springsteen invites up that fan on stage in the music video. And DJ will understand that you are requesting Dancing in the Dark. We also clearly see that the more people interact with DJ, the better and longer their sessions get. This has resulted in a nearly 45% increase in DJ streams globally, driving tens of millions of interactions to date.

We also continued to expand our popular AI playlist to premium listeners, bringing it to over 40 new markets and millions of users have responded by creating playlists with this tool. So previously, when we constructed algorithmic playlists for our users, we were sort of confined to guessing the tracks that the user would want based only on the user’s past listening. So signals like plays, saves and skips. Now with generative AI, the user can finally tell us in plain English, what they actually want, what’s on their mind and even what they’re doing right now. These are often things that would have been impossible for us to understand from listening data. So imagine, for example, trying to guess, make me a playlist with songs to pump you up on earnings day in late July when your family is on summer holiday without you, just by looking at my listening history.

It’s pretty hard. Now this is a big deal because we can now use these data sets to iteratively improve these products continuously after launch in a virtuous loop, something called preference optimization without any additional product or feature development needed. We’ve already done our first round of optimization on AI playlist, and we saw clear jumps in performance, such as people listening longer to the resulting playlists or saving them more often and so forth. So because of the experience we deliver and the combined strength of our subscription and free tiers, it’s no surprise that according to Luminate, 65% of global audio music streams happen on Spotify now. Now let me turn it over to Christian to walk you through the numbers.

Christian Luiga: Thank you, Gustav, and thanks, everyone, for joining us today. Let me cover first the quarter 2 results, and then I’ll come back a bit on perspective on our outlook. So first, starting quarter 2, MAU grew by 18 million to 696 million in total, exceeding our guidance by 7 million. We added 8 million net subscribers finishing at 276 million, up 12% year-on-year and 3 million ahead of our guidance. Total revenue was EUR 4.2 billion and grew 15% year-on-year on a constant currency basis. Currency movements during the quarter impacted reported revenue by EUR 104 million relative to our guidance. Our premium revenue rose 16% year-on-year on a constant currency basis, driven by subscriber growth and ARPU gains associated with price increases.

Our Advertising business delivered currency-neutral growth of 5% year-on-year. Our automated sales channels were the largest contributor to overall advertising growth. If we exclude the near-term impacts from the strategic initiatives like the optimization of our licensed podcast and the rollout of the Spotify Partner program, we had a low double-digit constant currency advertising growth. As Daniel and Alex mentioned, we believe there is an opportunity to grow our Advertising business more quickly and 2025 is very much a transition year onto a new tech stack. Moving to profitability. Gross margin came in at 31.5%, in line with guidance and expanding roughly 230 basis points year-on-year as we strategically invest to accelerate our long-term growth ambitions.

Our margin expansion was driven by premium revenue growth outpacing music and audiobook costs, partially also offset by the Spotify partner program cost. Additionally, our ad-supported margin expanded due to podcast and music gains. Our operating income of EUR 406 million was EUR 133 million below guidance, primarily due to social charges in the quarter, which were EUR 98 million above forecast due to share price appreciation. As a reminder, we don’t forecast share price movements in our outlook for the business since they are outside our control. The remaining variance to guidance was largely driven by a lighter ad sales contribution and a tax-related charge. Finally, free cash flow was EUR 700 million in the quarter. Year-on-year performance here was driven by our growth in operating income as well as our improving net working capital.

We ended the quarter with EUR 8.4 billion in cash and short-term investments. Looking ahead at our guidance in quarter 3, we are forecasting 710 million MAU, an increase of 14 million from quarter 2; and 281 million subscribers, an increase of 5 million over quarter 2. We’re also forecasting EUR 4.2 billion in total revenue. Our revenue outlook incorporates a sizable headwind of approximately EUR 200 million due to unfavorable currency movements over the last quarter. We’re also forecasting ARPU to be flat year-on-year on a constant currency basis. Moving down the P&L, we expect quarter 3 gross margin of 31.1% and an operating income of EUR 485 million. Consistent with our previously stated expectations, our gross margin guidance reflects a more variable rate of sequential gross margin progression over the course of this year as we undertake strategic investment to support the long-term growth.

