Spotify Technology S.A. (SPOT) Earnings Call Transcript & Summary

Good afternoon, and welcome back everybody. I am Jessica Reif Ehrlich, senior media and entertainment analyst at BofA Securities. And I'm thrilled to have Spotify with us today, Paul Vogel, CFO, who is joining us. So Paul, welcome. Thank you.

Thanks for having me.

That's great. So what a year it's been for Spotify? I mean you just -- you've grown the core business -- the core music business solidly. You've invested in podcasts. You've raised subscription prices across select markets, it's about products, but some of the major ones. You've also launched into 85 markets. You've rolled out new creative tools. I'm probably leading out 10 things, but it's been a pretty busy year for you guys in the midst of a pandemic. And that all kind of started when you became CFO. It's all of this [ has been ] just become CFO in the last year or so. So how would you characterize Spotify's positioning today as we exit summer and head towards '21 and into '22?

Yes. I mean it's -- you're right, it's been a lot. As you can actually tell, I'm actually in the office today, which is, I think, the fourth time I've been in the office in the last 18 months. We're actually spending time together as an executive team, all in person together for the first time in a very long time, which has been great. So that's pretty exciting. And yes, to your point, all of this happened. I think I took over for Barry on January 1 of 2020, and then we went into a work from home about 2 months later. So it's been the majority of the time, we've done all this remote. But with that being said, I think we're super pleased with how the last 1.5 years, 2 years has gone. If you look at -- and I take a step back and say, okay, what were the forecast and what were we thinking we would do and what we accomplished when I took over? And I'd say we've kind of hit or are planning to hit or exceed all of the metrics we thought would be kind of midway through the year and at the end of 2022. So we're super pleased with the overall MAU growth over the last 2 years, the overall subscriber growth, revenue growth, improvements in ARPU, improvements in gross margin. And so in general, we feel really good about how the business has performed and obviously, we've talked at length about this on our earnings calls. If you look at the top of the funnel, MAU was exceptionally strong in 2020, hasn't been quite as strong in 2021, but still growing very nicely. And then when you look at, again, where we think we'll end 2021, we are on pace, if not expected to exceed most of where we thought we'd be when you look back, again, over this timeframe over the last kind of 18 to 20 months. So again, we feel really good about the [ MAU ] position, feel good about the subscriber growth. We feel good about revenue growth and the fact that ARPU on an FX neutral basis was reasonably flat in the last quarter, and our expectation is that ARPU will increase in the back half of the year is encouraging for us. And with the gross margin, that was above 26%. So we're feeling good about those trends as well. So again, we've done a lot. We've launched a lot of new markets, a lot of new products, innovation across podcasting and music. But I think we feel like we're in a pretty healthy position right now.

So COVID has been a challenge to many of the businesses we cover, but it's actually been helpful to some others. So last year, you saw strengthened MAUs as you just mentioned, which seemed to benefit from the pandemic. And this year, MAU growth has been a bit softer in part due to the resurgence of COVID in some markets. So I know you've gotten this question in the past, but it's somewhat clear. How should we be thinking about the impact of the pandemic on your business from here? Is COVID a headwind? Or is it a tailwind?

Yes. It's been a little bit of both. I know that the -- there's been some variability in terms of sort of the numbers and where we've been. But so if you take a step back to your point, we definitely saw last year from a top line MAU growth, it seems like it was a tailwind. To me there were a lot of people who quite frankly had more free time, were home, were sampling all different services. We definitely feel like we pulled forward some user growth into 2020 from 2021. That being said, not all of the metrics were great in 2020, right? We saw engagement drop in a number of areas. Obviously, in-car listening went down, overall listening hours per user went down. And so on the overall top of the funnel was really strong, some of the underlying engagement metrics weren't as great. And then as you get into 2021, what we see is -- and we obviously pulled forward some users, and so the growth has been strong, but maybe not quite as strong as it was in 2020. But that being said, we've seen a return to user growth -- sorry, engagement growth, listening hour per user growth. So most of our, if not, all of our developed markets and more mature markets are now seeing those sort of engagement metrics at or above COVID levels. We have some of our more developing markets where they're not at those levels or pre-COVID levels, but they are improving nicely. So we've seen the improvement in the engagement trends there. And so in general, it's been obviously a little bit of a mixed bag. We saw the headwinds clearly on the advertising side in 2020. We've had a really strong growth in 2021 on the advertising side there. So it's been a little bit of mix in general, definitely helped on the user growth in 2020, although not so much on the engagement side. And this year is a little bit tougher comps on the user side, but we're seeing all the engagement metrics return.

