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

All right. I know we're running from room to room. So thanks, everyone, for getting settled. We're going to go with our next session, Spotify; Paul Vogel, CFO. Paul, thanks for being part of the conference this year.

Thanks for inviting me.

So I think, look, you guys have been in front of investors a fair bit over the last 18-plus months. You've got a number of Investor Days. But can we just start by taking a step back and thinking about the evolution of the platform that you guys have been on over the last couple of years and how you're thinking about the market opportunity going ahead? Why don't you just start big picture and maybe set the table for us?

Yes. Thank you. And thank you as well for joining. Yes, so if we take a step back, I would say the last 12 months have really shown some exceptional growth for us. So if you look at the last trailing 12 months, we've added 120 million monthly active users and 32 million subscribers. And so if you go back over any 5-year period of time, on an average of 12 months, we normally average around sort of 71 million kind of growth in users and about 27 million growth in subscribers. So we've seen this really impressive and significant acceleration in the user growth and the subscriber growth. And so that's come from a number of things. And I think one of it is we're going to continue to innovate, we're going to try and be the market leader in everything we do. And you've seen it with things like AI DJ, for example. And so we're going to continue to launch products and we're going to continue to improve the product in a way that differentiates us from everybody else. And so what you've seen is -- people say, "Well, why have you grown so much? What's caused this reacceleration?" Well, a, we are now in 180 markets. And so it definitely takes you kind of 6 to 12 months to really get your footing in any new market before they start to kick in. And so we've gotten the benefit of kind of passing the initial threshold and starting to see an acceleration in a lot of those markets. We've seen still significant growth in our developed markets. And so we've seen really positive trends in North America and Western Europe, in markets that people would think would be less ripe for outperformance, but we've seen outperformance across the board in North America and in Europe. We're going to continue to improve the product. We're now in over 70 languages. And so it gives more access to people. As I mentioned, AI DJ, that launch is now in 50 markets. So we're continuing to innovate. We're continuing to grow. We're continuing to lean into both the developed markets and the developing markets. We've improved sort of the marketing efficiency. And so from all that standpoint, we've grown really, really well, and we've seen this nice acceleration across the product. And so we talked about getting to 1 billion users. We still feel like we're on track to get there, and that's kind of the gold standard of where we want to get to.

So let's stick with the user side, and then I'll eventually want to maybe pivot to some of the product initiatives and platform initiatives. What have been some of the key learnings of how your subscriber funnel have evolved in some of your more developed markets? Because I think that's been an area where -- earnings calls, quarter-on-quarter, you guys continue to talk very positively about the way the subscriber funnel continues to evolve for you. What are some of the key learnings of the why there on the subscriber funnel?

Yes. So I'd say it's a couple of things. I think one, and we've talked about this since we've been a public company, even before we were a public company, but our funnel of having both a free and ad-supported business and a premium subscriber business has really been one of the secret -- part of the secret sauce to what's worked for us. And so what we've seen over the years is, when we grow users, when we grow the top of the funnel, subscribers follow. And we've seen that over the last couple of years. We've seen an acceleration in user growth and we've seen subscribers follow. It's not always linear. The timing can sometimes be off. Sometimes it happens quickly. Sometimes it actually takes a little while. But in general, when you see the health of the top of the funnel, that generally translates into subscriber growth. So that's kind of one thing. The second thing is you've seen it's been pretty consistent in terms of the conversion, for lack of a word, in terms of free users into paying subscribers. And we've seen that be pretty consistent. It's actually improved a little bit in some of our developed markets. But if you look across North America and Europe and Lat Am, it's been really, really strong. Obviously, that conversion is a little bit lower in some of our developing markets, but it's improving. And so that's the balance. If we can continue to grow strongly in our developed markets, we can continue to see high conversion rates, we continue to outperform, which we have done, and then you start to see the flywheel and the improvements go on. I think the other thing is, we get the question a lot, but we have over 2,000 partners. I think over 1/4 of our users come from some sort of relationship with one of our partners that we work with. And so actually being the independent player in kind of the audio space has allowed us to have so many partners, has allowed us to have this ubiquity strategy we've talked about again since we were public that we'll work with everybody. We can work -- we're platform agnostic, we're product agnostic, technology agnostic. And so we work everywhere. And as a result, we think that's really helped our growth.