Quarter 3 gross margin guidance also reflects a regulatory charge of 40 basis points, consistent with the prior year period. Excluding the regulatory charge, our expected quarter 3 gross margin is in line with quarter 1 and quarter 2 levels. We remain confident in our business. And while we’re investing in the future growth, we will deliver a full year margin expansion in 2025. Our operating income guidance reflects temporarily elevated growth in operating expenses in quarter 3 due to timing factors, and we remain well positioned to deliver year-on-year expansion in operating margin for the full year of 2025. With respect to capital allocation, our liquidity remains strong, and we expect 2025 to see healthy year-on-year growth in free cash flow.

We continue to focus on prioritizing growth opportunities while managing our balance sheet to support our long-term strategy. We are also planning for the upcoming maturity of our exchangeable notes in March of 2026. To the extent excess capacity arises above these needs, we will take our shareholders into consideration. In support of this and as an initial step, the Board has approved an upsizing of our share repurchase authorization to a total of $2 billion, of which about $100 million have been utilized prior to quarter 2. The mandate is giving us enhanced flexibility to be opportunistic in this regard. In conclusion, quarter 3 will be more reflective of our near-term investments, and we anticipate that they will bring healthy returns over the medium and long term.

Our top of funnel and subscriber performance are strong, and we remain confident in our ability to drive healthy growth. With that, I’ll hand it back to you, Bryan.

Bryan Daniel Goldberg: [Operator Instructions] And today’s first question is going to come from Jessica Reif Ehrlich on product tiers. Can you provide an update on how you’re thinking about introducing tiers or a tier, whether it be super fan or something else across your platform globally? How many tiers can be created without complicating the user experience?

Alex Norström: Jessica, Alex here. Thanks for the question. We’re really excited about engaging super fans, as you know, and we’re building something great for them. But what investors really need to understand is how we are building out our products at Spotify. Now as long as I’ve been here, which is now, I think, close to 15 years, we’ve had very high value standards around what and when to release product. Now we’re working towards these very high-value standards, and we’re making progress for sure, but it’s taking time. And in music, of course, we’re reliant on our partners to a certain degree. But you have to know that super fans are everywhere and not just in music. So for instance, right now, we are in market with an audiobook add-on subscription, which is about getting more hours for the ones that run into the gate that we have in the premium allocation.

We have this audiobook add-on subscription rolled out in 13 markets, and we’re just excited to roll it out to more markets as we go. Now this add-on really does 2 things. It better takes care of the demand from our super fans on books, and it’s enabling access to audiobooks for our family plan sub accounts as well, which we haven’t had prior to this. Now the key thing to remember is that we remain very enthusiastic about building out these propositions across music, podcast and video, and we continue to just see great demand from our different superfan segments.

Bryan Daniel Goldberg: All right. Our next question is going to come from Benjamin Black on gross margin. This quarter, your gross margins didn’t beat your guidance for the first time in a while. Has there been a change in your guidance philosophy? And how should we be thinking about the trajectory of gross margins for the balance of the year and into 2026?

Christian Luiga: Thank you, Benjamin. I’m going to start by answering in the end and then go to the first question. So just as we have heard from Daniel and Gustav and Alex, I mean, we feel very strong about the way we are running the business and the foundation and the investments we’re doing in future growth and future profitability. So just over time, we will, of course, seek to increase our margin — gross margin, and that will come from several building blocks. In music, there will be the marketplace and the ads monetization. Podcast will be ad scaling monetization and SVP monetization. In audiobooks, we will continue to monetize over the experience we’re doing. Same time, we have seen that in the small numbers in this quarter, but also over the time, other cost of revenue like customer service and payment services, we are slightly scaling on that as well.

So that’s just what we see. And we don’t guide to specifically a quarter 4 or 2026, but we naturally have a seasonally stronger quarter 4. And the 2 things that I can’t point to at this stage is that ad-supported gross margin usually hits its highest point in quarter 4. And of course, we had a 40 basis points impact in quarter 3 that will not come back in quarter 4. And then back to your first question then on how we — if we have changed our philosophy? No, we haven’t changed our philosophy at all. You can look at it a little bit like what kind of certainty we have and how we work with certainty when we do our guidance, which I think you would expect from yourself also in trying to figure out guidance. When we do the guide for the quarter, we look at the certainty in our licensing deals or in the market or in other aspects that can hit the margin.