Right. So as you look at the balance of the year, what are the most meaningful puts and takes that we should be thinking about in terms of your ability to deliver a stronger second half in terms of MAU net adds? I mean everybody seems to be focused on this. And there's a lot going on even now. So how should we think about things like new exclusive podcast content, high profile music releases and there have been a number of them, the resumption of marketing campaigns and contributions from newer developing markets?

Yes. Well, I think you answered actually a couple of it within the question itself. But I would say, number one is marketing. We talked about this. We turned off a lot of marketing in the first half of the year, given what was going on with COVID in a number of markets. And so we've turned back marketing on a number of areas in the back half of the year, and we expect that will have a positive impact on MAU growth. Same thing with some of our newer market launches. Those take time to get going at times. If you look at some of our history, we had Russia will be a market that took off way faster than we thought. And we had much better growth early on. India was a market where for a year, didn't really grow maybe as well as we would like and then it really took off a year later. And so there tends to be variability in a lot of the new markets where we launch and getting our footing and finding the right marketing cadence and finding the exact right product market fit sometimes happens right away in some markets. Some markets takes a little bit of time. So that as we figure out will continue to benefit us. And so I said, you also mentioned sort of the new product launch. We've got a lot of new podcasts on the platform with Call Her Daddy and [ Dax Shepard's ] Armchair Expert. And so we continue to add more products, more original product on the podcasting side, which we think will drive engagement and user growth as well. So it's on the product side. It's on the marketing side. It's on the product market fit side in new markets. And so as we said, exiting Q2, we felt like the trends had sort of returned back to kind of where we thought they'd be as relayed in Q2.

Right. And at the Stream On event in February of '21, so a few months ago, you made several announcements, including the expansion into 85 new markets, which you've done already. What can you tell us about the progress you've made in the parts -- in these parts of the world? And what's on the horizon in terms of driving more growth here?

Yes. So I guess I'd reiterate a little bit what I said in the last question. So for us, a lot of it is about finding the right voice in a market, right? So we did cut back on some marketing and expected marketing spend in the first half of the year, and we started to ramp it up in the back half of the year. So marketing in general will help. A lot of the markets we've launched in these are newer markets. They have a ton of potential users but they're less developed, they're less established, lower broadband wireless penetration, but all growing and growing nicely. And so we see a huge opportunity in a lot of those markets. So you really can expect us to continue to invest on the advertising side, on the marketing side, on the product market fit side. I think we feel really good about sort of how those market launches have gone so far.

Great. And given that your user base is increasingly global, how should we think about the ARPU implications of this? You've got emerging markets, developing markets, developed markets.

Yes. So if you take a look back at ARPU, for the most part, ARPU has been a function of product more so than geography. And so it's really been growth in developed markets and the product portfolio in those developed markets. And so as we added family plan and as family plan grew, you saw subscribers grow, but also the impact of ARPU from having some of these multiuser plans. Same thing occurred with student plan and some of the other affinity plans we had. And so the majority of what had been downward pressure for a couple of years on ARPU was really related to product, was actually a very small amount on geographic mix. And so what you've seen in the first half of this year is early on a moderation in the declines in ARPU, and as I said, in Q2, on a currency-neutral basis, pretty much a flat ARPU and then we expect ARPU to grow in the back half of the year. And so that's come from some of the price increases we've announced. In many markets, it's family plan; some other markets, it's more than just family plan, but a lot of it has been on the family plan side. So I think some price increases will help us on the ARPU side from that standpoint. Moving forward, I do think geographic mix will become a bigger part of the impact that something we'll have to consider and think about as you think about the developing markets where we've had some price increases and you're going to have maybe some positive ARPU benefits there. And the geographic mix side, as that becomes a bigger part of our business, rest of world, and those types of markets that are right now about 10% as they grow, will probably have a bigger impact. But right now, we feel good about where we are on the ARPU side. We feel good about the fact that ARPU will be up in the back half of the year. And then we'll see as we get into 2022, what that really means for ARPU globally and across all of our [ premium ].