Okay. The second piece was, obviously, I think it was about 18 months or so now, you talked about going into a wider array of markets at an event you had, and then you've executed on that now, going into a lot of developing countries and launching the product there. Talk a little bit about the experiences you've learned from launching in developing countries and some of the growth you're seeing in that pocket of the world versus your experience with the developed countries.

Yes. So it's no surprise that we're growing even faster in the developing markets than the developed markets. But we're growing nicely in both. And as I said, not to be redundant, but we are growing really nicely in the developed markets, and we've outperformed the last couple of quarters, which again has kind of pointed to the strength of the business and it's happening across all products and all demographics. And so we're seeing it in the younger demographic, in the older demographic. So we've seen that kind of growth across both sides. I think for us, what's really exciting is we see tremendous opportunity to improve monetization into the developed world while also improving the monetization in the developing world. And so we get this question a lot about, "Well, if you're growing the most in your developing markets, what does that mean for growth? What does that mean for monetization? How does that all play out?" But what's great from our standpoint is we think there's still tremendous opportunity for monetization improvements, both on the subscriber side and the advertising side, in the developed markets. And as that's happening, we're building out the resources. We're building out the advertising. We're building ways to convert more users into subscribers in these developing markets that it gives them time to really start to build that up so they could be meaningful contributors as well over time.

Okay. We still get the question a lot around competition. How do you guys think about the array of competition you face? And then the second part of the question would be, you recently decided to raise price for your product on the individual plan, how should we think about prices going up in an inflation, broadly on the product, and how that feeds back into the way you think about positioning yourself competitively?

Yes. So if I start with competition at the outset, for better or worse, we've had the same competitors since inception, right? And so we get the question a lot because obviously, some of the biggest names in tech and media are our competitors. But they've always been our competitors. And so unlike some other industries where they may go into a market and they're like, "Oh, no, now I've got this XYZ as my foe," we've dealt with this level of competition in our entire existence. So the fact that we've been able to get to 0.5 billion users in the face of competing with guys who, quite frankly, have some inherent advantages in owning software and owning hardware, it's just a testament to the product that we've developed and the focus we've had on innovation, on product differentiation. So that's kind of one bucket. Then you sort of asked about pricing, and I think we get the question a lot also, "Oh, well, have you grown because you guys had a price differential for the last period of time?" And when we look at the data, I'd say a couple of things. One is we actually raised prices in a number of markets that predates anyone else raising prices. And so we had raised prices like 50x even before that. So that's number one. Number two is when you actually look at some of the acceleration in our user and subscriber numbers, they all actually predate anyone else raising prices as well. So we started to see the acceleration in some of our metrics even before that existed. And so moving forward, we think that -- so there's kind of that part. And then you kind of look at the third part, which is when we have raised prices in the past, we see very little impact on gross intake and very little changes in churn. And so we feel confident that as we do raise prices, and we've done it recently, that we'll continue to have similar types of dynamics that play in the markets where prices have increased.

Okay. Coming back to the competition point and maybe bringing it to some of the product initiatives and platform changes. How do you think about the evolving competitive differential you're trying to inject into the marketplace where, yes, users could listen to Taylor Swift wherever they want, but there's elements of competition and differential and product that can differentiate one platform from another? And how do you see some of the momentum around those products?

