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Spotify 2Q 2020

A quick summary for easy reference:

  • 138 mm premium subscribers
  • 170 mm ad supported MAUs
  • Total 299 MAUs
  • Total growth:  5% quarter over quarter; 29% year over year.
  • Within Premium, average revenue per user (“ARPU”) of €4.41 in Q2 was down 9% Y/Y (down 7% excluding the impact from FX rates).
  • At the end of Q2, our workforce consisted of 6,049 FTEs (full-time employees) globally.
  • Q3  2020 Guidance:
    • Total MAUs: 312-317 million
    • Total Premium Subscribers: 140-144 million
    • Total Revenue: €1.85-€2.05 billion
      • Assumes approximately 260 bps headwind to growth Y/Y due to movements in foreign exchange rates
    • Gross Margin: 23.1-25.1%
    • Operating Profit/Loss: €(70)-€(150) million
  • Q4  2020 Guidance:
    • Total MAUs: 328-348 million
    • Total Premium Subscribers: 146-153 million
    • Total Revenue: €2.05-€2.25 billion
      • Assumes approximately 360 bps headwind to growth Y/Y due to movements in foreign exchange rates
    • Gross Margin: 23.7-25.7%
    • Operating Profit/Loss: €(45)-€(145) million

Consumption trends by platform are beginning to normalize as well; in-car listening at the end of the quarter was less than 10% below pre-COVID levels having recovered from a 50% decline at the trough in April. 

…expansion of our Microsoft Xbox Game Pass relationship

Separately, the introduction of our TV app on Comcast’s proprietary X1 set-top box marked the first integration with a pay-TV provider in the US, demonstrating continued progress against our ubiquity strategy. 

Product and Platform 

We continue to accelerate product innovation in order to enrich the consumer experience and serve the right content from the more than 60 million unique tracks and more than 1.5 million podcasts on our platform. Through experimentation, we aim to scale features that will lead to improved intake, retention, conversion, and thus higher LTV. For example, we rolled out lyrics this quarter in 26 countries across Southeast Asia, Latin America, and India covering more than 100 million of our users. 

We continue to make improvements to our join flow and onboarding experience and have seen a demonstrable improvement to both short term and long term retention as a result. Once on the platform, we constantly add or improve features such as our recent announcement that we have removed the cap on the number of tracks a user can download, now offering the ability to save an unlimited number of songs, albums and podcasts to their collection of favorites (up from a max of 10,000 tracks previously). 

With COVID-19 protective measures still in place, we launched a Listening Together microsite that visualizes when two Spotify listeners start to play the same song at the exact same time – which happens on average 30,000 times every second on Spotify. A further enhancement to the user experience, Spotify launched a Group Session feature that allows up to five Premium users to share control over the music being played. Group Session participants can control what’s playing in real-time as well as contribute to a collaborative playlist for the group. Another product feature we’re experimenting with is Canvas, which turns formerly static song pages into engaging video-art showcases with 8 second visual loops. Spotify users and artists can now share Canvas artwork to Instagram stories, a feature that is unique to the Spotify platform and sharing experience. 

Ubiquity remains a core strategy, and we continue to find ways for consumers to seamlessly connect with our platform. This quarter we expanded our Spotify Free offering through Amazon Alexa devices beyond the US, Australia and New Zealand. Amazon Alexa devices will now support Spotify Free in Austria, Brazil, Canada, France, Germany, Ireland, Italy, Japan, Mexico, Spain and the UK. Additionally, we are also excited to be launching Spotify (Free and Premium) on Alexa in India. 

Content 

Today, 21% of our Total MAUs engage with podcast content, up from 19% of MAUs in Q1 2020, and consumption continues to grow at triple digit rates Y/Y. We see strong MAU growth in podcast content across all regions for Spotify. Overall supply of new podcast content recovered in Q2 after a slight impact related to COVID-19 in the previous quarter. There have been a healthy number of releases for Catalog, as well as Spotify Originals within the quarter. We launched 110 podcast playlists across 6 markets (including 49 new O&E podcasts outside the US) on a variety of themes and topics to continue to drive podcast discovery for users. Currently, Spotify’s podcast catalog has over 1.5 million shows, 50% of which launched in 2020. Our acquisition of Anchor last year has helped accelerate content growth on the platform with approximately three quarters of new podcast releases being powered by Anchor. Spotify announced an additional 9 exclusives like Do You See What I See and Rapot to our Creator Accelerator Program in Indonesia, launched our first original podcast, Search Engine Sex, in Australia, and released our first exclusive, XRey, in Spain. 

As COVID-19 has impacted the creator community and the way in which users interact with Spotify, we created user experiences that allow listeners to adapt to the current environment. 

Spotify launched an “At Home Music & Podcast Entertainment” hub, which has had over 20M unique visitors. Additionally, we created a “COVID-19 Guide” podcast hub to serve as a resource to those wanting to engage and understand more about COVID-19 related information and topics. As we mentioned last quarter, we launched the Spotify COVID-19 Music Relief project, through which we have partnered with organizations that offer financial relief to those in the music and creator community around the world. We pledged to match dollar-for-dollar public donations made to these organizations, up to a total Spotify contribution of $10 million. We also launched Artist Fundraising Pick (a feature that enables artists to raise money to support themselves, their bands, their crews and charitable organizations) in April, and to date have seen more than 91,000 artists take advantage. 

Two sided market place

The number of artists and their teams utilizing our Spotify for Artists tools on a monthly basis has grown to more than 690,000, growth of 68% Y/Y, and these creators are finding ways to unlock new channels for discovery. Growth in the number of artists making up our top tier (those accounting for the top 10% of streams) is accelerating; that cohort now stands at over 43,000 artists, up 43% from 30,000 one year ago. Our product and platform are driving discovery, diversifying taste, and helping up-and-coming artists reach new audiences. Gone are the days of Top 40, it’s now the Top 43,000. We continue to add new features to our suite of Marketplace products to better serve the needs of these creators and their teams. We also expanded our Sponsored Recommendation functionality to Canada this quarter, and look forward to launching in further markets soon. We also began piloting new targeting features in the Sponsored Recommendation product that allow for more flexibility to suit the unique needs of marketers. Conversion remains high, and the number of artists taking advantage of these features grew more than 37% Q/Q. 

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