One of the areas that can help revenue and ARPU is obviously advertising, which has been an area of incredible strength. I mean last quarter was just amazing. And kind of everyone in the industry is talking about how strong the current market is. Can you give us some color, discuss your view of what makes Spotify different? Like what is it about your offer that differentiates you from anybody else's offer on the audio side? I mean is there something in the technology or that makes your products look better?

Yes. So I think there's a number of things. I mean one is just our size and scale, right, with 365 million users. And just the number of MAU we have and growing is -- just gives us a scale on the audio side that is large and impactful for advertisers. And in fact that podcasting is growing as a percentage of the core platform and the advertising opportunity there. And the fact that all of our users across all of our products see advertising here -- I'm sorry, see advertising on the podcasting side is great. So that's kind of number one. Number two is sort of the creators and the creator ecosystem we're developing. So on the podcasting side, having anchor and having a platform where 80% of new podcasts are created using the Anchor platform, which is something that we own, helps drive the market, will be really helpful. The Megaphone acquisition and adding all of that increased inventory into the Spotify advertising ecosystem, we think has been a really strong benefit to us as well. Then you draw on top of the content side, so having more of this original content, having more podcast content that is unique and exclusive to Spotify again, allows us to attract more users, more advertisers, higher engagement, which is super helpful. And then just in general, on the monetization side, we feel like we've really added technology to your point in terms of what's different with streaming ad insertion, dynamic ad breaks and then having Megaphone and having a tech stack that is adding value into that overall ecosystem for advertising has been really important for us. And then because all of our users come and they log on, we have a lot of great proprietary first-party data that allows us to take what we've done on the technology side and marry with first-party data that obviously is exclusive to Spotify, which is super interesting for advertisers in terms of targeting and measurement and attribution, all the things that they're looking for.

That's a really interesting point, actually. But you've talked in the past about these supply constraints with respect to your advertising inventory. What can you do to alleviate the bottleneck? I mean can you -- is there a way to unlock faster growth?

Yes. I think -- there's a couple of things. One is continue to grow out platforms like Anchor where more podcasts come on, we get more inventory that we can monetize through Anchor. So that's one way. Changes grow the platform in general, so more users, more usage of the free product, so having a better experience in the free product, it gives -- creates more engagement, which allows people -- or gives them the incentive to want to come back more and spend more time there and then on the podcasting side. So it's having more original content and having more exclusive content that actually grows users and engagement as well. So we -- to your point, and we said this a couple of times, we know the demand is there. Demand has been really strong. We continue to add ways to get inventory. Megaphone was another one that was great and continue to expand out the offering of Megaphone across Spotify has been a big benefit to us and will continue to be so as well. So we believe we have the tools. We believe we have the targeting, and we're continuing to work at adding an inventory field to monetize even better.

Right. But before I get to podcasting, we're getting a ton of investor questions. Let me just take one right now because I don't want to get too far away from it. It's back on ARPU. So none of your competitors seem to be following you on ARPU increases or pricing increases. And with the mix shifting towards emerging markets and with lower price points, should we expect ARPU to again trend down starting in 2022? So you only [ addressed ] Back half...

Yes. Look, we -- as you know, we haven't given any guidance yet for 2022. So I'm not going to sort of address that. I will say we feel really good about the price increases that we've already enacted. I know we get this question a lot, but a lot of where we've increased pricing is on the family plan, where you have up to 6 users for $15, which we think is a really compelling offering. So adding some differentiation between the standard plan and the family plan, we think has been something that has worked. It's something that really hasn't had any material impact on our gross additions or our churn. And so we feel like it's something that given the premium status we have in the market in terms of where we sit with content with our products in general that we feel good about it. What we do in 2022, we haven't announced yet in terms of whether it's price increase or geographic mix or growth in different markets we haven't said. But again, I think we feel good about the fact that we've admitted that we've had ARPU declines for the last couple of years. They were pretty significant a couple of years ago. They sort of moderated last year, and now we're actually seeing positive growth in ARPU for the back half of the year. We feel good about where those trends are. And then we'll have to see kind of how it grows in '22 and beyond.

So moving on to podcasting. I mean you've been a meaningful investor in podcast content. And it's like roughly 2 years into this strategy. Can you tell us what you -- what is the -- I guess what have you learned? What has come out of this with respect to driving the attractive returns from these investments? I mean you've lost money up until today. But I know you've said over and over that -- you see, so you wouldn't invest more without -- there's a reason why you're investing what you're investing. So what color can you give us?