Yes. So let me try and answer that a couple of different ways. So I think the first is we genuinely believe having all of your audio needs in one app is a huge advantage. And we talked about this at our Investor Day, but there's a lot of complexity that goes -- it's a much simpler model to say we're going to have one app for music and one app for podcasting and so on and so forth. That's a simple experience. . But it's a much worse experience for you as a consumer because now you have to navigate between multiple different apps. None of those apps actually really talking to each other in terms of improving your recommendation or improving your learning. So what we decided to do is actually take all that complexity ourselves and having music and podcasting, now audiobooks, all in one app. So we're basically absorbing that complexity to make the consumer experience even easier. And so for us, that's one of the big differentiators. If you get all of your audio in one place, your recommendation engine becomes better, the UI becomes better, your experience becomes better. And so for you as a consumer, it's a much easier and better way to consume content. So that's number one. Number two is, I guess, some of the things that I talked about earlier, we're going to continue to innovate and differentiate. And so I'll take AI DJ as an example I mentioned earlier, but it's been one of our most successful product launches we've had in a long period of time. We're now in 50 markets. Their views have been amazing. And it's something that's very differentiated that consumers love, that the artists love because it's getting the content out there. And so we're going to continue to invest in those types of things. So it's how do we differentiate the product, how do we have a product that's better than everybody else. And we know that's how we're going to have to stay ahead. As I mentioned earlier, some of our competitors have some inherent advantages. Some of them might use them in certain ways as well. But that being said, we have to really be better than everybody else in order to maintain the advantage we've had, and we feel really good that we continue to do that.

Okay. Coming back to the price increase, you probably have one of the most debated and talked about price increases I've seen in my 2 decades of doing investing and analyzing businesses. So bring us in a little bit in terms of the decision to actually raise price. How much of it was informed by work you've done as a company versus elements of a broader conversation you've had with the wider industry on the content side? Maybe start there and then I'll maybe ask 1 or 2 follow-ups.

Yes. I think for starters, I mean we always said we will raise prices when we think it's the right thing to do for Spotify. And so there is no pressure from any other way other than what's the right thing to do for Spotify, what do we think is the right thing for our consumers, for our partners. And that's what sort of dictated price increase. And so, we feel good about the timing. We feel good about the price increase that we had. And yes, it was really again dictated by what we thought was the right timing. And again, if I go back, without sounding again like I'm repeating myself, we feel like the price to value equation of Spotify is really, really high. There's a lot of value in there. And so for us, it's really about do we think that we now have sufficient value that the price increase made sense at this time.

Okay. I want to mine that last point you just made there because for those of us who have been around the media landscape for a couple of decades, this might be the only product that hasn't been touched by media inflation in a lot of ways. How do you think about the pockets of under monetization in your platform and how those might translate into pricing narratives for the company longer term, not saying when you might do something but just understanding the scope of it as you guys see it as a company?

Yes. So I'd probably zoom out a little bit and say, well, how do we think about reaccelerating revenue growth to 20% or more, right? And again, if you go back to the Investor Day, one of the things we talked about is the goal to reaccelerate revenue back to 20%. So how do you reaccelerate revenue to 20% when you're not there? So one, obvious, is you have to continue to grow your users and subscribers. And we've seen that acceleration in user growth and we've seen an acceleration in net additions of subscribers as well. So as long as those stay healthy, you've got that base. That's number one. Number two is -- and again, then there's pricing on top of the premium side, and we've talked about this now, raising pricing on the premium side, you grow subscribers, you add some price increases, you're going to get better revenue growth there. And the other side of the equation is the advertising side. And so how do we start to and continue to better monetize the advertising side at Spotify. And so what we've seen is we've had a tremendous increase in ad-supported user growth, which has been really helpful. We continue to see monetizable hours increase. And so where do we go from there? Well, we need to continue to improve our ability to monetize the inventory we have on the platform. And so that's what we're really working on the advertising side, it's improving the monetization on the ad platform. So we're doing that in a couple of ways. So we've talked about this in the past that we did add and tried to build out our direct sales force in certain markets. And so we added resources in Europe. We did some in rest of world and some of our other areas to really find ways to start to really generate incremental advertising in those regions. And then it's really improving the advertising tech and the ad stack and improving with automation and self-serve and building out spend and all the things we're doing to differentiate the product over time so that we can actually monetize the inventory even better over time, which will be good not just for Spotify but for all of our partners as well. And so when I think about it, it's really about how do we reaccelerate that revenue growth. We feel like we have a really good plan in place, again, given the growth in users, the growth in subs, the price increases and all the things we're doing on the advertising side.

