Deezer S.A. (DEEZR.PA) Earnings Call Transcript & Summary

Good day, and welcome to today's Deezer Half Year Results 2025 Conference Call. My name is Serge, and I'll be your coordinator for today's event. [Operator Instructions] And now I'd like to hand the call over to Alexis Lanternier, CEO, to begin today's presentation. Thank you.

Good morning, everyone, and thank you for joining us for Deezer H1 2025 Results Conference Call. I'm Alexis Lanternier, the CEO of Deezer. Today, Carl and I will present Deezer's 2025 H1 results. I will start with the key highlights of the semester, and Carl will then go into more details on our H1 performance. After that, we will discuss our 2025 outlook. At the end of our presentation, we will answer your questions. Let's move to Slide 4. We delivered strong progress in the first half of 2025, marking our second consecutive semester of positive adjusted EBITDA, a significant financial milestone that reflects the disciplined execution of our strategy and confirms Deezer entry into a new cycle of sustainable profitability. On the revenue side, the performance is in line with our expectations, reaching EUR 267.1 million, up 1.3% at constant currency or minus 0.3% at current currency. The standout business highlight for the semester was the acceleration in our direct subscriber base growth. We achieved plus 5.5% year-over-year growth on a like-for-like basis, reaching 5.3 million subscribers. This momentum was particularly strong in France, where like-for-like subscribers growth rose to 8.2% year-over-year. On the operational front, we continue to improve efficiency. Gross margin increased by EUR 1 million year-over-year, and we achieved a EUR 6.1 million reduction in fixed cost. These efforts resulted in adjusted EBITDA of EUR 2.1 million compared to a loss of EUR 5 million in H1 2024. We also delivered positive free cash flow for the period. Our cash position remains solid, standing at EUR 60 million at the end of June. Moving to Slide 5. As I mentioned in my introduction, we have now delivered positive adjusted EBITDA for the second consecutive semester, confirming our path towards full year profitability in 2025. This strong improvement was driven by 2 key levers, smarter and more efficient marketing spend and continued strict cost control across the organization. This performance reflects the structural transformation of Deezer financial profile and give us confidence in our ability to deliver our fiscal year guidance, namely a full year positive EBITDA and another year of positive free cash flow. Let's now spend a few minutes discussing the key business highlights of this first half of the year. Let's move to Slide 7. As I mentioned during our full year 2024 results presentation, we entered a new strategic cycle with 2025 being a pivotal year for Deezer. We are driving breakthrough innovation and laying groundwork for profitable, sustainable growth. Our strategy is built on 3 core pillars: enhancing the fan experience, empowering artists and scaling our business with partners, all while maintaining strict focus on cost control and efficiencies. For fans, we've been rolling out new features designed for the needs of younger generation with greater personalization and customization capabilities, more control over the recommendation algorithm and richer social experiences. We are also creating new ways for fans to connect directly with each other and with their favorite artists. For artists, we expanded the use of our AI capabilities with groundbreaking solution to collect artist right and content while continuing our progress on innovative models that ensure fair artist remuneration. For partners, we have strengthened long-term distribution partnerships, signed new deals with particular focus on standardized models. We have also reinforced our expanded -- our white label offerings with deal renewals and expansion into new verticals with great traction. Throughout this initiative and in parallel, we are maintaining strict financial discipline, as you saw in H1 and remain on track to deliver positive adjusted EBITDA in 2025. Moving on to Slide 8. On the fan pillar, we are executing on this focused strategy to differentiate Deezer as we launch a range of innovative features focused on driving increased value and engagement among younger audiences. We have launched new customization features like playlist covers customization, a fully customizable favorites tab and enhanced algorithm controls tools such as display or algo settings to give users even more control over their listening experience. We also introduced My Deezer Month and universal sharing, helping fans better understand and celebrate their unique music tastes with friends. We have deepened fan artist connection via the Deezer Club, offering exclusive access, presales and VIP experiences with more than 1 million contest entries over the past 12 months. These initiatives are already delivering results as our direct subscriber base grew 8% year-over-year in France at the end of June. Moving on to Slide 9. In the first half, Deezer took a big step forward in AI and launched the world's first AI tagging system for music streaming, reinforcing our strong commitment to transparency and fairness in the digital music space and setting a new standard for the music industry. Our analysis show that nearly 18% of music uploaded daily, more than 20,000 tracks is fully AI generated. By clearly tiding all albums that include AI-generated content, we are giving fans full visibility while protecting artist remuneration and ensuring a trusted listening experience. Besides this played a key role in the first update to publishing rights remuneration model since the dawn of music streaming with its collaboration with SSM. This reflects, again, our ongoing commitment to fairness in the artist remuneration model and the fight against royalty fraud. Moving on to Slide 10. On the partnership front, we are delivering on 2 key priorities: strengthening our core distribution partnerships and expanding our service offering into new verticals. First, we reinforced our existing distribution partnership. In the first half, we renewed major long-term agreements with Orange and Bouygues, demonstrating our ability to maintain strong lasting relationships. We also extended our core offering to new partner like Moloto TV and Fitness park in the retail space, building on what we do best. Also, we expanded our white label and music-as-a-service offers. We renewed our partnership with Sonos in the U.S. and are ramping up Deezer business, our new music solution for brands and commercial spaces. Recent new clients includes Dunkin, Converse and UGC, who can now create tailored music experience for their customers. This concludes the section of business highlights, and now I will hand it over to Carl for the finance section.

