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

Good morning, and welcome to Spotify's leadership update call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the call over to Bryan Goldberg, Head of Investor Relations. Thank you. Please go ahead.

Thanks, operator, and thanks, everyone, for joining us to discuss this morning's news. On the call today is Daniel Ek, Spotify's Founder, CEO and Chairman; Alex Norstrom, Co-President and Chief Business Officer; Gustav Soderstrom, Co-President and Chief Product and Technology Officer; and Christian Luiga, our Chief Financial Officer. Questions can be submitted by going to slido.com, slido.com, and using the code #Spotifyupdate. Due to time constraints, we ask that you please only ask one question limited to today's news announcement. As a reminder, the following discussion might include forward-looking statements or other information that could be considered forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, and actual results could differ based on factors outlined in our filings with the Securities and Exchange Commission. And with that, I'll turn it over to Daniel.

All right. Hey, everyone. By now, you've seen our news. At the beginning of 2026, I will transition to the role of Executive Chairman and our 2 Co-Presidents, Alex Norstrom and Gustav Söderström will step into the roles of co-CEOs reporting to me. They have also been nominated to join our Board, pending shareholder approval. And before we dive into the Q&A, I just wanted to take a moment to congratulate Alex and Gustav. Since stepping into their roles as co-presidents, they've done an amazing job, leaving with vision, executing brilliantly and driving real growth for all of our stakeholders. I am incredibly proud of them and having them step up to become CEO feels like the natural evolution. So why now? Well, after more than 15 years of working together, Spotify is in its strongest position yet. The business is solid. The model we've refined over many years is delivering and thanks in large part to Alex and Gustav's leadership we're better positioned than ever for what's next. We've proven not only that Spotify is a great product, but also that it's a great business. So what changes for me is my focus. As Executive Chairman, I'll spend more time on the long-term strategic decisions that will define Spotify's next decade. And as you consider this model, I will be more involved than a typical U.S. Chairman. So think of it a little bit like moving from a player to a coach. I make this transition with tremendous confidence in what's ahead for us. And if you want to hear me talk more about my thoughts on leadership and my journey, I went pretty deep on it with David Senra on his new podcast that you can find on Spotify. And with that, let's open it up to Q&A.

All right. Thanks, Daniel. And again, if you've got any questions, please go to slido.com, #Spotifyupdate. We're going to be addressing the questions in the order in which they appear in the queue. And our first question today is going to come from Mike Morris. Okay. Daniel, why is now the right time for you and Spotify to see this leadership change?

Well, I think, Michael, it's kind of like I said in my opening remarks here, it's less a function of really anything except the fact that Alex and Gustav are truly delivering exceptionally well already. And I've feel like this is a natural evolution on what we already do as a leadership team. Gustav and Alex, since taking over as co-presidents in 2023 have really stepped up in a material way, taking much of the day-to-day responsibilities. And as they've been growing, I've been handling them more and more of the tasks. So I feel like this is actually more of a natural reflection of how the company actually works and operates already. And then to the second part, what the responsibilities will be. We can -- I'll hand it a little bit to Gustav and Alex as well. But from my side, I really do believe, as I said, I've evolved from being more of a player to more of a coach type model. And I will work with Gustav and Alex on the big strategic decisions that we face in the long arc of the company. Alex and Gustav, do you want to add something?

I can start. This is Gustav. So we -- Alex and I will have the same divisional responsibilities that we've had as co-presidents. My core responsibility is our product and technology and Alex's core responsibilities business markets and content. But as we've said before in earnings calls, the way Alex and I work is a little bit different. We work very closely together. Alex is deeply interested in knowledge about product, and I'm very interested in business. So we run this as a single team, our joint teams together. So in practice, not that much will change from how we run the companies, but these are the core responsibilities that we have.

Great. Great. I'll give you a little bit more sort of leading up to this decision. The three of us have worked together for more than 1.5 decades now. And if there's one thing that both Gustav and I know about Daniel is that he is a learning machine. And as such, he is not only learning a lot himself, he's also expecting us to learn a lot, too. So this has been a gradual change where he's kind of progressively pushed more and more responsibility and accountability over to us. And like Gustav said, like 3 years ago, we started with this integrated team at the top. We took on more and more of Strata operations and fun facts that we actually sit in the same room the 3 of us. People are very surprised when they see that, but that just has meant so much in terms of momentum and impact for us as a business. So for me and Gustav, this is not so much a change in direction. This is more doubling down on a setup that we think is working and it will increase pace even more.