Okay. Last one on the price increase, maybe I'll frame it as sort of filling back into a broader conversation, what's the current state of the conversation between platforms like yourself and the broader content industry? How did the price increase maybe inform the evolution of that relationship? I think you characterized it as a win-win on your last earnings call. But just bring us in a little bit to the conversation of how the relationship between yourself and the content industry evolves, how price might have played into that and how to think about multiple variables relationship evolving in the years ahead.

Yes. So I would say a couple of things. I think we definitely believe it was a win-win. I think we said all along, and Daniel said many times, we'll raise prices when we think it's the right thing to do for us. And so that's kind of how we thought about it. We get this question a lot, but I would say we think about sort of our price increases and everything that's going on in all of our deals as just one more step in being able to prove out what we said at the Investor Day. And so we feel very good about our ability to hit all the targets we set out at the Investor Day. And so when you think about how do we get from a business that's 25% gross margins to north of 30% gross margin, we've talked about a music gross margin that was 27%, 28% and getting that above 30%; a podcasting gross margin that was losing money to one that breaks even and eventually becomes profitable; and then adding on additional verticals that can become profitable. That's all what we're playing for. And I've never felt more confident in our ability to deliver against all of those targets we set out at the Investor Day. And so all the things around pricing and the conversations that we have, I feel good that we are in a good place to deliver against all the goals that we set out.

Okay. I want to pivot to the podcasting efforts. You're about 5 years into this as a company. Start first high level, you've made a lot of investments, you've decided to license content, purchase companies, build scale. What have been some of the key learnings so far as you've executed against this podcasting strategy in the last 5 years?

Yes. So I think when you think about the podcasting strategy, again, you need to zoom back out or at least rewind back to when we first launched podcasting. So when we first made our investment in the podcasting business, we basically had 0 market share, like we're nowhere. And there are other players who are leading the market. And we had a belief that podcasting could be a very big industry, that it was a business that was ripe for innovation, it was ripe for disruption. It was a business that could generate incremental revenue, both advertising and other for the industry, and we could really do things differently. And so that was the main goal when we set out for podcasting. And then you fast forward to now, we are the largest player in podcasting in many of the markets we participate in. We've grown it to be -- we own the significant market share of podcasting overall. So from all intents, that's been a big success for us in terms of what we're trying to get to, which was how do we make podcasting a big part of our business, how do we grow the business. And if you look at the podcasting business, if you go back just 2 years and look at sort of the estimates of how big people thought podcasting would be in terms of the revenue we generated, it's 2x that. And so we believe we've been a big contributor to why the podcasting business in general is generating so much more revenue, not just for us but across the entire industry. And so that was kind of the premise. And so we feel really good about where we are in terms of our market share and our growth and our presence in podcasting. And so now where we are, again, we get this question a lot is, where are you and what changed in podcasting? And I would say it's just an evolution, right? And so we've been in the business for 4 or 5 years which, when you think about it, is not that long a period of time. And so what have we done? Well, we've learned what we believe works on our platform and where we want to invest more and, quite frankly, areas where we don't think we're going to be as additive to us and so we want to pull back on. We accomplished our first goal, which was becoming the biggest player from a market share perspective and having podcasting be a big part of our business. And so now we're getting to the next stage is how do we turn that into a great business. And it goes back to what I said earlier, it's a business that lost a lot of money for us from a gross margin perspective. We have a path to get to breakeven and then make it a gross margin-positive business and one that we think will actually be higher than our core gross margins we have right now. So a lot of the evolution we have is making those strategic decisions that we think are going to push us forward that's going to grow the advertising on podcasting but do it in a way that's thoughtful, that is efficient, that were leaning into spending that's going to be additive and pulling back on spending that's not going to be additive to the overall business. And so there's nothing really crazy revolutionary going. It's just that evolution of any business model. You figure out what works. We've been in it for 4 or 5 years and doubling down on the things we think works, investing in new areas and pulling back on things that haven't been as profitable.