Thank you, Alexis, and good morning, everyone. Let's discuss our H1 2025 results and move to Slide 12. Our subscriber base amounted to 9.2 million at H1 '25 compared to 10 million in H1 '24 on a like-for-like basis. Two separate trends explain this figure. On the right-hand side, as anticipated, we can see the continued decline in partnership subscribers. This is mainly due to the conversion of the first cohorts of mainly from trial accounts to premium accounts. After hitting a high in H1 '24, we started converting in Q3 '24, impacting the overall partnership subscriber base. That being said, we reached 3.9 million subscribers in H1 '25, up from 3.6 million in H1 2023. So despite the decline, we remain ahead of past levels. On the left-hand side, we can notice the positive trend in direct, up 5.5% year-over-year on a like-for-like basis. Direct performance continues to be driven by steady subscriber growth in France over the past semesters. In 2025, we saw a clear acceleration from the last 2 quarters, up 6.3% at the end of Q1 and ending at 8.2% year-over-year on a like-for-like basis. Strong momentum reflects our strategic focus on core markets like France and confirms the early positive impact of our new strategic road map driving user engagement. Looking at the rest of the world, the trend is now stabilizing after several quarters of decline at 1.8 million subscribers. This base is now profitable even without new marketing spend. Turning to ARPU. We improved ARPU in partnerships by 3.6% year-over-year on a like-for-like basis, while direct ARPU slightly decreased by 1.8% year-over-year, mostly due to mix effects on the back of the success of our family offers. Moving on to Slide 13. In the first half of 2025, we reported revenue of EUR 267.1 million, up 1.3% year-over-year at constant currency and broadly stable at current rates. Looking at the segment breakdown on the left-hand side of the slide. Our direct revenue grew by 1.2%, reflecting the continued growth of our subscriber base in France. Other revenues, which mainly include advertising and ancillary revenues grew by a strong 77%, thanks in particular to the strong performance of our white labeling solutions. This growth more than offset the anticipated decline in partnerships revenue, primarily due to the transition of MeLi+ users to premium offers, as previously mentioned. Now turning to the geographic view on the right-hand side of the slide. In France, revenue increased by 4% year-over-year, supported by the solid momentum in direct subscription. In the Rest of the World, revenue declined by 6.2%, largely due to MeLi impact. This was partially offset by the gradual ramp-up of the RTL partnership as well as good traction from licensing agreements, including Zen by Deezer and Sonos Radio. Moving on to Slide 14. In the first half of the year, we maintained a disciplined approach to cost control, which allowed us to reduce our operating expenses by over EUR 6 million year-over-year. We achieved a EUR 3 million reduction in marketing and trial spend by targeting our investments more efficiently. As a result, marketing expenses represented 7.1% of revenue, down from 8.1% in H1 2024. In parallel, staff and G&A expenses were reduced by EUR 3 million, now accounting for 16.6% of our revenues compared to 17.9% a year ago. The strong cost discipline was a key contributor to the improvement in our operational performance over the period. Moving on to Slide 15. Now let's look at the significant progress we've made in improving profitability. In the first half of 2025, we delivered a strong uplift in adjusted EBITDA, reaching EUR 2.1 million, which is an improvement of EUR 7.1 million year-over-year compared to H1 2024. This marks our second consecutive semester of positive adjusted EBITDA, and this confirms the structural trend in the improvement of Deezer's financial profile. Looking at the bridge on this slide, the key drivers behind this performance were a EUR 1 million increase in gross profit, supported in part by the positive contribution of our white labeling solutions for hardware and media partners and also our continued cost discipline with EUR 6 million in operating expense reduction during the first half. Together, these levers have enabled us to significantly improve profitability without compromising on our strategic investment. Moving on to Slide 16. Now turning to our cash position. At the end of June 2025, we maintained a robust cash position of EUR 60 million with net cash of EUR 48.2 million, which is up EUR 1 million versus the end of 2024. Looking at the bridge, this performance reflects the positive contribution from adjusted EBITDA, EUR 2 million and a EUR 1 million improvement in working capital. This chart clearly highlights the benefits of our low CapEx model, along with limited lease liabilities and low net interest expense, all of which contribute to the strength of our financial profile. Importantly, our cash position also factors the EUR 3 million repayment of the French state guaranteed loan during the period. This solid liquidity position gives us the flexibility to continue executing on our strategy while maintaining our financial discipline. I will now let Alexis conclude the 2025 outlook.

