Spotify Technology SA reported solid financial results for the second quarter of 2025, with total revenue reaching €4.2 billion, marking a 15% increase year-over-year in constant currency. The company also announced significant advancements in its AI capabilities and product offerings. Despite a slight decline in its stock price during regular trading hours, Spotify’s shares rose by 0.89% in aftermarket trading.

Key Takeaways

• Spotify’s total revenue increased by 15% year-on-year.
• Premium revenue grew by 16%, while advertising revenue rose by 5%.
• Gross margin expanded to 31.5%, a 230 basis point increase.
• Spotify is investing heavily in AI and product innovation, expanding its AI playlist generation to over 40 markets.

Company Performance

Spotify’s performance in Q2 2025 showcases its strength in the music streaming industry, with significant growth in both premium and advertising revenues. The company continues to lead the market with a 45% share in music subscriptions and 65% of global music streams. Spotify’s strategic focus on AI and multi-format content is positioning it well against competitors.

Financial Highlights

• Total Revenue: €4.2 billion, up 15% year-on-year
• Premium Revenue: Increased by 16% year-on-year
• Advertising Revenue: Grew by 5% year-on-year
• Gross Margin: 31.5%, expanded by 230 basis points
• Operating Income: €406 million
• Free Cash Flow: €700 million
• Cash and Short-term Investments: €8.4 billion

Outlook & Guidance

Spotify’s guidance for the third quarter of 2025 includes expectations of 710 million monthly engaged users and 281 million subscribers, with total revenue projected at $4.2 billion. The company aims to reach 1 billion subscribers in the long term and continues to invest in multi-format content strategies.

Executive Commentary

“We do not make decisions that achieve specific short-term quarterly outcomes,” stated Daniel Ek, CEO of Spotify, emphasizing the company’s focus on long-term growth. Co-President and Chief Product Officer Gustav Söderström added, “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,” highlighting Spotify’s user-centric approach.

Risks and Challenges

• Market Saturation: As Spotify aims to increase its subscriber base, penetrating new markets could become challenging.
• Competition: The company faces strong competition from other streaming services and content platforms.
• Macroeconomic Pressures: Global economic uncertainties could impact consumer spending on premium subscriptions.
• Technological Investments: Continuous investment in AI and infrastructure could strain resources if not managed efficiently.

Spotify’s Q2 2025 earnings call underscores its robust market position and strategic focus on innovation. With strong financial results and a commitment to expanding its AI capabilities, the company is well-positioned for future growth, despite potential challenges in the competitive landscape.

Full transcript - Spotify Technology SA (SPOT) Q2 2025:

Operator: Good day and welcome to Spotify’s second quarter 2025 earnings call and webcast. All participants are in a listen-only mode. If you require operator assistance at any time, please press star zero. As a reminder, this conference call is being recorded. I would now like to turn the call over to Brian Goldberg, Head of Investor Relations. Thank you. Please go ahead.

Brian Goldberg, Head of Investor Relations, Spotify: 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 Norström, our Co-President and Chief Business Officer; Gustav Söderström, 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, 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 email investorrelations@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 financials section of our investor relations website, and also furnished today on Form 6-K. With that, I’ll turn the call over to Daniel.

Daniel Ek, CEO, Spotify: 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 MEU. In fact, looking at the first half of 2025, subs net ads grew more than 30% versus the first half of 2024. 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 MEU 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. By constantly evolving, we create more and more value for the almost 700 million people using our platform.

This value not only benefits users, but it’s attracting more people to streaming. As a result, it also boosted the industries of music and podcasts and audiobooks. However, as I look at our progress, the one area that hasn’t yet met our 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 take hold. It’s really an execution challenge, not a problem with the strategy. While I’m unhappy 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. We are seeing some promising signs in our programmatic business, which I think will set us up nicely for 2026. 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. In the spirit of transparency, you’ll see a few places in our Q3 forecast where we probably are a little bit lighter than you may have anticipated. Let me talk about that. First, big picture. The business is solid, and our model holds up. I feel really good about where we stand and how consumers view Spotify. We still expect 2025 to be a standout year for Spotify. This quarter brings us up one step closer to that goal of a billion subscribers. Looking ahead, we’ll keep pushing boundaries through innovation, bringing even more value to users and creators.