Okay. Maybe just double clicking on one of the points you made, in terms of -- however you can help us, what is the podcast content on the platform more broadly done in terms of gross additions, retention, engagement? What have you seen there in terms of by adding different and interesting layers of content to the platform, how that's changed some of the subscriber proposition?

Yes. So look, it's definitely contributed to the growth. I mean, I don't think we'd have 0.5 billion users of podcasting, it wasn't part of the platform. So it's definitely contributed to the growth there. We also see on a platform that when people engage in more than one product, so music and podcasting and not just one, they have higher engagement, they are stickier, they stick around longer. And so all of those key metrics are important for us as well. And so there is the kind of the pure monetization, the profitability side of it, but then there's the growth in the business. And again, I'll go back to what I said earlier, it's being able to put all of this in one app and making it easier for the consumer and making it easier for the creators. I think it just benefits everybody in the ecosystem.

Okay. Sticking on that last point, when you think about reducing friction and giving creators tools to build content and monetize and the output of that would be you build a larger, more profitable business in podcasting overall, you've done a fair bit on acquisitions and building tools internally inside the company, what's the current state of building products and platform around podcasting that will continue to scale that business in the years ahead?

Yes. So I think there's probably two parts to that. So there's the product and monetization side of that, right? So that's a big part of what we're trying to do is continue to build out tools and resources, particularly on the advertising side, that's going to make the monetization for podcasters and the monetization for us even better. And so we're going to continue to lean into advertising and ad tech and span and all the types of things we're doing on the advertising side to help advertising in general, but podcasters grow in particular. And then for us, it's about how do we get distribution for podcasters, how do we get their voices out there, how do we help more creators create, how do we help more creators actually experience and get heard and listen to. And so that's what we're going to continue to do and lean into. And so it's like how do we get discoverability, how do we get that engagement and then how do we help them monetize.

Okay. Probably one of the main questions we continue to get on podcasting, I think your message is real clear on where the evolution of the strategy is going, what are the variables we should be watching for gross margin scale to be building in the podcasting business? How much of it is elements inside your control, such as just making sure you're making the right investments at the right scale versus scaling the business and building revenue monetization on the platform?

Yes. Well, number one, is just advertising, right? So I think we believe there's an ability for us to monetize our inventory better, monetize more of the inventory more consistently and, through tech and automation, actually provide an even better advertising experience both for the consumers and the advertisers, which will benefit both from pricing and monetization and all of those types of things. So that's number one. Two, I think you've probably seen some of this, I think we are signing deals differently than we have in the past. So I think we continue to believe that creating podcasts and having Spotify originals will still be a part of the strategy. We're also going to think about what's the best way to produce that content, what's the best way to partner with that content, what's the best way to share the risk and the reward of that content with our partners in a different way. And so we've made some deals that we think were highly, highly beneficial to us. We've probably made a few that didn't work out as well. And so you learn from that and you say, okay, how can we structure deals differently? What are the right deals to sign that will really be beneficial so that, that cost structure is in a place that we're actually investing in the right things and so we can monetize better and we're investing in the right things. And again, I think that's nothing more than just it's just learning, right? We've been in it for 4 or 5 years. I know it seems like a long period of time, but in sort of the grand scope of kind of 10-, 20-, 30-year media evolutions, it's still pretty early days.

Understood. I want to break the advertising piece into two parts. When you think about the secular growth opportunity you have with advertising, which comes down to there's a certain level of consumption that could be monetized in a certain way, what do you see as some of the key friction points or tools you still need to build to sort of bring the advertiser community around to the opportunity set that you have as a company?

Yes. So I think some of this I mentioned earlier, it's improving automation, it's improving self-serve tools. I think if you look at some of the bigger platforms out there, they get a fair amount of the advertising demand in inventory coming from smaller midsized advertisers who are able to come on with light touch who will be able to use self-serve tools and automation tools and technology tools. So I think that's something we're really leaning into. That's number one. Number two is, in some areas, helping people create audio ads if they've never done it before, so making it -- are there ways we can make it easier for them to think about creating audio ad and how you do that. So I think it's really just about that. It's really about improving the technology, improving the automation, growing not just the big-brand advertisers, which we've done very well with, but really starting to lean into some of those smaller, midsized advertisers as well.