All right. Our next question is going to come from Rich Greenfield. I believe this is directed to Daniel. Will you still be involved in earnings calls and analyst days?

Well, again, the transition happens January 1, 2026. So you should definitely expect me to be involved for both Q3 and Q4 earnings calls. And then depending on what makes the most amount of sense. And when Alex and Gustav want me there, then, of course, I'll be there.

All right. A question now from Justin Patterson also for Daniel. You had mentioned spending more time coaching and thinking about long-term strategy on the David Senra podcast this weekend, and this announcement seems congruent with that. When you think about Spotify's long arc, what are some of the key initiatives to drive long-term growth?

Well, I would say, in general, as I reflect back on 2 decades of Spotify, there's a few phrasings that come to mind. One of them is that overnight success doesn't happen overnight. It is actually just a sort of waking up, going to work, work really hard and making gradual improvements over 20 years, that is the results of the company that we're sitting here today with. And I think Gustav and Alex knows this incredibly well. But what I think is very important is that I still believe with every fiber of my being that we're early on this journey. When you sort of look out and you sort of see what's the left on the table for Spotify, there's some amazing opportunities. One of them, of course, is there's the next generation of consumers that are now coming online in a very big way. We have a huge part of the world that still isn't really accustomed to streaming as much as we take it for granted today with everything from Asia to Africa were also incredibly populous regions and very young demographics, too. And then, of course, we have new technology advancements, new form factors, I all of these other things, too. And I'm reminded of the Bill Gates quote that people tend to overestimate the short term and underestimate the long term. And that's certainly 1 of the things that Alex, Gustav and I talk a lot about. And yes, I'm going to keep pushing for us to look around the corner, stay focused on the long term and keep showing up every day and make gradual improvements because that's long term, what leads to the best results. And that I know is the product of what Spotify is today.

All right. Our next question is going to come from Ben Swinburne. Daniel, can you discuss more the role of a European Executive Chairman in the context of Spotify? And will you be spending more time on outside endeavors going forward. And then for Alex and Gustav, congratulations. How will you to be dividing up the responsibilities as co-CEOs? Will there be any notable changes relative to today?

Yes. I think it's probably important here, everyone has probably different anticipations about what a chairman is. But I think most investors may come at it from a U.S. perspective, where it's mostly a ceremonial role. In Europe, it isn't. In fact, a chairman is someone who's quite active in the business, sometimes even represents the business externally to different stakeholders, like, for instance, governments or key partners, et cetera. And so we wanted to make it clear that this role is more in line with the European one than an American one, and then the executive part is I am still retaining an office here with Gustav and Alex sitting here. Hopefully, working on various types of problems with them. But with all that said, I do want to make it clear. This is really -- they're in charge. They are the ones making the decision, but I will be there as a friend, a coach, a share leader, whatever I'm needed to do for the day in making this happen. Gustav Alex, do you want to add to it?

Yes. I already mentioned divisional responsibilities, which is largely the way we've divided it today, and we think it's working really well. As Alex said, we just want to double down and accelerate, we think the opportunity in terms of market size is huge. We think the opportunity in terms of product changes and coming form factors is massive. But we also do need to level up. And so just as Daniel has try to build a really strong team, so have we, and we feel very confident in the team that we have under us. So several of these people are going to take more responsibility to free up time for us to focus on these new responsibilities as well. But we're going to we're going to remain detail oriented and pushing for action for sure.

Yes. Just want to underline that even more. We're in 184 markets today. And as such, we get to travel a lot and see the world and meet a lot of people. And I can assure you that we have one of the best teams anywhere in the world.

All right. Our next question is going to come from Barton Crockett on the Board. If Spotify's Board remains at 11. It looks like the addition of Gustav and Alex will take insider to independent mix to 5 out of 11 versus the current 3 out of 11 now. How do you justify that as appropriate for Spotify?

