Acast AB (publ) (ACAST) Earnings Call Transcript & Summary

Yes. So I hope to lead a Acast sales offering as a Global Head of Ad Innovation. So my focus here is to help turn innovation into complete ad sales package tools that allow the Acast global sales team and our advertising partners to get the most of what they need from our marketplace. And of course, for our podcasters to make more money from their craft. Part of my role is to help to ensure that, that Acast marketplace and our sales team have adopted the right strategy for our ad sales products and for the future of podcasting.

Okay, and could you tell us a few things about the Acast marketplace?

I'd be happy to. So the Acast marketplace is where we connect advertisers to podcasters with the intent to deliver targeted effective ad campaigns. It's within this marketplace where our expert ad sales teams, the leading authorities in podcasting, eat, live and breathe podcasts. And they do a really remarkable job at constantly adapting to the rapidly changing demands in podcasting within 14 markets globally. In essence, we can think of them as matchmakers, they bring together the right podcasters with the right listeners and the right audiences. As you'll see here, within our marketplace, we have 3 industry-leading service pillars. The Acast Intelligence team is our Business Intelligence division. Their job is to help shape podcast campaigns through the use of data, research and insights. Our Acast creative team is our in-house creative expert team that helps these brands create the very best audio experience for our podcasters and their listeners across all ad formats. And then lastly, we have the Acast automated team. This is the industry's leading programmatic advertising experts, and we enable advertisers to plan, buy and optimize media in real time and at scale through the use of programmatic technology. For those of you who aren't sure what programmatic is, don't worry, we'll explain a bit more very soon. But within the marketplace and under the services I just mentioned, we offer a range of ad formats, which Ross touched on earlier, each of which can be tailored depending on your needs. And within that, we've designed and built the most -- and in some cases partnered, with independent vendors to offer the most advanced targeting and measurement capabilities for podcasting, with the intent that every advertiser can reach the right listener at the right time and with the right creative messaging. And with each of these innovations, we've been able to unlock new revenue sources. So within the targeting specifically, we can dive a bit deeper and take a look at how we enable advertisers to target specific podcast listeners based on 4 core budgets -- buckets. Firstly, we have our curated collection. This is actual grouping of podcasts curated by Acast experts, and it's based on the common themes. This could be things like comedy and sports, lifestyle or beauty. And within this bucket, advertisers can target the most relevant category for their message. Secondly, we offer -- one of our big bets has been to develop new innovative targeting capabilities called conversational targeting which enables advertisers to target subject matter discussed down at the individual episode level so they can reach advertisers with even more relevant messages at the right time. We use artificial intelligence and machine learning to analyze the shows. And when then we match the shows back to each individual episode against the industry-wide standards of [ IOB ] categories. And within here, we can also enable individual keywords. The reason this is really important is because it leans into the unique capabilities of contextual advertising within audio content as well as enhancing the advertising relevancy for listeners and all of this is really in a privacy safe centric way, which is safeguarded against any changes around data privacy legislation. So an example of this would be a comedy interview podcast that you listened to recently, where the majority of the time was spent speaking about cooking, their favorite pasta dish and their favorite food. Based on standard targeting, we would tag that advertising opportunity as comedy. But within conversational targeting, we surface the contextual relevancy of that conversation and it allows us to identify that this conversation is more about food and cooking, which really opens up the opportunity for, let's say, a food brand who would want to hyper contextually -- to target within hyper contextually relevant advertising. And then thirdly, we have third-party data offering, which is the aggregation of third-party data through our data management platform. And within this targeting feature, we're able to locate a specific listener or listener attribute. An example of this would be looking for someone in the market for an Audi. And then finally, with all the scale in targeting, brands really want to ensure that they can protect their brand image and their reputation from questionable and inappropriate content. And while at Acast we're not in the business of censorship and we will always support free of speech, we do understand that not all content is suitable for every advertiser and so we launched the first-of-its-kind brand safety product for podcasting. We did this in collaboration with the trusted media measurement and analytics company, Comscore. We call this product the brand suitability product. And we removed -- with this product, we were able to remove another barrier to entry for buying audio ads. This feature analyzes the words and the frequency of the words spoken within the conversations and is able to separate and place the episode within bearing degrees of risk levels. This way, we can differentiate, for example, between a bomber jacket and a bomber referencing violence. We continue to evolve our marketplace, thanks to the rich data we sit on, especially after the recent acquisition of Podchaser. This is to enhance our advertiser offering even further and to enable advertisers to harness the power of their own data to make decisions on media. More than 60% of media budgets in the U.S. are bought using first-party data and the lack of the capability of this kind in podcasting really was a major barrier to entry, especially for advertisers within certain vertical spaces like retail. Acast is currently in a position to service and support these budgets that previously would not be allocated towards podcasting. And we have a series of further launches expected to be released in the following quarters around targeting data specifically.

Okay. So many interesting things. Looking at the bigger picture, what can you tell about -- what can you tell us about the market size for podcasting appetite?