This, of course, expands the overall Spotify network as we build a larger, more vibrant platform that will benefit everyone, where fans can gain access to more of what they love, and creators will have a global audience to reach. Let me also take a step back to remind you how we run Spotify. Our approach has always been, and will continue to be, focused 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.

The exact timing of when these efforts flow into tangible results can vary. Sometimes that’s within our control and sometimes not. The most important takeaway for you all is that we do not make decisions that achieve specific short-term quarterly outcomes. Zooming out, we are very well positioned, and I feel very good about our business. With that, I’ll hand it over to Alex.

Alex Norström, Co-President and Chief Business Officer, Spotify: Thank you, Daniel. I want to cover a couple of things. As you heard, we are super excited about the user and subscriber growth we saw this quarter. First, let me just set the stage in our subs growth story. Over 3% of the world’s population subscribes to Spotify. That is pretty astounding, but also really encouraging when you think about how far we can still grow from here. It is not implausible to imagine us reaching 10% or even 15% of the world’s population. It is also awesome to see that we continue to uncover new subs growth opportunities even in our developed and mature markets. It is 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. 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 is a lot of excitement about working with Spotify, especially with the automated ads and all of the new tools that we have recently introduced. We have an enviable brand and a highly engaged, loyal user base that advertisers want to tap into. In fact, we have grown monthly active advertisers by more than 40% year over year. We will continue to build on this growth in the second half of 2025, which will be focused on improving our execution.

With the heavy lifting and our ad tech largely complete, we are 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 bidable channels. We are creating a stronger, more sustainable ads business by accelerating our automation efforts and enhancing our world-class brand operations. Now, I will pass it to Gustav to share some insights around some of the ways that we are increasing the value for users and creators. Gustav.

Gustav Söderström, Co-President and Chief Product and Technology Officer, Spotify: Thanks, Alex. 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 are solving for real problems that they face while also driving meaningful impact to our business. There is 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. This is especially true with our 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 a music streaming service subscribe to Spotify, according to media research. That percentage has been steadily growing over the years. As you know, in 2024, we went all in on video.

There are now more than 430,000 video podcasts on Spotify. Video continues to outperform, with consumption trending higher and higher, growing 20 times faster than audio-only consumption since 2024. More than 350 million users have streamed the video podcast on our platform. That is a 65% increase year over year. As we look to understand impact, obviously, user engagement is a critical metric for us. As we rebuild our stack for the generative AI age and bring personalization to a whole new level, we are seeing it improve significantly. For example, listeners have been telling us just how much they love Spotify 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. We delivered that.

Now, in more than 60 markets, DJ takes music requests, serving up suggestions using AI and also insights from our global editorial experts. 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. 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 continue to expand our popular AI playlists to premium listeners, bringing it to over 40 new markets. Millions of users have responded by creating playlists with this tool.

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. 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.

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 playlists, and we saw clear jumps in performance, such as people listening longer to the resulting playlist or saving them more often and so forth. 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. Let me turn it over to Christian to walk you through the numbers.

Daniel Ek, CEO, Spotify: Thank you, Gustav, and thanks, everyone, for joining us today. Let me cover first the quarter two results, and then I’ll come back a bit on perspective on our outlook. First, starting quarter two, MEU 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 ARPA 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 networking capital. We ended the quarter with EUR 8.4 billion in cash and short-term investments. Looking ahead at our guidance in quarter three, we’re forecasting 710 million MEU, an increase of 14 million from quarter two, and 281 million subscribers, an increase of 5 million over quarter two.

We’re also forecasting $4.2 billion in total revenue. Our revenue outlook incorporates a sizable headwind of approximately $200 million due to unfavorable currency movements over the last quarter. We’re also forecasting ARPA to be flat year on year on a constant currency basis. Moving down the P&L, we expect quarter three gross margin of 31.1% and an operating income of $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 three 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 three gross margin is in line with quarter one and quarter two 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 three due to timing factors. 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’re also planning for the upcoming maturity of our exchangeable notes in March of 2026. To the extent excess capacity rises 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 two. The mandate is giving us enhanced flexibility to be opportunistic in this regard. In conclusion, quarter three 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, Brian.