Well, first and foremost, I think the most important thing for Spotify is having a very competent Board that understands the business of Spotify. I believe that in general, having a long-tenured board having a Board that truly understands the business is a really important thing to enact both governance, but also in order to get the right strategic feedback for the management teams in driving the right decisions going forward. And then to your specific remark, I think technically, the only insiders right now would then be myself, Gustav and Alex. As I believe the ones you're referring to is Martin Lorentzon and Barry McCarthy. So Martin Lorentzon has never had any operational role with the company. Obviously, he's a co-founder, but he's only been active as a Board member. And then Barry McCarthy has -- it was quite a few years ago since he was technically considered an insider. So I think we're actually 3 of 11 board members. But again, the #1 thing for me is that we have a capable competent Board that really understands the business, and that I'm very happy with the current board. And we have a great set of board members and a great set of tenure that means that they've been through a lot of different iterations of the company.

All right. Our next question is going to come from Jessica Reif Ehrlich for Gustav and Alex. How much of your day-to-day jobs will change with today's announcement? And looking forward to the next chapter, what are each of you most excited about?

All right. I'll start. Alex here. I think we covered a bit on our day-to-day jobs. I'll talk a little bit about the excitement that we share. As a matter of fact, I think we can't -- we've never been, we can't be more excited than we are right now. it's just with so much momentum. Like we've been shipping at an increasingly higher pace. You saw us sort of see the completion of renewals happen this year. We rolled out all audiobooks to more markets. We just improved the free tier, which is going well. We shipped messaging, we ship mixing tools, lossless, DJ and on it goes, and we'll continue to ship even more things. But the bigger picture for me is something that I've mentioned in a couple of earnings calls before, and Gustav has been saying it, too, it's just we're lucky that we started with music because everyone on Plant Earth has some relationship with music. And today, at Spotify, we see 3% of the world's population paying us on a recurring basis for a product that they're loving like 90% of people -- and if you ask me, will we ever be at 90% or 95%? Maybe that's crazy, but it's not unimaginable that we'll be at 10%, 15% just because of the geographical opportunity that we see out there. with like Daniel mentioned, the populous nations of India, lots of growth going on in there, Bangladesh, Pakistan, very populous regions. You have Africa as well coming online. And there's -- this is just reminiscent of what we saw in the beginning of LatAm, which was lots and lots of growth to look forward to both on ME and subside.

Yes. So I would obviously echo that, I think the opportunity itself and just being in a business that touches everyone. I think it's larger than any other consumer business in terms of TAM. It is just exciting. So personally, if we go down to intrinsic motivation. I'm a product guy and a technologist I'm intrinsically interested in consumer products and technology for the sake of technology. And if you are that person -- Alex is laughing here but he knows it's true. If you are that person, you'd have to think hard before you find a better place to do that. We're -- we have a consumer product that touches upwards of 700 million users every month. But it's still only 3% of the world population that subscribed. So the opportunity is still huge. And I've been here long enough that I went through the previous big macro change was the shift to mobile. And that was -- it was certainly scary, all macro shift are scary. But it was -- as a product person in technology, it was the most exciting time I've ever had until AI because now everything is about to change again. And back in the shift in mobile, we managed to position the company to actually have that macro win as a tailwind instead of a headwind. And this is what we want to do now as well. So I think if you ask anyone in product, this is the most exciting time in probably 15 to 20 years. And then you want to be at a company that has massive impact. That's why I'm excited.

All right. We have a related question from Batya Levi. How do you see the growth drivers evolving for Spotify in the next decade versus the past 10 years? And do you envision music to still be the primary service on the platform.

Yes. Listen, today is about today, we will have lots of opportunity to talk more about the business of Spotify. Like I said, we've entered the markets of podcast and video. We've gone into books, we've rolled out books and audio books into more and more markets. We've seen revenue growth of 17% to 18% in the past 2 years, CAGR we've been compounding that, which is great. We're just in the beginning. We think there's much more to be had on podcast and video is growing on Spotify and books is just -- we're seeing great growth in all three verticals.

And I would add to that, that I think -- we are going to focus on what is working today because it's working really well, and we have enormous amounts of potential left. But we will also obviously keep raising the ambition as we all have, and as Daniel has kind of coach has to do over the last 15 to 20 years. So you will see more of that as well. There are some obvious things that we are very excited about. I already mentioned AI. We think new form factors are coming. These form factors all seem to sit on your face and be in your ears all the time. That should be very good for Spotify, we think. We're obviously excited about TV, where we still think we have a lot of opportunity. We just started with video, et cetera. So nothing new to announce, but we are very excited, and we're going to keep working hard while also raising the ambition.