Yes. So the podcast market is very much in its infancy. Despite being around as long as it has been, from an advertiser's perspective, it's still very much considered an emerging platform. We can think of it like the likes of virtual reality and gaming or dare I say it the metaverse. Podcasting has proven to be a disruptive technology to traditional radio, meaning that the change in consumer consumption habit is allowing podcasting to emerge as the new radio type very much like what connected TV was to cable and broadcast. When we look at the market size, we believe that global podcast advertising will be worth between $4 billion to $6 billion in the next 3 to 5 years, and it's currently growing at a rate of 15% annually. What's quite impressive is that within this time frame, programmatic ad spend experienced a 70% CAGR in the last 3 years and it expected to reach a whopping $1 billion in revenue by 2026. That's a powerful growth trend, which is why we'll dive a bit deeper into programmatic at a later section. But what's most interesting is that when we look at the advertising market, we discovered that audio and especially podcasts are massively undervalued. In this recent survey with GWI of more than 715,000 consumers, we see that social media is forecasted to account for 39.1% of 2022 ad spend but has a share of daily media consumption of only 21.4%. That's a serious discrepancy and equivalent in value to $94.3 billion, more than the channel's equal share. Linear TV is forecasted to account for 31.5% share of advertising spends next year compared to only 16% of share of daily media consumption, yet in audio, while consumers spent 31% of their media time, brands only allocate 8.8% of their budgets, hence 25% are missing from audio entirely. So perhaps most notably is that podcasts are found to be undervalued at about $40 billion. So when we look at this, we see a huge gap between what advertisers are spending in podcasting audio and what the reality is of daily consumption. And this is what we've been building the Acast marketplace to support over the course of time.

Well, that is quite the gap. Why do you think that is?

Well, I think it's mostly because the media landscape is very complex. And when you're an emerging platform, it adds an additional layer to this complexity because the full potential is only just being realized. And not to mention, podcast and Acast for that matter, are both challengers of the status quo, their disruptors and really the new kids on the block. If we take a look at the most recent audio landscape, you'll see that there are hundreds of different partners we service at any given moment, from direct response agencies to independents to advertisers themselves, larger media holding groups and ad tech vendors globally. And then within that, there are dozens of targeting and measurement and attribution vendors, not to mention the industry governing bodies that are focused on building standards. Podcast media is, in essence, forcing a whole industry to change behavior and restructure their organizations so that they can change existing beliefs and lean more into podcasting. So basically, podcast are revolutionizing radio, the same way digital revolutionize media and the same way CTV did for TV. Within this, Acast is a leader when it comes to monetizing podcasts and we have a great position to make money as that market evolves and we'll continue to help propel that evolution. Earlier, I compared podcast to CTV because the reality is the cord cutters of CTV are pretty much the same audiences that are driving growth and listenership and podcasting. And at Acast, we've noticed that the heavy TV media investors have found opportunities to extend their reach and diversify their media budgets by way of podcasting, not to mention podcast drive results. But when you look at that earlier comparison of CTV, the reality is -- I'm sorry, it will take that evolution of CTV 13 years to see serious investments coming in from advertisers. But podcasting is a bit different, really because the innovation today is compounded, grows at a faster rapid speed than they did 15 years ago. So that's pretty important. Additionally, podcast discovery and creator tools that Matt mentioned earlier, make this barrier to entry much lower for creators and listeners. So we can generate more content and at a higher speed than any other medium. It's far easier to launch a podcast than it is to launch a TV series or produce a film. As Ross mentioned earlier, the open ecosystem is in essence democratization of consuming podcast and alleviates another barrier to entry that we experienced in TV. We can listen to podcast anywhere on any device across any app. Podcasts come with us everywhere we go, where CTV services only operate in certain local markets. There's limitations there. And lastly, but certainly not least, podcast give a powerful platform to diverse voices, particularly those in marginalized communities and we're attracting coveted audiences that have historically been hard to find but mostly are also difficult to connect with. Something that podcast solved for organically just through the sheer power of its true genuine connection between listener and host. All of this is really just to say that Acast is serious -- is seeing serious investments coming to podcast and almost half the time that's taken to see this change in CTV, which is incredibly exciting and powerful.

And if you look at the comparison with CTV, what has been the evolution of the Acast marketplace in this time frame?

Yes. In the early days, podcasters and media buyers really embrace sponsorship and host-reads. These are the formats that they really help propel podcasts and bring -- and put them on the map. The reality is these ads offer the ability to fit naturally into the conversation and they have a custom tone and script of each ad that is immersive as if the advertiser were actually in the room with the host. And in many cases, they are. The early adopters of podcast buying were mainly direct response agencies and advertisers in certain verticals such as finance and business, entertainment and direct-to-consumer. They chose to -- the way they process their media campaigns was to choose a select few hosts, primarily based on audience size and popularity and recognition. And they bought sponsorship in host-reads nationally to promote their brands or service and then would measure direct impact through traditional means of direct response. All of this made a lot of sense at the time. And when you combine the level of engagement with and the listeners and the host, that native storytelling power of sponsorship ads really enables listeners to take action, which in turn started to shift gears in the attention we were getting from advertisers. And so while sponsorship still make up a healthy percentage of ad spend, what we're noticing is these advertisers and these agencies are looking now to enhance their scale and reach in what has already been a very successful media campaign. We're noticing new advertisers and agency holding companies have begun to test podcasts and the early adopters are leaning much more into audio ads. They're choosing audio ads to scale the traditional value methods that they've incorporated up until now. And they use traditional media buying activation methods called Direct, which means that there's a lot of manual effort required to plan, to approve, to purchase and ultimately measure the effectiveness of these campaigns at scale. So while we started to see these shifts, we knew that this was not scalable in the long term. So in 2017, we pioneered Acast Automated. This is the first global independent programmatic marketplace for podcasting and it's been our fastest-growing buying channel globally. Currently, around 10% of our global ad revenue is transacted programmatically. This is significantly higher than the market predictions of 4% to 6% and in some of our more established markets such as the U.K. and Australia, this percentage is much higher. So we began with this effort to see that our ad dollars were shifting from direct side of our business into the programmatic side of our business and we also started to see hundreds of new advertisers advertising within the Acast marketplace for the first time. And in particular, the power of discoverability has been benefited tremendously through programmatic. It often helps surface content from underrepresented voices that historically make it overlooked due to their small size and anonymity when buying sponsorships. So in essence, we're democratizing access to revenue for many more [indiscernible] both big and small. And despite the U.S. being in relatively early stages, Acast has earned already 5 awards in the last 2 years by renowned and respected industry voices AdExchanger and AdMonsters for the use of innovation and data and technology for audio ads harnessing the power of programmatic and audio.