Brian Goldberg, Head of Investor Relations, Spotify: Great. Thanks, Christian. Again, if you’ve got any questions, please go to slido.com/SpotifyEarningsQ225. We’ll be reading the questions in the order they appear in the queue with respect to how people vote up their preference for questions. Today’s first question is going to come from Jessica Reeve Ehrlich on product tiers. Can you provide an update on how you’re thinking about introducing tiers or a tier, whether it be Superfan or something else, across your platform globally? How many tiers can be created without complicating the user experience?

Daniel Ek, CEO, Spotify: Hey, Jessica. Alex here. Thanks for the question. Now, we’re really excited about engaging Superfans, as you know, and we’re building something great for them. 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. We’re working towards these very high value standards, and we’re making progress, for sure, but it’s taking time. In music, of course, we’re reliant on our partners to a certain degree. You have to know that Superfans are everywhere and not just in music. 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. This add-on really does two things. It better takes care of the demand from our Superfans on books, and it’s enabling access to audiobooks for our family plan subaccounts as well, which we haven’t had prior to this. 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.

Brian Goldberg, Head of Investor Relations, Spotify: All right. Our next question is going to come from Benjamin Black on gross margin. This quarter, your gross margins did not 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?

Daniel Ek, CEO, Spotify: Thank you, Benjamin. I’m going to start by answering in the end and then go to the first question. 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. 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 SPP monetization. And audiobooks, we will continue to monetize over the experience we’re doing. At the same time, we have seen that in the small numbers in this quarter, but also over the time, other costs of revenue like customer service and payment services, we are slightly scaling on that as well.

That’s just what we see. We don’t guide to specifically a quarter four or 2026, but we naturally have a seasonally stronger quarter four. The two things that I can point to at this stage is that ad-supported gross margin usually hits its highest point in quarter four. Of course, we had a 40 basis points impact in quarter three that will not come back in quarter four. 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 the guidance.

When we do the guide for the quarter, we will look at the certainty in our licensing deals or in the market or in other aspects that can hit the margin. We don’t go out with typically a gross margin guidance that we feel uncertain about. We try to calibrate into a more certain level when we guide on that. If you do that, you usually will be above or on target. Now we are on target, which means we had very little issues in this quarter when it comes to uncertainty.

Brian Goldberg, Head of Investor Relations, Spotify: 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, Co-President and Chief Product and Technology Officer, Spotify: I would be happy to, Justin. Thank you. 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. This is true, I know, for many other companies as well. 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. We are seeing faster prototyping. We had a hack week this spring that we spent entirely on upskilling the entire workforce. 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.

That is on productivity. We are seeing the same sort of gains that most others are seeing. We are 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 what is called the PRDs, so the product requirements document. Google eval is the new PRD, and you will 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.

You can imagine that those are pretty blunt signals. A skip could be a song that you love, but you are really tired of it. It could be a song that you love, you are not tired of it, but it is the wrong situation. It could be a song that you really do not like. All of those just result in a skip. These are blunt signals. What is happening with generative AI is the user can finally speak to Spotify in plain English or any language for that matter. 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.

We have the biggest of such data sets in the world. We are very happy with it. We’re getting a new data set now, which is what English sentence goes to this song. That is completely new to us. It is a very, very valuable data set that we’re collecting very quickly. 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 playlists or podcasts or books you might want to listen to, to what is now called reason user experiences, where you actually reason over the user’s listening history and actually what they said in the case of DJ. I think user experiences will change quite a lot in the coming years. I’m not going to tell you how. I do not actually think that would be in the interest of the shareholders for me to reveal that right now.

Brian Goldberg, Head of Investor Relations, Spotify: All right. Our next question. We’ve got another one from Jessica Reeve 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? Even if you do, you still have a significant amount of financial flexibility. How are you thinking about uses of capital over the next three to five years?

Daniel Ek, CEO, Spotify: Thank you, Jessica. I think it’s good to start with a long-term view on this, which is the same as a short-term view. Our first priority is growth opportunities that can drive attractive returns. We want to invest in growth in this company, foremost. 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, what we have declared is that we believe the buyback is a good tool to use opportunistically, and that gives us additional flexibility. 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’s important for us to make that statement also to you in the market.