Yes. So -- yes. I think what you're referring to, as we said a couple of times that if you see us continue to invest in the business, it means that we feel good about the investment we're making and that we're seeing the returns that we want to see. And that is still the case. And so I think we feel a couple of things. So we feel like we have some really compelling exclusive content. We've talked about all of it, whether it's Rogan or the Ringer or Dax or Call Her Daddy or all the things that -- Michelle Obama, all the things that we've added into Spotify that has been unique and exclusive to us. It helps bring people into Spotify. And then from there, we have a bunch of originals and exclusives from Parcast and Spotify Studios and Gimlet that actually keeps them in with more and additional unique content, and then we allow them to then discover even more podcasting content based on our algorithms and the product we have that keeps them there. So we feel like that's been successful so far. We've seen it in terms of the growth of podcast users, the growth in podcast engagement, the growth in the number of people who engage with podcast content. So we feel really good about that. And when you look at sort of the trends, we've obviously talked about the fact that the investment podcasting is going to outweigh the revenue growth, and that would be a drag on margins for a period of time. What we have seen is that actually, the incrementality and incremental growth in revenue has actually outstripped the incremental growth in cost. And so what we've seen is less of a drag than we expected in the last couple of quarters. We're seeing that revenue come through on the advertising side, which has been great. And then when you look at some of the content that we've exclusively licensed, you could call some more of our exclusive content or -- and high-price content. When you look at it from a listening hours per user or a cost per user basis, it actually continues to come down. It is actually some of our most efficient content on the platform. So we feel really good about the benefits we're getting and the engagement we're getting from the exclusive license content that we have on the platform. So that's kind of where we are with it and we still feel really good. We feel like we've locked up a number of key assets and will continue to benefit us over the next couple of years.

So just on that point, how important are the large celebrities -- you mentioned like Joe Rogan, or Call Her Daddy, Obama, Clinton, whatever. But how important the big names versus the smaller ones and exclusive podcasts to achieving your goals?

Yes. I think it's definitely both. I think what's really interesting and helpful is having that exclusive content is, it helps bring people on to the platform. And then by having additional exclusive content or original content that we've created or even just serving them up a better recommendation engine to continue, that's what keeps them on the platform. So we definitely know that having these exclusive content brings them on the platform. And as I said, some of that content, some of the most expensive content has actually been the most productive for us in terms of cost per listing hour, cost per time spend metrics. And you compare that -- and you marry that with the revenue growth, we've been able to get through growth on our podcast advertising. We feel good about the returns we're seeing both from absolute returns, but also what it's doing for the overall ecosystem and the overall podcasting product. So yes, and then you see that obviously, we continue to add on some strategic assets over the last couple of quarters.

Right. So I guess are you concerned that acquiring high-profile talent like some of the ones that we've mentioned will lead to frequent costly renewal cycles, which makes it hard to scale profitably, but how long will this cycle continue, this constant investment cycle?

Yes. I mean we'll see. We're always going to be smart and trading with our investments, and we're always going to look at the data to suggest where we want to continue to invest, where we're going to double down, where we won't. And so obviously, a lot of people are seeing that their costs for podcast and podcast assets have continued to move up. But again, we feel really good about the deals that we struck at the prices and then the timeframes. We'll see what happens in the future with new or renewals of podcast [ on the line ]. But again, I think we feel really good about where we are. I think we feel pleased with the folks we have send on feel excited and proud to be working with Spotify and feel like it's been a good move for them. And so we feel pretty optimistic that, that will continue going forward.

One thing that, in our view, makes you really unique versus any of your competitors, at least the lines that we follow, is that you have a global platform. Can you talk about how you leverage that global platform? How important it is to you? Are these usable? Could you use the same content over and over?

Yes. So there are assets where we're able to find a format that works and then use it in the market, translate and use different personalities, different hosts over the scripted podcast, have a similar type of podcast and just record it with different language and that works for different markets. And so we think it trends -- that type of thing is transferable. I also think there's products we have on the platform that are very global in nature. Sports can be global or at least very large in certain regions. You look at things like basketball, it is a very big global sport; soccer, footfall, whatever you want to call it, these are very big global sports. And having personalities that are well known and really successful and that being able to push them out into a further global audience, we think will be a big opportunity as well. So we think we see the opportunity in leveraging products we have in one market where we can recreate similar experiences in other markets that we know work. That's one area. And then the second would be -- will be obviously growing assets that we think have a global appeal and really taking them to more and more regions and more and more markets.