Right. Congratulations to the awards. Earlier on, you promised to tell us what programmatic means. What's the difference between programmatic and the more traditional method of buying called Direct?

Direct, yes. So the formal definition of programmatic advertising is the use of technology, real-time data and algorithms to serve ads to the right listener at the right time and at the right place. The technology, in essence, automates many of the manual campaign activities of media buying that are necessary when buying Direct. This includes negotiations, trafficking, reporting, optimizations, targeting and billing. And this is why we call programmatic Acast Automated because in reality, it's just an automated way to buy media. I actually like to use an example of the stock market because programmatic has in essence been built on the same instantaneous stock market technology. The same way you'd utilize a broker who uses technology to visualize and decide on which stocks to buy when and at what price is the same way that media buyers plan and buy media using programmatic. This is a visual representation of the actual programmatic tech stack. On one side of the transaction, you have the publisher, which in our case is Acast, Acast uses a supply-side platform or an SSP and that SSP aggregates our supply and then puts that supply into what is called an ad exchange. The ad exchanges where buyers find our supply and also all other supply they're currently buying, which could include display and video, CTV, social media, et cetera. On the other end, we have the advertisers and they're using what's called the demand-side platform to access this supply and to have a holistic view of the total universe of media they are purchasing. The DSPs have very sophisticated targeting capabilities. They use algorithms and artificial intelligence to help inform buyers in real time. And they operate -- they automate the operations of the campaigns so that buyers can reach the right users in the right place at the right time and with the right creative messaging. By using the DSP, advertisers have an essence to remove the majority of operational tasks that would be required in direct buying and can then focus on managing performance and optimization in real time, making them, in essence, and all their campaigns more effective, maximizing return on ad spend and minimizing ad dollar waste. When we look at the deal types in programmatic, there are 4 primary ways to buy or as we call them, deal types. So the podcast supply as a whole is currently only available in private marketplaces and Acast only offers -- currently offers 2 of these deal types. The first 2 are the open auction and private auction deals that would allow any buyer to come and enter the supply and buy with no guardrails. The latter 2 are called preferred or PMPs or end-programmatic guarantee deals. These are only -- these are private only invites. It's one deal between one advertiser and Acast and these are the 2 deal types we currently have enabled in our marketplace. The difference between PMPs and programmatic guaranteed is that for PMPs, the spend level is not guaranteed and it ebbs and flows based on performance in real time, whereas programmatic guaranteed is a prenegotiated and guaranteed spend level between Acast and an advertiser. These deal types in our private marketplace give us a bit more control around things like creative evaluation, advertiser approvals, pricing controls and yield management. Most importantly though, we're able through these deal types to respect the preferences of our podcasters by ensuring we match the right advertiser to their content and we're also able to protect the intimacy of the experience by managing any potential intrusive or misaligned creatives. All of this is really to say that programmatic automates the media buying process.

Programmatic is quite intricate. It seems to be the preferred way to buy audio ads. What other predictions do you have for us today?

I might not say right now that it's the preferred way of buying audio ads just quite yet. But it will be as the market sees the benefits of real-time optimization, measurement capabilities and return on ad spend, especially as they're seeking to scale. Sponsorship and host-reads will still make up a very healthy percentage of investments and at Acast, this trend continues to grow. But as the ads we're looking at offer that scale, that is how we're going to close the gap we explored earlier. And here's where we're best positioned as the industry leader to help advertisers and agencies scale their advertising budgets. Until now, Acast has been building and evolving to create a sustainable, future-proofed technological foundation through our ad-sales marketplace. We've experienced revenue growth and broken new advertisers and agency partners from various verticals. Revenue trends highlight that we're still in a test-and-learn phase but with the -- and with the effects of the economy, we understand that advertisers might be a little less risk averse and revert back to tried-and-tested methodologies. But despite this, demand for podcasting has been growing faster than any other medium, and we see major change in ad spending, especially in the U.S. This is where the Acast marketplace will truly be able to harness its true power, scale and transparency will continue to be important, both for Acast and the industry. This is an area where we, in many ways, are ahead of others. From a brand safety perspective, we'll continue to see evolution here that starts to present independent brand safety measures and standards in the marketplace. This will allow for independent auditing because really, it's not ideal to mark your own home runner. Advertisers will begin to truly embrace contextual and conversational targeting. They'll shift media dollars away from platforms of social media using third-party data and they'll lean more into privacy and data legislation, forcing budgets away from other marketplaces and into contextual targeting. The death of the cookie will mean that the industry will work tirelessly to create a unified ID solution for audience targeting and they will harness more privacy-centric first-party data solutions, both of which we're positioned to support at this time. Improved and holistic measurement attribution technologies will emerge focusing -- with a focus on podcasting and the tech it is powered by so that advertisers can audit and confirm which podcast every impression was served on, what audience was reached, which created resonated the best with their audience and what drove performance. And then finally, we have macroeconomics, the effects of which are -- we're already feeling as an industry, and our CFO, Emily will be touching a bit more on that next. But overall, the Acast marketplace is the most trusted and advanced offering in podcast media buying globally. We've been driving results for our partners and helping our podcasters make more money for their [indiscernible] for years. And while this area will continue to improve and evolve, the foundational work is really there for the Acast marketplace and its [ pilots ] up until now, and we're very, very well positioned for the future.