Brian Goldberg, Head of Investor Relations, Spotify: 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?

Daniel Ek, CEO, Spotify: 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 three. There are some puts and takes on that, of course. The ARPU is driven by all our markets around the world. 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 more dilution to the ARPU in the short term. Over the long term, it creates a lot of value for Spotify. When it comes to quarter four specifically, I will not comment on that, and we’re not going to give any guidance until we get to the fall.

Christian Luiga, CFO, Spotify: Hey, Christian, let me just jump in there and add to that a little bit. I have a slightly different cut on it. I want to re-remind everyone that we operate Spotify to optimize for the long term and not quarterly gains, so to speak. 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. As far as pricing goes, we will raise price when it’s appropriate for the business. I want to also remind you that we take a portfolio approach. 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. I can report to you that on churn, we didn’t see anything out of the ordinary for Spotify.

Brian Goldberg, Head of Investor Relations, Spotify: 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 expanded to audiobooks, video podcasts, and education, how are you thinking about the size of investment and degree of engagement to support future pricing?

Daniel Ek, CEO, Spotify: I’ll take this one, Brian. 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. 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 it with language. I think we have enormous runway still. With video and books added on top of this, it just expands the opportunity even further. We’ve seen that the sort of multi-format works on our platform, like Gustav mentioned in his remarks at the beginning. We have now 3% of the world’s population subscribing to Spotify, paying Spotify recurrently every month, 3%. Do we get to 90%? Unsure. It’s not implausible that we get to 10% or 15%.

This is why we’ve set our new BHAG at 1 billion subs, which Daniel has mentioned previously. 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. This is the backdrop and ambition that we invest against. We don’t comment specifically with regards to the size of these investments, but clearly our proposition across the three verticals is working out.

Brian Goldberg, Head of Investor Relations, Spotify: 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 re-accelerate the industry, or is it now more about pricing power?

Christian Luiga, CFO, Spotify: Rich, Alex here again. I’ll jump in on this. I think you sort of heard my response on the previous question. We are seeing amazing engagement growth in the last four, even to five years. Across these three formats that we have on the platform today. It is this engagement that we hold above everything else. Whether we package in one way or another, it’s basically to help users get access to this proposition of ours.

Brian Goldberg, Head of Investor Relations, Spotify: 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 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?

Christian Luiga, CFO, Spotify: Yeah, 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. It was really a great quarter from a growth perspective, both on the sub-side and the user side. We certainly saw positive effects of the Epic case in the U.S. Now, how does that impact us? The simplest term would be if you think about the consumer experience pre the Epic case. At that point, if you would fail payment as a subscriber, we could notify you that your subscription had expired, but we could not tell you anything else. We simply had to rely on alternative means for reaching the consumer.

That included emails, that included perhaps, if we were lucky, some other retargeting of some form through advertising to then get the customer to redo it. 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. 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, etc., using the platform. Clearly not a great consumer experience.

If you look at that today, obviously, we can now directly communicate, and we can add a call to action in the app. It is not full-on payments, but it is still a way where we can directly communicate to the consumer. What are new products and how could that influence us? You could imagine à la carte transactions being a very big potential driver for future revenue growth. We played around with that when it comes to books, for instance, where it makes a lot of sense if you are an author for us to be able to sell books. You can also imagine new digital products that we could potentially introduce in the future as well.

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 PurePlay advertising platforms versus PurePlay subscription platforms. Our view was that it simply for any media platform did not make any sense to be only subscriber-based or only be advertising-based. You needed both of these drivers. Now we can also add the third driver, which is à 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 à la carte as methods. For that, in-app payments is a very important part. We hope that what followed in the Epic suits 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.

Brian Goldberg, Head of Investor Relations, Spotify: Okay. Our next question is going to come from Rich Greenfield on the advertising business. How much have 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?

Christian Luiga, CFO, Spotify: 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. I want to tell you right now, we’re really encouraged by what we are seeing in podcasts and video on Spotify. Some of the reasons to why we did this, I think, is 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. 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. These are generally very good outcomes from our investments into changing the portfolio.