Yes, that's right.

All right. We've got time for two more questions. The next one is going to come from Michael Morris. For Alex and Gustav, congratulations. Most companies have a single CEO. Why is the co-CEO structure right for Spotify?

Yes. This may sound a little cliche, but I do think that we both make each other much better. So you have 1 plus 1 equals not 3, but 5, I believe, a situation going on right here. And with Daniel coaching us, which has been doing for, again, like 1.5 decades, this just goes into overdrive. All three of us really like the setup and it's changing. It's getting better every year, every month as we all grow separately as well. And like Gustav said before, when it comes to the two of us, Gustav's domain is product and technology and mine is business. That's Spotify business means everything from consumer products and revenue that comes from there and obviously also content, as we straddle 3 content verticals. It also means marketing and markets. And -- but the fun things that we both know a little bit about each other area. So we're very complementary in that kind of setup.

I think Alex is 3 out of those 5, maybe? Now but seriously, I think it's pretty obvious. It is hard to work together. Many people can do it. But if you can do it, obviously, you get twice the brain power. I really think it's that simple. And we can work well together. We have for a long time.

All right. And our last question today is going to come from Steven Cahall. First, for Alex and Gustav, what are your top 3 priorities for Spotify in 2026? And then for Daniel, how do you think you'll be most beneficial to Spotify in your new bigger picture role?

I can start. I've already mentioned it a couple of times. We're in the middle of a macro win called AI. There is better recommendations, there's more personalization, but we also think it's going to eventually end up in new form factors. My top priority, my 1, 2 and 3 is to make sure that we capture this opportunity and make it a tailwind that actually accelerates us.

Yes. So on my first day of Spotify, I sat next to Daniel and Gustav was there, too. I asked Daniel, Okay, I joined now, what's the prior list look like? He's like, it's very easy. There's only 3 things we need to think about. Number 1 is growth; number 2 is growth; And guess what? Number 3 is growth as well. And then he said, you may begin, guys, and then we set off. Now kidding aside, it's not -- I'm not kidding. I actually said those things and -- but to sort of add a little bit more color into that. You've heard Gustav is say that we will relentlessly just put value into product and give that to subscribers and users. That is what we're about. We are going to continue to innovate push boundaries, give more and more -- provide more and more value for forecast. This is a consumer business, like Gustav mentioned earlier, and we are relentless about doing that. So we'll continue to do that.

Yes. And I guess the question on how I think I'll be the most beneficial. So I think the first thing I will state is, this is mostly an evolution today about how we're already working. So I think we'll mostly keep working the way we have been working, which is sort of me trying to coach the guys to the extent that I can provide thoughts and advice. But I think one of the sort of future-looking aspects is also the outside-in perspective. And one of the great things that I feel now having been involved with companies like Neko Health, et cetera, is that you do get a different perspective about different operating environments, different cultures and those things, too. Because again, one of the amazing things we have here with Spotify is, we have a team of extremely tenured team. So a lot of folks have been here for 10, 15 years and really grown up with the company. I think that is to 99% a superpower that we have here as a company. And Spotify would not have been what it is today if it weren't for all the Spotifiers' past and present that help build the company into what it is today. But with all that said, one of the real things as well is it is important to be able to draw on inspiration from the outside. And one of my new superpowers is that I do get to sit on the inside on some of the other businesses as well that I'm helping build and seeing what it truly is like to start a new start-up, for instance, in 2025 and what are some of the tools and decisions you can make and how can that impact Spotify in a positive way. And we've already seen some of those lessons and are applying them now at Spotify too. And that's one of the additional contributions that I hope to make. But it's mostly a real evolution of how we're already working today. And I know we're out of time, but I just wanted to say again what I said just recently, which is a huge thank you to all the Spotifiers past and present, this has truly been an honor of a lifetime to lead this company, and I'm hugely excited for this next chapter and Gustav and Alex, congratulations. I am so amazingly proud of both of you, and I can't wait to work with you guys in making the next 20 years as successful as the past have been.

Great. Thank you very much for the questions. And operator, that concludes today's call.

Ladies and gentlemen, this concludes today's conference call. Thank you for joining, and you may now disconnect.