Okay. Thank you, Elli. Thank you so much, and we will -- we are ready for some questions, yes? So Elli and Ross?

Yes. I think we have Ross there with you to join you. [Operator Instructions] We have a first question here from Sarah who is wondering where do you see the market for the programmatic ads going in the coming year given that we have a challenging macro?

I guess that's a question for me? I can't comment too much on the marketplace in general. But what we do know is that in the last 3 years, programmatic has grown 70% and it's estimated and forecasted to reach $1 billion by 2026. So we do see that this is a massive opportunity for monetization and scalable solutions, especially through the power of audio ads.

Yes. I also think that during a macroeconomic downturn, this is where advertisers need to be efficient with what they spend and buying programmatically helps them create efficiencies.

So there is even an upside then -- in a macro downturn. Good to know. Great. Thank you for that. There is a question here from Emily. Can you give a sense of what percentage of campaigns and/or ad sales are targeted under each of the 4 buckets that you mentioned, curated collections, audience targeting, et cetera?

I mean that difference by market, and I think Emily can touch on some of that data in her part in a more granular way. But yes, it does depend by market and exactly which sectors are being bought, podcast and some markets have been bought just by podcast. That's the early kind of adoption markets and they're bought by verticals, and then eventually, they'll be bought by audience. So it just depends on what market we're talking about here, but Emily can touch on some of that data.

All right. We have one more question for you, Elli, I think. You touched upon it before. Why do you think the market values podcast advertising so low compared to other media, such as TV, social media or radio?

I think it's just because it's an emerging platform, and it's overlooked quite honestly. Once an advertiser starts to delve into podcasting and they see the power that it harnesses, they lean much faster into it. And we're also up against TV, which is the lion's share of media budgets. So we always have to overcome those obstacles. But research and data has shown that podcast deliver results, and it's a much more stronger medium. Time spent here is exponentially higher than any other medium, and it's like into that of influencer marketing with the added caveat that the attention level in podcasting is extremely high. So it's a very, very powerful medium. And the only reason it's really overlooked, I think, it's because of perception and it being a new emerging platform that is still being developed.

Yes, it will take a lot of education as well. And the great thing is we have all of the major players who play within audio programmatic playing in that arena. So a rising tide and raising boats and everyone is educating the buyers around what programmatic can be in podcasting. So we look forward to seeing how that progresses.

Certainly, one more question from Dennis at Carnegie. Would it be possible to clarify or quantify Acast's leading edge within programmatic? What do you have or offer that your competitors lack?

I love this question. Well, first off, we have the advantage of doing it first. We launched it many years ago in international markets, and we've gathered years and years of research and best practices across different markets, including the nuances within those markets. The second huge differentiator is the fact that our technology has been built for podcasting. It is not legacy technology built for something else. It's not disparate. So what that means is it's not fragmented. When you're a media buyer and you're trying to buy audio and streaming and podcasting, that fragmentation doesn't give you transparency so that you can actually learn from the media campaign and scale from it and just be more effective with the media buy. Within the Acast marketplace, there is no fragmentation. And that transparency is there from day 1. So media buyers can cherry pick, can customize, can create very custom campaigns to them for their brands. But moreover, they can measure that in real time and understand what's working and what's not. So those are the 2 major differentiators. And I think a third differentiator is because we're first to market, we're able to innovate with our partners and create further scale, further transparency and in many ways, have been doing that ahead of the curve, while others are sort of solving for some of the solutions I just mentioned earlier.

And I think conversational targeting roll into programmatic well is super exciting, unlocking kind of new conversations that brands want to be amongst and doing that through AI is super exciting. So that's some of the advantage we have.

Great. Thank you so much, both of you. I think those were the questions that we had and what are we going to do now? Look at a film again, I think.

Yes, we are. [Presentation]

All right. Welcome back. We are at the very exciting part of this presentation, which will be talking to you, Emily Villatte, our CFO, who hopefully is now going to make everything crystal clear how this translates into money.

I'll certainly try.

Great. All right. So in terms of what we have achieved to date from a financial standpoint, what would you say are the main accomplishments?

All right. So let's start with the accomplishments. Of course, first, we have created a marketplace with reach and scale. Without that, we're not going to attract advertisers. Having attracted the 66,000 podcasters Matt spoke about that have a strong commercial value and are generating over $1.2 billion this is each quarter. It's also a notable achievement. And the fact that we've built a proposition for creators that is attractive enough to make them want to build their business with Acast has to be highlighted. In fact, our proposition has become so valuable that we have earned the right, and I say earned the right to a healthy gross margin in the high 30s while still being able to pay out over USD 200 million to our podcasters since inception. And I think we should be proud of that. Because you know one way to play in the space to buy content to buy IP. That's not been our play. And I think in essence, the value of any podcast platforms proposition is reflected in the gross margin. Now we do have a track record of delivering strong revenue growth across -- growth across our markets, as you can see here, in Europe, the Americas and internationally. And of course, we have taken market share. And that's because we've outperformed the general podcasting ad market since our start in 2004 and are, of course, intending to do so even if we are not in that state of hypergrowth right now. When it comes to investments, we've gone through a heavy investment period in the business. As you can see on the slide, we've invested in our geographical expansion and have boots on the ground in 14 markets. But we've also invested heavily in developing our products offering. And you heard from Matt and from Elli, the great strides that we have made. And I think you also heard from them that in this space, we've been playing the long game. We acknowledge the fact that we have been forward-leaning in terms of our investments. And now the time has come for us to focus on our path to profitability and beyond. So finally, in terms of achievements, we did secure the company's financing last year through our IPO. And we do have the privilege of a strong balance sheet. This is indeed a privilege and we treat that capital with great care. And I want to be very clear here as well. We do not intend to raise further capital to fund our organic growth journey through to profit. So I just want to be clear on that point.