Daniel Ek, CEO, Spotify: Yeah. Just to 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 have taken away and the change in the SPP program.

Brian Goldberg, Head of Investor Relations, Spotify: Okay. Our next question comes from Jason Bazinet on gross margin. Can you please discuss the key drivers of gross margin expansion after 2025?

Daniel Ek, CEO, Spotify: Yeah. Thank you, Jason. I alluded to this before, and I just want to add something also to that. 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 SPP in the podcast side. Then we have the audiobooks monetization that we do continue to do. Daniel, he just mentioned also the third leg in this, the à la carte that we will also introduce and can introduce, which will also be an expansion driver for the future.

Brian Goldberg, Head of Investor Relations, Spotify: 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?

Christian Luiga, CFO, Spotify: Yeah. I think the main point to emphasize here is that in 2025, 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 the 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. I believe that we’ve got the pieces in place to move faster. 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. Obviously, they can also now measure better. 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.

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

Brian Goldberg, Head of Investor Relations, Spotify: Okay. We have got another question from Jessica Reeve Ehrlich on engagement. What metrics or color can you provide on engagement and how it has grown by category over the past year? How do you view the opportunity to monetize this in a highly engaged base? Is it conversion to premium, advertising, or something else?

Gustav Söderström, Co-President and Chief Product and Technology Officer, Spotify: Thanks, Jessica. This is Gustav. I’ll take that. Sort of talking a little bit category by category, we already mentioned several times some metrics here around obviously market share in music subscriptions. Both I and Alex and Daniel talked about the growth in video. 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. We also, importantly, released our first add-on subscriptions for U.K., New Zealand, Australia, and Switzerland. We’re seeing growth in all of these categories. 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? Daniel mentioned there’s something else which could be à la carte. Right now, we’re actually doing all of them.

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. As Daniel mentioned, the third vehicle that is increasingly opening up is also à la carte.

Brian Goldberg, Head of Investor Relations, Spotify: Okay. We’ve got a question now from Deepak Madhavan 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?

Christian Luiga, CFO, Spotify: Yeah. 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. 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. This is true with Spotify too.

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. 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 number one thing that we’re really actively focused on is driving that lifetime value metric that I talked about. That includes the trade-off between short-term investments and long-term investments. Obviously, if there are long-term investments, those should be discounted back quite heftily.

If it still makes sense to do it, then we should do it. Let me give you an example. Perhaps this is the clearest example. Let’s take marketing as one example. One of the ways we measure marketing is SAC to LTV ratio. SAC stands for subscriber acquisition cost, and then you have the LTV, which of course is lifetime value. The way to think about that is it’s a ratio. You could imagine the SAC to LTV, if it’s 2 to 1, it will elicit one type of response from Spotify. Let’s hypothetically say that it would go to 5 to 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, regardless 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. I think that is important to talk about because the world we are 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 come down. Therefore, efficiency might come up. 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 do not happen very often, but it could happen. I want you as investors to be prepared that we will always, in those terms, do what we think is right for the long-term business. 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. In short, we generally expect to see more efficiencies as we are leveraging better and better tools. 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. You should expect us to always focus on what is right to grow the franchise over time.

Alex Norström, Co-President and Chief Business Officer, Spotify: Hey, Daniel, do you mind if I try to jump in here and make the picture even more complete?

Christian Luiga, CFO, Spotify: Sure. Go for it.

Alex Norström, Co-President and Chief Business Officer, Spotify: Here’s how we see it. This is the flip side of what Daniel just discussed. 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. Three, we’re gaining market share around the world. Really, all levers for growth are available for us to pull. We’re really happy about our position in the market. We’re not going to rest on our laurels. That’s sort of how we think about investing. To build an even better Spotify for the future.

Brian Goldberg, Head of Investor Relations, Spotify: 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, Co-President and Chief Product and Technology Officer, Spotify: This is Gustav. I’ll start answering this. 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 podcasts. We followed them there. Then we saw them trying to listen to audiobooks. When I say try, I mean that people uploaded audiobooks as music even. Then we saw them starting to watch these podcasts. One way to thi