And we don’t go out with a typically a gross margin guidance that we feel uncertain about. So we try to calibrate into a more certain level when we guide on that. And if you do that, you usually will be above or on target. And now we are on target, which means we had very little issues in this quarter when it comes to uncertainty.

Bryan Daniel Goldberg: All right. Our next question is going to come from Justin Patterson on AI and for Gustav. Gustav, we enjoyed listening to your appearance on the Invest Like the Best podcast. Could you expand on how generative AI is influencing productivity and product development and how you think the consumer experience might change over time?

Gustav Söderström: I would be happy to, Justin. Thank you. So if we take them in order, productivity, then product delivery and consumer experience. First on productivity, like most other companies, at least the companies who are adopting this technology, we are seeing significant speed ups, specifically right now in prototyping. And this is true, I know for many other companies as well. So that early stage of you used to talk about a product, now you can much faster just prototype it and see if it actually works. So we’re seeing faster prototyping. We had a hack week this spring that we spent entirely on upskilling the entire workforce. And what was interesting there was that it was not only engineers and maybe product people and so forth and designers that adopted this, but also non-R&D functions.

We saw actually a lot of adoption from finance and other departments. So that’s on productivity. We’re seeing the sort of same sort of gains that most others are seeing. We’re excited about them. On product delivery, this is a good observation. It is a very big change to how you build products. For those who are interested, I think to summarize it in a sentence, the biggest change for a product person is that what is called the Eval, the evaluation set is now the, what is called the PRD, so the product requirements document. So google Eval is the New PRD, and you’ll understand what the big change is. In terms of consumer experience, I think to summarize it, I touched on this in my opening remarks. There is a fundamental difference that happened with generative AI versus the previous AI.

We were confined to user signals largely such as skips, plays and saves. And you can imagine that those are pretty blunt signals. So a skip could be a song that you love, but you’re really tired of it; it could be a song that you love, you’re not tired of it, but it’s the wrong situation; it could be a song that you really don’t like. All of those just result in a skip. So these are blunt signals. What’s happening with generative AI is the user can finally speak to Spotify in plain English or any language for that matter. And so you can think of it as us getting a new data set. Spotify got this unique data set from all of its playlists, which was really song to song, like which song goes well with another song, kind of the Amazon, people who bought this also bought that.

And we have the biggest of such data sets in the world. We’re very happy with it, but we’re getting a new data set now, which is what English sentence goes to this song. And that’s completely new to us, and it’s a very, very valuable data set that we are collecting very quickly. So this is the big change for us. I would also say, there was a question on what happens to user experiences. Obviously, as a result of this, I think they are going to get much more interactive. You can already write to Spotify, talk to Spotify. You’re just going to see that expand. Lastly, I would say that this technology allows you to go from what is today largely predicted user experiences. We predict which songs or playlist or podcast or books you might want to listen to, to what is now called reason user experiences, where you actually reason over the users’ listening history and actually what they said in the case of DJ.

So I think user experiences will change quite a lot in the coming years. I’m not going to tell you how. I don’t actually think that would be in the interest of the shareholders for me to reveal that right now.

Bryan Daniel Goldberg: All right. Our next question. We’ve got another one from Jessica Reif Ehrlich on capital allocation. You just doubled your share buyback authorization to $2 billion with $1.9 billion now remaining. Do you expect to execute this by the expiration of April 2026? And even if you do, you still have a significant amount of financial flexibility. How are you thinking about uses of capital over the next 3 to 5 years?

Christian Luiga: Thank you, Jessica. Just I think it’s good to start with a long-term view on this and which is the same as a short-term view. Our first priority is growth opportunities that we can drive — that can drive attractive returns. So we want to invest in growth in this company foremost. And to do that, we do seek to have a balance sheet that supports our long-term strategy. And I think that’s really important to understand in everything we do. On the other hand, also then now what we have declared is that we believe the buyback is a good tool to use opportunistically and that gives us additional flexibility. And so we’re not going to talk about how much and when and how that will be utilized, but we do believe this is a good tool for us in addition to what we have declared before, and it was important for us to make that statement also to you in the market.