Got it. The monetization of third-party podcasts is a relatively newer opportunity for you. So if you're successful in driving superior monetization for these publishers, which it seems like you were on a path to do, what proportion of third-party podcasts could potentially be monetized over time? Like how should we think about that?

It's a good question. A little bit of a percentage, I would say, I think for us -- the number one thing for us is always how do we create an environment where creators can monetize as best they possibly can on our platform. And so as we continue to build out the tools and the services on our ad platform that benefits Spotify and Spotify only exclusive content, the more we can bring that to third parties who want to participate, I think the better it will be. I mentioned Anchor and Megaphone, both of those assets, we think, are ways that podcasters can create and innovate and use our tools where they'd be able to then also monetize at higher rates using our tools and services. So I think there's been an opportunity for us to continue to grow that and continue to have a larger and larger presence in the audio advertising space.

So let's switch gears to another topic that everyone loves to talk about, which is your gross margins. So at the day -- I don't know if it was actually at the event or later on at the analyst part of it. But at the Stream On day, you definitely talked about a long-term gross margin goal of 30% to 40%. And that's kind of been a B2B, like a bull/bear debate among investors, like you'd really ever get there. So given the variable nature of your cost structure, can you help us think through because it is also a wide range. If you do get to the top end of 40% in several years since you never put a time -- you actually never put a timeframe by the way. So you didn't say 5 years or 3 years or any year, but whatever. So when you start so you get there in several years, what does your business look like at that point? And how would you have gotten there?

Yes. So we haven't put a timeframe on it. I will definitely admit to that. I would say, look, there's a couple of things in there. One is we think advertising is going to continue to grow. It's going to continue to be a bigger part of our business. Right now, it's 10% of our business. We think there's an opportunity to improve the ad margins on the music side alone because right now, they're lower than their premium side. We think there's an opportunity there. And then you dovetail that into the podcasting side where, as you said, as more and more of our business moves over to a fixed cost nature versus a variable cost nature, we think there's a big opportunity to grow gross margin on top of the podcasting business. And we sort of modeled that over a long period of time. And even though right now, the podcast business is actually a drag on gross margins. We think over time, that will slip and will be a benefit to gross margin if not a significant benefit to gross margin. So if you think about it, we're at that sort of 26% gross margin, and that includes some of the drag we felt from podcasts. Now again, that podcasting drag is a little less than we thought because the advertising has been even stronger than we thought. I think we believe that will continue on, and we think we have a big opportunity to continue to grow the advertising side there. So I think those are 2 things. Marketplace continues to grow nicely. It's been a contributor. It's become a more meaningful contributor to gross margin as well. So we continue to build out the marketplace tools and services to grow those that benefit gross margin. So those are some of the ways we get there. There's a couple of things we're working on that we haven't talked about, that we also think will be beneficial over time. And so I think what we've kind of said is we feel -- if you think about that range of 30% to 40%, and clearly, the 40% means a lot, if not most, of what we're hoping went right. And we think the 30% is kind of a baseline where we think we can get to without a ton having your right, but just sort of the baseline going right. And the 30% to 40% is a bunch of the incremental stuff either doing better than we thought or some of the newer things we've talked about really hitting. But that's sort of how we think about the trajectory of getting to the gross margin targets we've talked about.

Right. And then longer term, is there an opportunity? Do you think there's an opportunity to somehow improve your profitability with the labels?

Yes. I mean I think we'll see. I think we -- I wouldn't say -- obviously, we think there is. I think those relationships will continue to evolve over time. We're always negotiating with them. There's always things we want to do, and there's always things they want from us. I think the music model will continue to evolve. I think there's ways for us to need to add more and more value into the ecosystem for creators, for creators to monetize at a higher rate that isn't necessarily going to be bad for the labels but will help us sort of achieve some of our goals as well. So that's kind of the way we think about it moving forward.

Right. And then beyond the labels, we were trying to get to your margins, when we start a deep dive on -- we got to like kind of mid-30s easily. But weren't the margin drivers just the upcoming CRB decision. It's like the royalty rate. So the mechanical royalty rates after the Phonorecords III should have margin implications to you. What can you say about timing around the decision and potential range of outcomes?