Great. Thanks. That's a good overview of what we have achieved so far. But of course, we're curious about the future and where we're heading?

Well, of course, we're entering into a new growth phase for this company, and we are experiencing a different economic climate compared to the same time last year. And this is precisely why we have updated our financial targets. So let's have a look at this. Firstly, of course, we've set out to achieve organic net sales growth of between 40% to 45% in the period 2020 to 2025 and what that implies, as you can see here on this slide is an average organic growth rate of 30% between 2022 and 2025. And this does take into consideration the economic climate that we're in and the pending recession. And we are making the assessment that near-term growth comes in below the 30% average and the growth exceeds 30% towards the end. Again, an average of 30% growth over the period 2022 to 2025 is what we are targeting. We've set a range for our gross margin target of 35% to 38% this also acknowledges the economic cycle we're in and where higher advertising activity, higher utilization of our ad inventory can drive up our gross margin towards that 38% point, whereas the current climate is putting some pressure on the loss margin. When it comes to profits, we do have our sights firmly set on reaching full year EBITDA profitability in 2024, full stop. I'll dive into that a little bit later, but I'll leave you with that cliffhanger for now, [ Anika ].

Like cliffhangers, always exciting. So you spoke about the general economic cycle now and where we are in that and how it's impacting us. But I would really like also to hear more about how your view is on how the podcasting market is being impacted by the cycle and how you see that develop?

Of course, let's dive in. So in terms of the podcasting market, what we have seen up until recently are 2 overarching trends; firstly, podcast consumption and listening has been steadily increasing; and secondly, growth in advertising ad spend has been catching up with the growth in consumption. And Elli spoke about the spending gap earlier and advertisers catching up but needing some time. So let's keep those 2 things in mind as we apply a very simple view of how we see podcasting growth being impacted through this current economic cycle we're in. Now I'm being very simplistic here, but bear with me. So if we start at the beginning, in the early growth phase of the economic cycle, it's natural that advertising demand increases. What also happens when things are on the up and up, is that competition for great content goes up. And what that means is that those larger creators are able to negotiate good commercial terms which is, of course, natural when there is high demand. But when the economic outlook is peaking and it's very positive. It's also natural that brands dare to test out new ad formats and dare to test out those new ad channels. And it's a really nice place to be when you are a new medium. But if we move forward and look at a time where we now start to see a slowdown in general economic activity and lower growth projections for the future. Now podcasting as a medium are still seen really healthy outperformance of the general market and an ad spending when it comes to growth. So let's just remember that all things are relative. But at this point, as we -- as we're coming out of this cycle of hypergrowth, we're seeing advertisers making a shift in how they make their buying decisions. They're still spending and they're still spending more than they did last year in podcasting, but there are some tendencies to move towards what is known in the space and to focus on performance-based campaigns instead of deploying general spend for brand awareness. And this is also why -- and I think it was Emily who asked the question earlier. This is why host-read sponsorships have the potential to be a very stable or well-performing part of the podcast offering at this part of the cycle. It's traditionally been focused on those performance-based campaigns and it's also been a tried and tested ad format for many media buyers for a number of years. Then, of course, as we move through the cycle and the slowdown in the future stocks and growth comes back. It's, of course, reasonable to assume that ad spend and ad spend in podcasting takes up and hopefully, at that point, the ad dollar spend can really start to catch up with the level of consumption that listeners are doing. Because what we see throughout the cycle is that consumption keeps increasing.

All right. So this is the long-term outlook then. And could you tell us more about where we are actually right now in the cycle?

Yes, of course. So if we take just a short step back and look at where we were at when we entered 2022. We're coming out of this space of hypergrowth, and we start to see a slight slowdown in advertiser spend in Europe. Now don't get me wrong, we were still growing at 51% at that time, but that was not as fast as the year before. And everyone knows the story. Russia had invaded the Ukraine and inflation fears that we're setting in. As we progressed throughout the year, we did see a slowdown in revenue growth in the Americas as well, and they are not immune to the macroeconomic environment. In terms of ad product mix during this time, our sponsorship revenue has provided a stable foundation for growth, whereas those audio ad sales or the ad side has proven to be a little bit more cyclical. But what we have seen is Acast during this period and where we're at right now is that consumption is picking up. We have seen an acceleration in how many shows are joining our platform, and we've seen an acceleration in listening. And so right now, fundamentals are very strong.

That's great. I think our shareholders and the audience today are equally interested in hearing what you're doing right now and your plan for success in the near term?

Absolutely. So firstly, we are going to get more from each listen. Secondly, we're going to manage our cost base. Of course, we're going to do this whilst not losing sight of our vision and purpose as the business, of course. But for the purposes of this session today, I will focus on the first two.

All right. So let's start with getting more out of each listen. How will that happen?