Bryan Daniel Goldberg: All right. Our next question comes from Benjamin Black on ARPU. Could you help us understand the implied FX-neutral ARPU trends for the third quarter? What are the puts and takes? And how should ARPU evolve for the fourth quarter?

Christian Luiga: Well, I think in my statement before, I talked about that we would have a neutral currency from a currency point of view, also a neutral ARPU in quarter 3. And there is some puts and takes on that, of course. The ARPU is driven by all our markets around the world. And in the developed markets, of course, we see uplifts in ARPU. Meanwhile, in the emerging markets with a strong intake, that will, of course, have a more dilution to the ARPU in the short term. But over the long term, it creates a lot of value for Spotify. When it comes to quarter 4 specifically, I will not comment on that, and we’re not going to give any guidance until we get to the fall.

Alex Norström: Christian, let me just jump in there and add to that a little bit. I have a slightly different cut on it. So I want to reremind everyone that we operate Spotify to optimize for the long term and not quarterly gain, so to speak. Now there are going to be short-term fluctuations because of timing issues, but we’ve always put subscribers on a pedestal, and that’s really worked out for us so far. And as far as pricing goes, we will raise price when it’s appropriate for the business. And I want to also remind you that we take a portfolio approach. So in a sense, you could say that we raise all the time. For instance, in the last quarter, we raised in France, Belgium, the Netherlands and Luxembourg. And I can report to you that on churn, we didn’t see anything out of the ordinary for Spotify.

Bryan Daniel Goldberg: All right. Next question from Justin Patterson on investments in the business. You’ve spoken about Spotify being the R&D engine of the music industry and that pricing actions reflect that value. As you expand into audiobooks, video podcasts and education, how are you thinking about the size of investment and degree of engagement to support future pricing?

Alex Norström: I’ll take this one, Bryan. I’m absolutely psyched about where we are with our verticals across music, video and books. I think the important thing for everyone to understand is how we think about the outcome. And the outcome can be set with the following sort of backdrop. I think everyone on the planet has a relationship with music and possibly even before you have a good language. And so I think we have enormous runway still. And with video and books added on top of this, it just expands the opportunity even further. And we’ve seen that the sort of multi-format works on our platform, like Gustav mentioned in his remarks at the beginning. Now we have now 3% of the world’s population subscribing to Spotify, paying Spotify recurrently every month, 3%.

Now do we get to 90%, unsure, but it’s not implausible that we get to 10% or 15%, and this is why we’ve set our new BHAG at 1 billion subs, which Daniel has mentioned previously. And I can share some statistics to illustrate this even further why we’re so confident. Again, we have 45% subscriber market share where we operate today and 65% of all music streams are on Spotify. So this is the backdrop and ambition that we invest against. Now we don’t comment specifically with regards to the size of these investments. But clearly, our proposition across the 3 verticals is working out.

Bryan Daniel Goldberg: Okay. Our next question is going to come from Rich Greenfield on music growth opportunities. Spotify has done a great job taking share from its less innovative industry peers, but overall music industry subscriber growth in developed markets is now relatively nascent. Are there new products packaging that you believe can reaccelerate the industry? Or is it now more about pricing power?

Alex Norström: Rich, Alex here again. I’ll jump in on this. I think you sort of heard my response on the previous question. And we are seeing amazing engagement growth in the last 4, even to 5 years across these 3 formats that we have on the platform today. And it is this engagement that we hold above everything else. And so whether we package in one way or another, it’s basically to help users get access to this proposition of ours.

Bryan Daniel Goldberg: Okay. Our next question is going to come from Doug Anmuth on Apple. You stated in the May Amicus brief related to the Apple court case that iOS U.S. paid sub conversions were improving. How does alternative payment expand the subscriber funnel? And what other opportunities does it open up across purchase flow, communication, marketing and potential new business lines?