Yes. I don't actually have an update on timing for that. We're still -- we're a little bit in a holding time right now, waiting for some decisions to come down and see what the next steps are in the rolling process there. I think we're accruing at a rate that we think is reasonably conservative based on what the prior decisions had been. So we feel like -- could the [ rolling ] come out even worse for us? It's possible. That's not our expectation. So we think if it comes out the same or better, that would be upside for us. And so we'll wait and see. We've obviously kind of made our case for where we think the rate should go. But at this point, I don't have a time when that's going to be resolved.

Okay. And then switching gears, earlier this year, you launched the Car Thing to select premium users. Can you talk bit how the product has been received? And when do you expect [indiscernible] to have a broader [ view ] of that?

Yes. So the product's been received really, really well. So if you take a little bit of a step back, we have, call it, plus or minus 100 million Spotify users who access Spotify in the car. And so we know it's a big number, it's been growing and it's pretty significant. So we feel really good about that. And so for us, what we're trying to do is create an environment that makes it as easy and seamless as possible for Spotify users to use Spotify in their car, whether or not it's through Car Thing, whether or not through CarPlay or Android Auto or any of these types of ways or abilities to access Spotify in the car. And so where we see is ton of engagement, a ton of people use it, but we want to increase the engagement. We want people to use it more often. So every time they get in the car, not just sometimes and when they're on it, have longer sessions. And so how do we do that? It's by creating a better product. And so the Car Thing is a way for us to really understand with our own first-party data, how people interact in the car, what works for them, what interfaces work, what product innovations work. We think voice will be a big contributor to accessing the car. It's not super easy to be scrolling or to be looking at a screen to change playlists or songs or switching from a music to a podcast. But having just say, "Hey, Spotify play this," and change it is something we think could be really important. And so we'll pursue a number of strategies, Car Thing being one of them, working with other third-party players, whether it's OEMs or the operating systems that connect with your car will continue to use all those. So we're optimistic that we're going to continue to grow our share of listenership in the car. And the Car Thing in particular has done exceptionally well. The demand is just through the roof. Immediately, we get out a very small select amount free. So we'll -- I don't think free will be the baseline forever. And so when there is a cost associated with it, we'll have to see how that demand changes and how the usage changes. And so our goal is not necessarily to be a hardware company. That's not really our goal at all. This is really a way to, a, give access to users, primarily lots of users who have older cars where they don't have upgraded Bluetooth systems that work really well with the newer phones, but also a way for us to really learn how people interact with Spotify in the car, so we can get better and smarter and make the experience just a better overall experience for the users.

And with that experience, like what are the revenue opportunities that come along with that? Is it just increased engagement? Or is there something else?

Yes. I mean it's mostly on the engagement side, right. We know the more you use Spotify, the more your engagement goes up, the more higher retention, the lower your churn. We know that the more devices you use Spotify on. So if you go from using one device to multiple devices, we see higher engagement, we see better retention, we see lower churn. And so anywhere we can get a better use case for you as a consumer, that's sort of really is helpful for us. And obviously, in a lot of markets, the U.S., in particular, a lot of audio listening occurs in the car. And so having a presence there that we think is meaningful and seamless is obviously key to making sure we have the engagement metrics that we want to have.

And then Paul, you just mentioned the OEMs. I mean we follow SiriusXM as well, and it takes a long time. There is a long runway at leasdt. So if you -- is it possible that you can work with the OEMs to go back to the dashboard? If yes, how many years away is that?

We have some already. So we have Tesla, we have BMW, we have a few others as well. I think that will be part of the strategy. But to your point, that has taken a long lead time. So we think we -- as I said earlier, I think we will work with any opportunity we can to make the experience better for you in the car. So the OEMs will work on that, but again, there's a decent amount of lead time with that. We'll work with the operating systems and making sure that we're seamless whether, again, it's CarPlay or Android Auto and now we've got Car Thing as well. And so for us, it's -- no matter who you are and no matter how do you want to access your music in the car, making it as simple and easy and seamless as possible is what we're doing. The OEM is part of the strategy. We'll see how big it is. I think right now, obviously, between there -- just the direct Bluetooth or cable into your car using whatever platforms or through Car Thing is more prevalent, but we think they're all opportunity for us.