Okay. So we are going to continue this historical journey that we've been on, where we have seen increased listening and increased average revenue per listen over time, and that has driven our net sales growth. And what you can see here on the slide is literally those advertisers slowly but surely catching up with listeners and moving ad dollars into podcasting and that trend will continue.

All right. And this, I guess, is one of the most interesting things for the external viewer is how is this revenue equation really built up in more detail? It's a lot to understand there for the external. So if you -- could you just help us a little bit on the way.

I will try and break it down. And when we break down our revenue model in a little bit more detail, we always start with the listens , of course. But we have many more tools to work with than just our listens. So each podcast has a set -- has a specific ad setting that means that it can take a number of ad slots or an ad load. And if we multiply the listens with the available ad loan that gives us our available inventory. The sell-through rates reflects how much of our available inventory was sold and the number of sold ads times the price gives us the net sales from ads. The price here is typically expressed as a USD CPM or cost per mile, which is the cost to buy 1,000 ad impressions or 1,000 ad slots. Advertising revenues have, of course, made up the vast majority of our sales, but the -- adding the non-ad or those SaaS revenues to the equation, then make up our total net sales for the company. Now this one is for you, Emily. This is where we look at how this is broken down for Acast from 2018 to 2021. First, you can see the strong pattern in listens growth over time as podcasters and listeners have joined the platform. Yes, the growth in listens did slowdown in 2021, but we've seen that accelerate again as we have entered 2022. We can also see that the average number of ad slots available or ad load has been very stable over this period. The fact that we've seen an increase in sell-through rate between 2018 and 2021 means that advertisers are getting more into this space. The pricing or CPMs have been strong and stable. And these dynamics that you can see here have resulted in a doubling of our average revenue per listen over this period but there is room to grow further. And as you can see, we have multiple levers to drive this future growth and get us there. And to Ross's point earlier, even if we do not increase the number of podcasts moving forward, and therefore, our total ad inventory would still be able to grow our revenue from where we're at today by selling across more podcasts and by monetizing our podcast portfolio to its full potential.

All right. So this is really interesting. As I see this, it's clear that the growth in listening and the growth -- or the increased sell-through rates has been the main drivers for this revenue growth and a resulted in the ARPL. But you're only selling actually less than 30% of the inventory. Why is that? Why is it not higher?

It's a good question. It has taken investment, both in technology and an expertise to be able to match our great shows than audiences with the right advertisers regardless of their size. And this is where our investments in ad targeting, our programmatic offering and our deep access to data comes into play. Of course, the acquisition of podcast, the Podchaser also is right at the center of this, of helping us unlock the value from this untapped inventory. In addition, there's also a small part of the inventory that we would never sell, for example, where audiences are in a location or a market where advertisers would not sell their product group, of course. But that is a smaller part. And here, I think it's relevant to revisit the slide that Ross showed earlier. And you can see -- you can literally see here the actual sell-through rate in our portfolio. Again, purple areas are where we are not currently monetizing our shows. So in a sense, we have almost been too successful in building the supply side of the marketplace. But as we now move from a phase of hypergrowth towards profitability. It's great to be in a position where we have this asset of untapped inventory to work with. And this shows in the middle, the heart, as Ross called them, they offer really high -- higher ROI for advertisers, so it is a really sweet spot. To Matt's point earlier, we have the data and tech to be able to match these shows with the right advertisers in a very scalable way. And to pick up on Elli's presentation recalling how woefully under monetized this medium is, having the deep expertise in markets alongside these scalable buying solutions to handle that demand as it comes through is a very good investment to have made.

All right. And you circled ad load as an important metric, of course. How do you foresee these -- the ad loads developing? Is it going to remain stable at 5%? Or do we have a potential to increase it?

I think in the future, there is definitely room to grow the ad load. First, of course, we'll work on increasing our sell-through rate. But if you look at podcasting compared to other media, the general ad load in podcasting is still around a small 5% of overall time spent listening to podcasting content. Now I don't think that we'll approach the levels of YouTube, about 25% of listening time. That could also have an impact on CPMs and on effectiveness for advertisers. But still at such an under-monetized media that I definitely think that there is some room to grow our ad load in the future.

Great. And how about the CPMs? Some color on the development that you see?

Yes, of course. As you can see here, podcasting CPMs are relatively high compared to other media. It typically come in at around USD 15 to USD 30, which is higher than radio at USD 4 to USD 8. And this, of course, is because podcasting offers better audience targeting and carries higher ROI per dollar spend. But there is -- I will note as well that there is a great range of ad products that we offer. And we're offering very basic targeting and limited targeting, those CPMs can go down to USD 10 or even approach the range that radio is playing in. But we also have -- where we have a great match between an audience, podcast creator and an advertiser, and we offer host-read ads we will sell those at CPMs approaching or even exceeding USD 100 depending on market. So it is the really big range to work with.

Great. Thank you for that. The second part of becoming profitable was to manage the costs in your business. And could we learn a little bit more about how that's going to happen?

Of course. And I'll take the liberty of simplifying the elements of our cost base, and we can talk them through and see and talk about how we see them developing over time. Now the main element of our operating expenditure is related to our staff costs. The remaining OpEx includes software, marketing and rent and so forth. But the main part of our OpEx relates to staff. So if we spend some time on focusing on our staffing, we have had around half of our staff operating in our local markets. And you can see that in the pink and purple boxes. And our local market operations are led by local MDs, they include a local sales team and creator network teams, marketing, resources and so forth. And the creator network team, they are the ones who look after our largest creators when they come into record in some of our studios, just like this one. The other half of our staffing is made up of our global teams and the largest global team is product and tech. This is, in essence, our R&D department. The remaining global functions in the blue box include the likes of ad operations, finance, the people team. They also include strategic functions related to global sales and global creator network and global marketing as well as legal and admin.