Daniel G. Ek: Yes, Doug. As we mentioned in the Amicus brief, it did impact positively our conversions, and you can see some of that in the quarter. Obviously, most of the growth was broad-based and not just in the U.S. or North America, but also in developing markets, too. So it was really a great quarter from a growth perspective, both on the sub side and the user side, but we certainly saw positive effect of the Apple case in the U.S. Now how does that impact us? Well, the simplest term would be if you think about the consumer experience pre the Apple case. So at that point, if you would fail a payment as a subscriber, we could notify you that your subscription had expired, but we couldn’t tell you anything else. So we simply had to rely on alternative means for reaching the consumer.

That included e-mails, that included perhaps if we were lucky, some other retargeting of some form through advertising to then get the customer to redo it. But there was no way for us to directly communicate to the customer, and there was no way for that customer to take action on when they hit the sort of subscriber wall inside of that experience. And that meant many people were not stopping to use Spotify, but simply were downgraded to the ad experience, sometimes without even knowing exactly what happened and why it happened if they were using third-party platforms like a car, et cetera, using the platform. So clearly not a great consumer experience. Now if you look at that today, obviously, we can now directly communicate and we can add a call to action in the app.

It’s not full on payments, but it’s still a way where we can directly communicate to the consumer. Now what are new products and how could that influence us? Well, you could imagine a la carte transactions being a very big potential driver for future revenue growth. And we played around with that when it comes to books, for instance, where it makes a lot of sense if you’re an author for us to be able to sell books, but you can also imagine new digital products that we could potentially introduce in the future as well. So I think that this is such an important part that — we said this several years ago when we were talking about monetization and the big sort of theme around investors were thinking about pure-play advertising platforms versus pure-play subscription platforms.

And our view was that it simply for any media platform didn’t make any sense to be only subscriber-based or only be advertising based. You need both of these drivers. But now we can also add the third driver, which is a la carte transactions to that. We simply think that the big media platforms of the future will be the ones that have advertising subscription and a la carte as methods. And for that, in-app payments is a very important part. Now we hope that the Epic — what followed in the Epic suit will happen in the EU with the DMA and the DMCC as well that those get enacted and acted upon. If that’s the case, then we would see some of that same benefit also in the other markets as well.

Bryan Daniel Goldberg: Okay. Our next question is going to come from Rich Greenfield on the Advertising business. How much of the changes that you’ve made to your podcasting business model negatively impacted your advertising growth in the second quarter? What is the organic growth underlying the 5% constant currency growth if we adjust for the podcasts that are no longer exclusive?

Alex Norström: Let me start, Christian. Funny, you should ask Rich, because I was just trying to figure out if there was a way for me to talk about this. I think, certainly, when you remove the inventory from the parts of our premium landscape around the world that has a lot of revenue against the inventory? Of course, it’s going to have an impact. Now I’m sure Christian is going to tell you what the actual impact is. But I want to tell you right now, we’re really encouraged by what we are seeing in podcast and video on Spotify. And so some of the reasons to why we did this, I think it’s important to sort of surface. I think Gustav or Daniel in the initial remarks told you video consumption is growing 20x faster than our audio consumption.

And I think it’s 350 million users have now watched video on Spotify. What’s more, users who watch a podcast consume 1.5x more than users who just listen. So these are generally very good outcomes from our investments into changing the portfolio.

Christian Luiga: Yes. And just specifically, as I mentioned in my also remarks, we have a low double-digit growth if you exclude these more strategic short-term impacts from the inventory that we’ve taken away and the change in the SPP program.

Bryan Daniel Goldberg: Okay. Our next question comes from Jason Bazinet on gross margin. Can you please discuss the key drivers of gross margin expansion after 2025?

Christian Luiga: Yes. Thank you, Jason. And a little bit I alluded to this before, and I just want to add something also to that. But long term, of course, we do believe there’s going to be a gross margin expansion, and we will continue that. It comes from Advertising business, as we talked about, that is both in the music side and the podcast side, but also how we monetize the marketplace in music and the SVP in the podcast side. And then we have the audiobooks monetization that we do — continue to do. And then Daniel, he just mentioned also the third leg in this, the a la carte that we will also introduce and can introduce, which will also be an expansion driver for the future.