Right. So let's move on to capital allocation. You recently, and I have to say, surprisingly, announced the share repurchase authorization. Can you give us some color on your capital allocation priorities going forward? And then someone also asked about -- well same question, what the rationale behind the $1 billion?

Yes. I think it was a couple of things. One is we have a pretty strong balance sheet right now with over $3.5 billion of cash on the balance sheet. And so for us, it's always about what's the right use of capital. And the number one thing for us always is going to be investment. Are we investing enough in the business? And we will never do anything that will preclude us from investing as aggressively as we want to. So that's the number one criteria that I always have. We felt like we have enough cash on the balance sheet and currency to invest aggressively and [ put up ] in engineering, on innovation and to be able to look at any type of acquisition we'd want to have and have the ability to do that if that were to come to fruition. So that's sort of number one. And then we're looking at it and saying, well, we have cash -- a lot of cash on the balance sheet that's getting no return. If we have enough to spend, is it always the most efficient. And quite frankly, we saw at the time what we thought was a stock price, that was undervalued. And we thought it would be a good return, given the fact that we have, again, $3.5 billion on the balance sheet, and then we didn't think it would in any way impact our ability to continue to invest and grow in the ways that we wanted to. So that was the rationale behind the buyback. We did one before a couple of years ago. I think we ended up purchasing a little over half, like $500 million or so, and that pretty -- turned out to be a pretty compelling price and, I think, 130s or so average price range. So we did do it once before. This is not the first time we've done it, and that turned out to be a pretty good investment. And so for us, it was just sort of a similar type of a logic.

And then just to kind of finish up on the capital return or capital allocation. When you talk about investing, do you -- are there any gaps like -- you obviously have built out your advertising technology tools. Is there any other area or any other gaps that we should be thinking about when thinking of M&A on a global basis?

Yes. I don't think there's gaps, but I think there's always -- there's -- for us, it's always about innovation. It's always about new product. It's always about spending as much as we can efficiently on growing, particularly on the R&D side. So you'll continue to see us really aggressively hire on the R&D side, on the engineering side to make sure we're making product improvements and product innovation, whether that's improvements to our current products on the music or podcasting side or adding new features, functionality or new products, and we're going to continue to invest aggressively there. We've talked about this in the past. But when you think about the overall income statement, you think about where we'll get leverage over time, we believe, obviously, we'll get some leverage on the G&A side, we'll get leverage on the sales and marketing over time. I think we will continue to invest aggressively on the R&D side for a period of time if that's the one area where we probably won't see as much leverage as the revenue grows because we're going to continue to lead with investment and be with that as a driver of growth for us. And on the M&A side, we'll continue to be opportunistic on where -- places we feel we could add value. And so Megaphone is a great example of a business that we knew we wanted to add inventory into Spotify. We thought we'd be able to monetize it. We felt we had a product portfolio that would really lend itself well, and Megaphone made sense there. We've obviously done it on the podcasting side as well, on the content side to invest there. So I think we're going to continue to be opportunistic on ways we can grow the business and whether that's content, whether that's R&D, whether it's ad tech, you can imagine we'll be looking at everything.

Okay. So one last one on Spotify. And not just you, but other people as well have been pretty outspoken about Apple's anticompetitive behavior and unfair App Store practices. You filed a complaint against them in the EU, and there's been recent news out of South Korea, Japan and even Los Angeles last week with the [ EPA case ]. What does all of this mean for Spotify?

Yes. Well, for us, I'm not going to say too much about this other than what we've said in the past, which is we're just looking for a level playing field. We're looking for Spotify to be able to compete in an equal and fair environment as other apps, particularly apps that are owned by the gatekeepers like Apple, for instance. And that's what we're looking for. So I think for us, it's great that governments around the world are taking a more active approach and looking at this more closely. And so we think that's obviously encouraging. We'll wait and see how everything plays out. There's obviously a long way to go. But for us, again, we're just looking for a level playing field. We've put up a website sort of talking about the things that we think should be changed. Time to Play Fair is the website if you want to go in. You can take a look and see where we sort of stand on the different issues here. But like I said, we're just looking for a level playing field. And I think the fact that there's more -- attention and scrutiny is obviously a good thing for us.

That's great. So Paul, I can't thank you enough for joining us today. And we'll be back at 5:05 with Lachlan Murdoch of Fox. But in the meantime, again, thank you Paul for joining.

Great. Thanks so much for your time.