Thank you, Carl. Let's move to Slide 18. Looking ahead to the rest of 2025, we reaffirm our full year guidance. From a revenue perspective, following a year of strong growth in fiscal year '24 and with no expected increase in ARPU, we confirm flat to slightly declining revenue year-over-year. On the bottom line, we reconfirm our target of delivering positive adjusted EBITDA in 2025. Achieving a positive EBITDA in H1 despite the flat top line clearly demonstrates the resilience and scalability of our model and strengthens our confidence in delivering the same performance for the full year. We also expect to generate positive free cash flow in 2025, marking our second consecutive year of positive cash generation, a key milestone on our journey towards sustainable profitability. From a strategic standpoint, we'll continue to execute on our road map in H2 with proactive product launches and new business models while maintaining a disciplined and focused approach. 2025 is a pivotal year, a year of innovation that lays the foundation for the next phase of profitable long-term growth. Thank you for your attention. Carl and I will now open the discussion for questions.

[Operator Instructions] The first question is from Silvia Cuneo from Deutsche Bank.

A few questions from my side. The first on strategic initiatives. The Deezer Club is delivering exclusive access and experiences. How do you plan to monetize this? And just wondering if you expect this to contribute to revenue in the medium term, so not only fan engagements? And beyond the Deezer Club, what other initiatives do you have planned for the rest of this year to engage the super fans? Then secondly, on the AI music tagging systems, can you give more color about where this AI-generated music originates? Is it primarily from platforms like Sonos and Audio? Or how do you define the 100% AI music? And does this classification mean that the tracks receive no royalties at all even if they become popular? And then final question on the profitability. On the gross profit, we noticed an improvement that's largely driven by the other segment, while the direct and partnership segments saw a little bit of a contraction. So can you talk about the factors behind this?

Thank you for your questions. I will take the first one. So indeed, Deezer Club monetization is driving a significant engagement from our user with 1 million applying to different contest that enable to win private access to events. As this is on a content basis, it's obviously free -- I mean, part of the premium subscription. So you have to be a premium member. Our core focus here is retention. We are in the business of retention. That's the most valuable activity to do is to retain the existing user we have. And so that's really the objective of the Deezer Club. We are working on solution to -- for super fans and connecting artists with super fans that could come as an additional fee, but we don't have yet anything to announce on that front. On the AI tagging topic, I think you're right. The question of how do you define AI music is not 100% straightforward. So we've been very clear on the definition for us. It's indeed the songs that are 100% created by AI just with a prompt and that are coming from the apps that you mentioned. There is a few dozen of them. And basically, the way it works that we train our algorithm on those specific apps, and we identify those songs. So that's how it's trained, and that's the definition of what we call AI. So it's 100% AI. As soon as artists are creating and adapting and so on, then it's not considered as 100% AI. And to your point of what if it's popular, I think what is maybe reassuring for the music industry is that right now, we don't see a lot of popularity from those songs, but it could happen. And we are, first and foremost, a consumer platform. And so we want to make sure that anyone will be able to access the full catalog of worldwide music through Deezer and those songs are indeed available on Deezer. It's just that we want transparency to also protect the music industry and the artist. And so that's why we're labeling the songs that are 100% AI, but there is no -- nothing preventing people that wants to listen to them to listen to them. And I will hand it over to Carl for your last question.