Bryan Daniel Goldberg: All right. We’ve got a follow-up question from Rich Greenfield on the Advertising business. Your Global Head of Sales, Lee Brown left yesterday for DoorDash. Were you unhappy with the progress in advertising and made a change? Or was the departure unexpected?

Alex Norström: Yes. So I think the main point to emphasize here is that in ’25, we’ve been recalibrating the Spotify Ads business, and we know we need to move faster, like we mentioned several times before now. That’s a diagnosis. We believe in our strategy to build to welcome all of the programmatic demand that’s out there for us next to our direct sales. And I believe that we’ve got the pieces in place to move faster. And when I talk to advertisers from essentially big to small, they like our new ad stack. They say things like they can now buy in more ways, and it just lowers the friction, right? And then obviously, they can also now measure better. Now to my mind, this is the momentum that we need to sort of ride on. We’re behind on the plan, but we’ll move faster.

And we’ve been really clear that we have high expectations really across our business, and we need to see more progress within Ads. And unfortunately, that hasn’t happened here. So we felt it was the right time for a leadership change. And we and I and, I think you, too, think highly of Lee. He’s done great things for Spotify in the last 6 years he’s been here. But right now, we need to accelerate the transformation of this business.

Bryan Daniel Goldberg: Okay. We’ve got another question from Jessica Reif Ehrlich on engagement. What metrics or color can you provide on engagement and how it’s grown by category over the past year? How do you view the opportunity to monetize this highly engaged base? Is it conversion to premium advertising or something else?

Gustav Söderström: Thanks, Jessica. This is Gustav. I’ll take that. So sort of talking a little bit category by category, we already mentioned several times some metrics here around, obviously, market share in music subscriptions. And both I and Alex and Daniel talked about the growth in video. And we’re very happy with what we’re seeing in audiobooks as well. We have over 400,000 books now. We recently launched Germany, Austria, Switzerland, Liechtenstein. And we also, importantly, released our first add-on subscriptions for U.K., New Zealand, Australia and Switzerland. So we’re seeing growth in all of these categories. And to your question of how we monetize them, I think Daniel answered this. You’re saying, is it conversion to premium ads or something else?

And Daniel mentioned there something else, which could be a la carte. So right now, we’re actually doing all of them. And as Alex said previously, when we feel it’s the right time, we may make price raises on premium, and that’s one vehicle. The other vehicle is monetization through advertising. And as Daniel mentioned, the third vehicle that is increasingly opening up is also a la carte.

Bryan Daniel Goldberg: Okay. We’ve got a question now from Deepak Mathivanan on operating expenses. Realizing the timing shifts on the second half OpEx this year, how should we think about expense growth for the next few quarters? Are there any areas of incremental investments in headcount, marketing or technology that you currently anticipate for 2026?

Daniel G. Ek: Yes. So this is Daniel. I think — the most important thing to realize is we’re not at a steady state in the business world, I think, for anyone at the moment. There’s a lot of puts and calls that are happening. And I wanted to take a moment to sort of address that both the principle and the sort of underlying change. I think the most straightforward thing that I think most investors should be seeing is that there’s a trade-off between what is headcount- driven expenses and compute-driven expenses that is more and more being played out now in every company there is when it comes to the investments that you’re making, and this is true with Spotify, too. So we’re seeing with our engineers now for the very first time, more and more questions around how much compute they can actually use as they run into various things, whether it is for internal tooling or whether it is for some of the new products that they’re developing.

And so I think that this will mean that we all as businesses are just early on starting to figure out how that’s going to be playing out. Now the most important thing for you as investors to be thinking about this, though, is that we don’t try to optimize for reaching an arbitrary goal. Instead, the #1 thing that we’re really actively focused on is driving that lifetime value metric that I talked about. And that includes the trade-off between short-term investments and long-term investments. And obviously, if there are long-term investments, those should be discounted back quite heftily. But if it still makes sense to do it, then we should do it. So let me give you an example. Perhaps this is the clearest example. Let’s take marketing as one example.

