Paul Vogel: Yes. So I’d say a couple of things here. One is, first on the podcasting side, yeah, we’ve seen the improvements in the podcasting business, and we talked about how that’s been a drag on our gross margins, and we expect it to soon reach breakeven and then become something that’s actually additive to gross profit. So we’re on track on the podcasting side there, and that should continue to be helpful into 2024. Same with the music side in terms of incremental gross margins there as well. When you think about the audiobooks side of it, there’s obviously some investment anytime you launch a new business. But again, as I said earlier, we feel really good about continuing to have a nice progression in gross margins into 2024.
We’ll give more specific guidance on the next earnings call. The only thing is when you think about sequential, we do tend to have some seasonality in Q1 versus Q4. Some years, it’s more material than others. Obviously, advertising, it tends to be one of the slower quarters from an advertising perspective. But we are expecting gross margins to be improved in 2024, and we feel really good about hitting all the targets we talked about at the Investor Day and the significant progress we’ve already made to date.
Bryan Goldberg: All right. Next question is from Doug Anmuth on audiobooks. Can you talk about the cost structure and the economics of audiobooks? How should we think about the impact to gross margin in the fourth quarter and into 2024? And what gives you confidence in adoption by subscribers?
Paul Vogel: Yes. So I guess I’ll just kind of read out what I said, which is, obviously, there’s always going to be — there’s some costs whenever you launch a new product, but you’ll see that the gross margins are up Q3 to Q4. And as I said a couple of times now, we do expect gross margins to be up again in 2024, and we expect to continue to see that nice progress we’ve made on the gross margin side and the operating profit side into 2024. And the confidence on adoption of subscribers. I’ll start, maybe Daniel has some thoughts here. But I think as Daniel mentioned, it’s early days, but we feel really good about the first couple of weeks to month in the markets we’ve launched in. And we just believe it’s going to be a great product.
It’s going to open up more authors to more consumers. And what we’ve seen in the past is when we enter a business, the business becomes bigger, the podcasting business is a much bigger global business because Spotify is a part of that business now. And we think we’re going to have the same benefit on the audiobook side, which will be great for authors and great for consumers.
Daniel Ek: Yes. And we feel great, again, as I mentioned in my opening remarks, with the adoption in UK and Australia. And just as a reminder to investors, we are planning to launch in the U.S. this coming winter as well. So you’re definitely going to see us expand audiobooks. And already with this initial launch, it is positive. It’s early days. But we’re encouraged with what we’re seeing. And the most important thing is when you think about the consumers that are trying out the experience, they’re loving it and they’re finding it a really natural part of the Spotify experience and a great value add. And that speaks to this earlier point we made about sort of consistently improving the experience by adding more things for creators and consumers alike. And then every now and then adding these verticals that just step — make step changes in the value proposition that we’re doing.
Bryan Goldberg: Okay. Next question from Rich Greenfield on marketing efficiency. You accelerated user and revenue growth while cutting marketing spend. Can you help us understand what’s enabled this dynamic and whether you believe it’s sustainable into 2024?
Daniel Ek: Yes, Rich, I would really make it a testament to this focus on efficiency as we talked about. Again, it is marvelous when team focuses on something here at Spotify. We tend to achieve it. And when Paul and I kind of set that objective for the teams, what started happening was they started focusing a lot more on the performance marketing mix, some of the initiatives that we were doing. We were pulling back from other things. We were doubling down on others. And we started seeing top line holding up and even accelerating at a lower marketing expense. And we’ve seen this trend now play out for a few quarters. Initially, I was kind of skeptical whether that would be able to keep going. But with the recent learnings, it seems very possible that is the case and that we are simply increasing our rate of learning at a great pace across the marketing team and that I think is a very positive sign going into 2024.
Bryan Goldberg: All right. Another one from Rich Greenfield on advertising. Advertising growth constant currency accelerated to 24% from low to mid-teens at the past couple of quarters. What’s driving that acceleration? And how are you feeling about the time period ability to drive advertising towards 20% of overall revenues compared to 13% today?
Paul Vogel: Yes. So the quarter just saw a nice acceleration both on the music side and the podcasting side on constant currency. So it was across the board. We’re doing a good job of selling. We’re improving the tools or improving the automation side of the world. And honestly, we’re doing a good job of selling across both music and podcasting. So having both of them in the ecosystem is really, really helpful, which I think we’ve talked about before in the past. And so that’s been a lot of the driving growth. I don’t really have any update to give you in terms of 20%. It’s not necessarily a target we shoot for. I think what we’ve said in the past is we believe over time that advertising continues to grow, it could become 20% or more. But we feel good about the acceleration on the advertising side in Q3 and the trends kind of how they’ve improved throughout the year.