Good. Thank you. But with this in mind that you just explained to us and the fact that you have announced that you are actually reducing staff. Could you tell a little bit more about the staffing going forward?

What we have announced is our intention to reduce our staffing by around 15%. And that equates to around 70 staff and consultants. Now going through this process as we speak, we're adhering to all the local requirements and regulations in each market. It's a tough process and I have a lot of respect for those people who are impacted. I have a lot of respect for the managers who are going through these conversations, and I have a lot of respect for our people partners who are assisting and working through this dialogue as we speak. So we will go through that process in good order, and it would not be prudent for me to comment on any level of detail. But what I can say is that I do envisage that some of our global functions will be more impacted than our local markets through this process. So with that in mind and staffing reduction as a starting point, we are deploying these approaches to scale our operations effectively moving forward. So if we start with our product and tech team, we have come out of this heavy period of investment and this team is going to focus and prioritize. And right now, that means that they are focusing the majority of their efforts on the advertiser side of the marketplace. They are working on reducing friction both to buy ads from the buyer side, but also reducing friction and improving internal processes for selling these ads. The teams, which Matt spoke about earlier, are testing all of the hypotheses that they're putting forward that drive development activity to make sure that they are spending time on things that have an impact. Overall, the capital that we allocate to product and tech and how we allocate it within that segment is based on the yield potential of each revenue-generating products that they support. When it comes to our other global functions, I anticipate that they will scale as revenues grow, and I'm confident that we can deliver operating leverage in this area, and we have in the past as well. Now looking at our local market organization, it is imperative that they are able to run a scalable and efficient servicing model. We do foresee the general market for podcast advertising growing and market growth itself does help us with our sales organization to boost scaling and become more efficient. And I'll use an example. As advertisers test out the medium. They might come with a USD 5,000 budget. But next year, they come back with USD 50,000. And the bigger brands can come with USD 0.5 million or even in the order of 1 million. So that helps the efficiency of our organization. In the future, we'll see those big budgets come through. But of course, near term, some advertisers are considering and they're mindful of the size of their advertising budgets given the macroeconomic climate, which can put pressure on sales efficiency metrics near term. But it's not just external factors that drive safe efficiency. We've spoken about the internal growth streams that we are leaning on and that are focused on supporting our sales teams with tools and data to make their life and process flow with less friction. And we'll continue this important work because we want our sales organization to be as successful as it possibly can be. And of course, having built the scalable solution and built the programmatic type would really help in efficiency as we move forward. Matt spoke briefly about the future self-serve channels. And Ross said, it's early days, but of course, it's another good investment to have made so that we can take on higher advertiser demand in a scalable way and increase our sales efficiency. I do want to highlight that our local sales teams do have a track record of increasing efficiencies. And this is an illustration of what I see as a local market level. This is how our top 3 markets have approved their sales to sales staff cost multiple over recent years. And I appreciate that it's -- this trend is not as easy to see when looking at the global sales and marketing figures because they include the local teams, not just sales, but marketing creator network as well as those global strategic functions. But I anticipate that this scalability will come through more clearly moving forward as we come out of this recent period of adjustment. So I hope that overview gives a little bit more clarity around how we think about operating leverage and reaching profits.

Sure does. Thank you so much. All the others have the same question, you must answer it as well. We've made an acquisition, Podchaser this summer. How will this impact our financial results going forward?

All right. So let's talk through the Podchaser numbers. Podchasers of course, on a stand-alone basis, will contribute a few percent to our overall net sales. The fact that they are SaaS business means that they come with a high gross margin, so they will support our gross margin target moving forward. And as they progress their journey towards profitability alongside Acast, they will start to generate cash before they reach EBITDA profitability. That's also just the feature of being a SaaS business and becoming cash flow positive is something that Podchaser is aiming for, for next year.

Great. Thank you so much.

Thank you.

And thank you, Matt, Elli and Ross. We have some questions from the audience for you as well, Emily. First one coming from Richard. Can you talk a bit about what components within cost of goods sold are bringing pressure on gross margins? Is it hosting and operational costs of ad serving and the AI? Or is it the monetization of long tail show somewhat how structurally lower gross margin relative to brand campaigns on top-tier shows?

Oh, let's unpack that. Lots of interesting things and a couple of misconceptions that I'd like to address. The cost to serve or the cost to -- the cost of data, the host and listen to the shows is not a major part of our cost of goods sold. It might impact 0.5%, maybe a little bit more. And that is a small part that impacts the gross margin as listening is increasing faster than revenues. That's where we're at right now. And that's why I'm saying that this can have an impact on the gross margin in this environment. But the main part that impacts our gross margin is product mix. So the sponsorships that we sell typically come at the 70-30 split, whereas the ads, whether they're sold direct or via programmatic typically comes with 50-50 split. Of course, our largest creators might have some different terms in their contracts. But these shows who are coming and flocking to the marketplace, they're signing up to our standard terms and conditions, and they're working with standard splits that we have. But to that point, Richard, the better we become at monetizing the heart and the tail, the more support we can get for our gross margin in the future. So increasing the sell-through rate, increasing penetration through our portfolio, which is what we're setting out to do, can also support the gross margin in the future.

Good. We have another question from Richard. How do you square the acceleration in listens and stable CPMs plus the option to improve sell-through rates with the current forecast of slowing ad sales?