So one of the ways we measure marketing is SAC to LTV ratio. So SAC stands for subscriber acquisition cost and then you have the LTV, which, of course, is lifetime value. And the way to think about that is it’s a ratio. And so you could imagine the SAC to LTV, if it’s 2:1, it will elicit one type of response from Spotify. But let’s hypothetically say that it will go to 5:1, meaning for every dollar we invest in marketing, we get $5 back. If you’re an investor, you should feel very happy for us to invest irregardless of if that means that we will have short-term impacts on expenses for that — if you had a high degree of certainty that we were actually going to get $5 back. And so I think that is important to talk about because the world we’re entering in now, we talked about advertising just a short while ago, more and more of advertising is becoming programmatic.

That means that there will be opportunities where, for some reason, people pull back from advertising where the prices for marketing comes down, and therefore, efficiency might come up. And that might mean that even though we generally are trying to become more efficient, we may see in certain quarters where it makes a lot of sense for us to even double or triple our marketing. Those will be very unlikely scenarios and don’t happen very often, but it could happen. And I want you as investors to be prepared that we will always, in those terms, do what we think is the right for the long-term business, and we will use the appropriate KPIs and discount metrics to be very disciplined as we do that with the SAC to LTV ratios as just one example. So in short, we generally expect to see more efficiencies as we’re leveraging better and better tools.

But sometimes that efficiency may mean that the right thing is to actually spend more in the short term to then get it back in the long term. And you should expect us to always focus on what’s right to grow the franchise over time.

Alex Norström: Daniel, do you mind if I try to jump in here and make the picture even more complete?

Daniel G. Ek: Sure. Go for it.

Alex Norström: So here’s how we see it. This is the flip side of what Daniel just discussed. So the business has really never been in a better position. All signals are pointing in the right direction, I think. Now one, we’ve got great subscriber growth, which we discussed at length earlier. User engagement is growing and people are just spending more time on Spotify. And three, we’re gaining market share around the world. Really all levers for growth are available for us to pull. And we’re really happy about our position in the market, but we’re not going to rest on our laurels, and that’s sort of how we think about investing to build even better Spotify for the future.

Bryan Daniel Goldberg: Okay. Our next question is going to come from Eric Sheridan on video. How should investors think about the company’s efforts to scale video content in the second half of 2025 and beyond? How critical is video to the company’s broader efforts to drive advertising growth more in line with digital ad industry growth rates?

Gustav Söderström: So this is Gustav. I’ll start answering this. And I want to zoom out a second and say how you should really think about the video bet itself. What Spotify has always done is we’ve just followed our users around is one way to think about it. They started listening to music, then we actually saw them trying to listen to podcast. We follow them there. Then we saw them trying to listen to audio books. And when I say try, I mean that people uploaded audiobooks as music even, and then we saw them starting to watch these podcasts. So one way to think about it is we’re following our users with what they want to do. They tell us what they want to do. We follow that and we scale it. And so video is a very exciting opportunity for us because as we’ve said plenty of times now, our users are loving it.

That doesn’t mean that it’s critical. It’s just very exciting. Spotify is a very resilient company. We’re doing really well. So I don’t — I want to talk about video as an opportunity rather than a threat. We’re very excited about the opportunity. If you ask me if it’s critical or not? I would say, not necessarily, but why wouldn’t we go for it? We’re very excited about it.

Bryan Daniel Goldberg: Okay. We’ve got time for a few more questions. Next one is going to come from Rich Greenfield on pricing. If Peacock — NBC’s Peacock can raise price by 38% with limited engagement, why can’t Spotify raise pricing faster — at a faster cadence in developed markets where you have robust daily engagement?

Alex Norström: So we have approached the framing that we use internally, I think, many times during these calls, we talk about value to price and how we obsess over value to price ratio. So for us, we’ve, like I said earlier, always put subscribers on a pedestal. And again, that is what you’re seeing playing out in front of us now that you see the user growth surprising even our internal measures. And again, like pricing is one tool, and we will use it. And like I said earlier, we use it all the time. It’s not binarily done once and then we wait for a long while and we don’t do it. We take a portfolio approach and we look at the different markets. To your point here, even developed markets are different from one to the other, depending on how much value we have there and what the engagement is.