Okay. The other aspect around advertising right now is the current macro environment. Obviously, brand advertising has been very volatile over the last 6, 9 months. What's your view of how the more near-term environment is evolving for advertising and how that might feed into the way we should think about growth here?

Yes. I mean I think -- look, it's always tough to predict the macro, so I'm not going to. I think as we talked about earlier in the year, there was definitely some choppiness. It was up and down. I don't have anything different to say about Q3 than we said on the earnings call with respect to where the advertising trends are going. But I will say we're not a company that really ever focuses too aggressively on the next quarter. I mean we obviously want to deliver. We always want to deliver. We always will do everything we can to deliver against expectations. I'm not saying anything to contradict that. But we're not going to focus on if the macro is driving a couple of hundred basis points one way or another, it's not the relevant data point for us. The relevant data point for us is are we growing the number of advertisers, are we seeing retention of advertisers come back, are we seeing new advertisers join the platform and they having success, are we seeing our tools and services be more adopted. If all of those things are happening, the macro will take care of itself. And so yes, we would love a macro tailwind like everybody else. It would obviously help us achieve some of our goals in terms of getting to those profitability metrics and podcasting and other quicker. But for us, it's really about are we building all those building blocks. And if we're hitting those milestones and we feel like, from an advertiser's perspective, from a supply and demand perspective, we're doing everything we need to do, that's really what we're focused on. And we feel like we're making good progress there.

Got it. Okay. Next topic I wanted to turn to is just two-sided marketplace. Obviously, it continues to build and scale. Talk a little bit about the journey you've been on with two-sided marketplace. How you think about it as a contributor to your broader growth and margin goals that you laid out over the last couple of years in investor events. Just give us an update there.

Yes. So the marketplace has done really, really well. So if you kind of go back a couple of years -- and again 2021, we said it had grown to about $160 million of gross profit contribution. That was up from only $20 million a couple of years prior to that. And then we said in 2022, it grew north of 30%, and we expect it to grow nicely again in 2023 as well. And so it's been a really nice contributor. And the great thing about marketplace is, we believe it's something that benefits everybody, right? These are tools and services that help artists, that help creators get found, improve their careers. We have a goal of having over a million creative people be able to live off their art. And so how do we continue to move that forward? How do we continue to help people and give them the tools and services that it's actually going to really be beneficial to them to lean in? And we're leaning with them to help them grow their businesses. And so we feel like marketplace has been a great contributor to the overall industry. We feel good about really the benefits to the artists and the community, and we feel good about how it's helped Spotify as well.

Okay. So to put a finer point on the conversation, at Investor Day, you laid out elements of how you want your gross margin and your operating margin structure to sort of evolve in the years ahead over the longer term. For those who are maybe less familiar, just help us understand what you view as the key building blocks to achieving those goals? Like, if we were to look at this as almost a bridge analysis, what would be the steps we should be watching from the outside in against your broader margin trajectory?