Let's just unpack that as well. We're seeing that there will still be growth. We're not saying that ad sales nominally will go down. So we're still seeing that growth. But I think you're picking up on an important point. And that is that we can allow ourselves to have a little bit of flexibility with our CPMs. Of course, we have the inventory to sell. We've attracted a great range of podcasters. We've built the tech to be able to penetrate this portfolio. So definitely, that might be something that we see in the future, a little bit of flexibility on the CPMs.

Great. We have a couple of questions from Derek at ABG. First one being in light of the fairly huge cost savings program by reduction in workforce, what functions in the organization are primarily impacted in broad terms, sales or product and tech? And what makes you confident that you will be able to grow in line with the 40% to 45% target despite this reduction?

Okay. fairly huge. It's 15%. So they call that fairly huge, let's call it that. When I spoke about the different segments of our business, I spoke about the global teams and about our local markets. The vast majority of our sales organization sits in our local markets. I also noted that the global teams are looking as being more impacted by these changes than the global market. So that implies, of course, that our sales teams will be less impacted by these changes that we are going through. But everyone is being impacted in one way or another. But the global teams are more impacted and less so the quota-bearing sales staff. So we spoke about 40% to 40% (sic)[ 40% to 45% ] average organic growth over the period 2020 to 2025, and that implies a 30% organic growth from 2022 to 2025, and we have guided that we believe that the growth near term might just come in a little bit below the 30%, whereas it's natural for growth in podcasting to pick up with the economic cycle towards the end of that period. And the market overall right now in podcasting is set to grow at around 15% and we have a track record of outpacing the market, and we intend to continue to do so, especially with the investments that we have made in technology, in people and in our capabilities to be able to take this forward.

Good. Another question from Derek. What type of macro scenario is implied by the updated 40% to 45% growth target?

We are looking at the overall podcasting ad-growth because podcasting is still outperforming versus the general macroeconomic environment. But I would -- I'll of course, look at the general macroeconomic outlook. And in advertising, we're now seeing some of those media agencies slightly reduced their growth prospects for 2023, but still posting very healthy growth. So I think this year, we're going to post healthy growth, next year, we're going to post some healthy growth as well. But of course, rely to predict exactly how those quarters are going to pan out. Of course, we're impacted by the general macroeconomic environment. So what we'd say and come back to is that we see the growth coming in slightly below that 30% near term and then above at the end of the macroeconomic cycle as it picks up towards the end of that period.

Good. Given the still low sell-through rate, are you getting any complaints from creators not being able to monetize up to their expectations? I mean, the weaker demand or is there a good understanding?

I think right now, it was different a few months ago. But I think right now, everyone in all of the different markets are very aware of the macroeconomic circumstances. People are impacted in different ways, not just in Europe but in the U.S. as well. So I think there's greater acceptance and acknowledgment around where the ad market in general is going right now compared to, say, 3 to 6 months ago.

Good. Thank you. Sven has a question. What is the split between increased income and decreased costs to reach profitability? What is the estimated dollar amount you expect to decrease costs with between '22 and '24? That's quite specific.

Then I will pass on that question. I will not give specific guidance as to exactly how our cost line will progress. But we have our sites firmly set on reaching full year EBITDA profitability in 2024. We have given you guidance on the top line, and we guided in Q2 that we had reached an inflection point when it came to our EBITDA margin. So clearly, as we move from that inflection point, Q2 2022, the full year EBITDA profitability in 2024, we are not just going to see an improvement in our EBITDA margin. We're also going to see a steady improvement in nominal EBITDA losses from now until 2024. Of course, we'll have the usual seasonal impact that impacts advertising but that is what we're going to achieve, a steady improvement in EBITDA and taking us to profits in 2024.

Wonderful. We have no further question as it seems. And so I would just like to say thank you so much for being here and for telling this great story. And Ross, I think you have some final words for the audience before we wrap up.

Yes. I do. Thank you. Acast has been on a hypergrowth journey in line with what we have promised the IPO last year. Now as you've heard, we've reached the point in our development where we are switching focus from hypergrowth to profitability. Of course, the world right now is a little unpredictable and that's led to a well-documented shift in how advertisers spend their money. Podcast ad spend has proven more resilient and is still expected to show healthy growth this year, but our industry is not immune to overall market sentiment. However, the longer-term opportunity remains the same to continue to build our position to take share of a large and growing addressable market where ad dollars are still catching up with the time that people spend listening to podcasts. We've made large investments and are making strong progress on our path to becoming the largest marketplace globally for podcast monetization. We've established a unique position to leverage these technology investments and our deep industry expertise to solve the friction points of the industry at scale. The only thing we can do about market factors beyond our control is to be prepared, to be educated and to be agile. And I think that's exactly what we're doing, acting quickly and decisively and in the long-term interest of the business and our shareholders. We have the privilege of a strong balance sheet, which we intend to protect and cash position, which will carry us through to profitability and beyond. I hope that what you've heard today has given you a clear picture of how Acast has built a business that is right at the very front, leading the podcast universe. And then we will come out of these trying conditions in a stronger position than the majority of our competitors. Thank you.

Thank you so much, everyone, and thanks for listening in. If you have further questions, please don't hesitate to reach out, and we will do our very best to respond to you as soon as we can, of course. And don't forget to sign up for our press releases or our social media channels to follow what we're doing. And of course, you're able to speak more and listen more to Ross and Emily at our quarterly report on November 8. Thank you so much, and goodbye.