And again, we’ve raised price recently, and we’ve seen very strong churn — retention profile on those price raises. So we will use it again when we feel it’s appropriate for the business.

Daniel G. Ek: Yes. And maybe, this is Daniel, adding to Alex. I would also say that the biggest thing to realize as you’re operating a subscriber service at scale is really managing for retention or lack of churn, I should say. So again, I don’t know about other sort of players and what their profiles look for. But what we’re certainly noticing and certainly an advice for investors is a lot better to keep the customer around for a longer time than to lose the customer and then try to reacquire the customer back at a later point, too. So at scale, the subscription business is really around retention, not new customer acquisition.

Bryan Daniel Goldberg: Okay. We’ve got a question from Richard Kramer on the Ads business. We’ve now seen a full year of single-digit growth in ad- supported sales constant currency, while competition is reporting faster growth rates. Is the Advertising business really core to Spotify?

Alex Norström: Of course, it is. Otherwise, we wouldn’t be in it. And like I said, 2025, and we’ve mentioned this before as well, is a year of transformation for the business. And the best proxy that I can see, whether it’s going well or according to plan or not, really is that the adoption from advertisers. And we see all these tools that we’ve built have been adopted by advertisers. We see demand-side platforms as we add them around the world that they’re adding to the business. We see even on the direct sales side that we’re now increasing with new formats like baked in advertising and helping creators on the video side with that is also performing really well. So we just need to move faster. That is what’s at stake here.

Bryan Daniel Goldberg: Okay. And our last question today is going to come from Deepak Mathivanan on large language models. Can you talk about how Spotify is leveraging the advancements in LLMs with reasoning capabilities over the last 6 months into the core product experience. Beyond recommendations and curation, where do you see opportunities in the long term? And what are the investments Spotify is making?

Gustav Söderström: Thanks, Deepak. This is Gustav. So I already talked quite a bit about this and specifically some of the examples that are not within recommendations and curations, which is the fact that you can now talk or even text to Spotify and how that gives us a completely new data set that we didn’t have. And I talked a little bit about how I think that will change products. So maybe I’ll talk a little bit more about what investments we’re making. We are really retooling the entire company and the entire technology stack for generative age. Concretely, this means that you wrap all the APIs and something called MCPs, model context protocols, so that you can have an agentic infrastructure on top of all your old school tech infrastructure so that you can basically create a product on the fly by just writing something in English.

For example, when a user asks for the question I had about that song that where Bruce Springsteen invited a fan, there is a little artificial software engineer that writes a program that actually goes out and searches the web for that information, figures out which music video is it, then goes in, searches through our catalog and may even tailor to your taste. So this reasoning that I talked about is the opportunity. One last thing that I want to leave you with is that I talked about the difference between the non-generative AI age and the generative AI age, and I talked about how these products are now self-improving. I just want to emphasize that in the old world of recommendations, the deep learning-based world, making the models bigger and having more users and more usage actually did not improve those models.

They had peaked out in terms of performance. So when you hear AI people talk about the scaling loss, what they mean is that LLMs, unlike the previous deep learning systems, they get better so far infinitely as you add more data and more usage. So this creates an interesting dynamic where the application that has the most engagement gets better the fastest, and we think we’re very well positioned because we have the most engagement. So that’s maybe the most strategic impact of this technology to us.

Bryan Daniel Goldberg: All right. Great. Thanks, everyone, for the questions. That concludes our Q&A section of the call. I’d like to turn it back over to Daniel for some closing remarks.

Daniel G. Ek: Yes. Thanks, Bryan. It’s really been a great first half of ’25, and we’re focused on delivering a strong finish. The business is healthy and well prepared, and I generally believe we’re in the best position we’ve ever been to capture the opportunities ahead. So thank you, everyone, for joining us today and look forward to chatting to you soon again.

Bryan Daniel Goldberg: 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.

Operator: This concludes Spotify’s Second Quarter 2025 Earnings Call and Webcast. Thank you for your participation. You may now disconnect.