Yes. So let me kind of go back and reiterate what I think I said earlier. So if you think about our business right now, we talked about in our Investor Day that our music gross margin was around 27%, 28% and that we expected our music margins over time to grow to north of 30%. And so that's a lot of the things that we've talked about. And then we've also talked about the podcasting business, which we've invested a lot in. It's been a negative business for us from a gross margin perspective. We talked about getting it to breakeven and then profitability. And longer term, we actually think that business is going to have a 35%-plus gross margin. And then we believe there's other businesses that we can layer on top of it, and we think a lot of them will actually have incrementally even higher gross margins than either the music or podcasting business. So if you layer all those on top of each other, those are building blocks that get you to a 30%-plus gross margin. And over the really long term, how we're able to grow them even more, what other incremental services we're able to add on will sort of dictate how high within that 30% to 40% band that we've talked about we can get to. But again, we feel really good about the building blocks and where they are right now on the gross margin side. And on the OpEx side, it's kind of a fairly sort of similar exercise in that sales and marketing has been -- what was elevated last year, it's come down a little bit this year. We spent a lot on marketing in 2022 to really grow users, to really grow subscribers. That has accelerated to help with the flywheel. And we've actually been able to spend a little bit less on marketing in the first half of the year than we expected to and grow even faster. I think a lot of that comes from a lot of the investments we did in 2022. But we think that sales and marketing expense, which is sort of north of 10% now, can come down into that 6% to 7% range over time. We've talked about R&D being in sort of the 10% to 13% range and then G&A being kind of 3% or less. And so we are going to continue to focus on efficiency. We're going to continue to focus on being a great business. We've talked about this a number of times, my belief is that most people in this room listening believe we have a great product. I think there's people who are still questioning, do we have a great business? And I think we are 100% committed to proving out that this is not just a great product, but this is a great business, and you will see the building blocks over the next quarters and years to prove that out.

Okay. It can't be a tech conference without me asking about generative AI. You talked a little bit earlier about AI DJ. Maybe help us understand how Spotify is embracing AI, both from a consumer-facing standpoint, but also from an internal process and possibly an efficiency standpoint as well.

Yes. Well, if you parse the two out, right, there's AI and then there's generative AI. We've obviously been using AI and invested in AI a lot over the last handful of years. It's what drives the improvements in our playlist, it's what drives the improvements in our UI. So AI is nothing new to Spotify. We've invested in that for a very long period of time, and that's been a big growth area. The generative AI stuff, again, I think we will invest like everyone else and see where it goes. You mentioned AI DJ. That is one area where we're using that part of AI into a product at Spotify that has been really well received. And so we'll continue to lean into areas where we think it can be beneficial. And then over time, I think like everybody else, there's the really high-profile stuff that one reads about. But then there's the blocking and tackling stuff. Again, we talk about G&A and where it could be. Could it be even lower? Like, could it even lower than I thought based on some of the abilities that could happen? It may not happen in a year or so, but how can we plan for 2, 3, 4 years from now where, as we grow bigger and bigger, we actually don't need to hire as many incremental new people, if any, because we can actually lean into these tools, we can lean into these to actually be more efficient. So I'm actually pretty optimistic that it will all contribute to potentially even having that whole OpEx ID equation even more efficient over the long term. Again, the timing is always...

Duration.

Yes. And again, like what you've seen in some other people, there may even be -- I don't know this, but some people have talked about, like is there incremental cost to launch it before you can actually get all the benefits? I don't know at this point. I don't think that's going to be the case for us in terms of where we're headed from a G&A perspective. I feel really good about the downward trajectory on OpEx in general for us as a percentage of revenue, but we'll see how it all plays out.

So in the last minute or 2 we have, we're sitting here a year from now, we're thinking about where you've allocated capital, what the key areas of focus are for execution, what's top of mind in terms of making sure you execute and position the business over the next 12 months for Spotify?

Yes. So I think for us, it's really about what I just said, which is turning us into a great business. And I think there's definitely been some -- I get the question all the time of how committed are we. Obviously, we spent a lot over the past couple of prior years. We invested a lot. Is this a short-term commitment to becoming more efficient? Is this a short-term commitment to being a better business? Or is this truly how you're thinking about the long term of Spotify? And so to me, if I'm looking out 12 years, my expectation is that we've proven out to investors and to people watching that we're very committed to being an efficient business, that we are very committed -- we're going to continue to invest. We're going to continue to grow. We're going to continue to do all the things that made Spotify unique and differentiated and the best audio platform out there. But we're going to do in ways that are smarter. We're going to do it in ways that are more efficient. We're going to continue to lean into making sure that this is not just a great product, but it's a great business that has those gross margins that are north of 30%, that has an operating margin that's 10% or more. And then both of those are just a starting point of where we're going to get to, and we're very committed to that.

All right. All very clear thematically. So thanks, Paul. Please help me and join in thanking Spotify for being part of the conference.