Spotify Technology Stock

Good day, and welcome to Spotify's Third Quarter 2026 Earnings Call and Webcast.

[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.

All right. Thanks, operator, and welcome to Spotify's Third Quarter 2026 Earnings Conference Call. Joining us today will be our co-CEOs, Alex Norstrom and Gustav Soderstrom, and our CFO, Christian Luiga. We'll start with opening comments from the team. And afterwards, we'll be happy to answer your questions. Questions can be submitted by going to slido.com and using the code #SpotifyEarnings Q326. Analysts can ask questions directly into Slido, and all participants can then vote on the questions they find the most relevant. If for some reason, you don't have access to Slido. You can e-mail investor relations at [email protected], and we'll add in your question.

Before we begin, let me quickly cover the safe harbor. During this call, we'll be making certain forward-looking statements, including projections or estimates about the future performance of the company. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed on today's call, in our shareholder's deck and in filings with the Securities and Exchange Commission. During this call, we'll also refer to certain non-IFRS financial measures. Reconciliations between our IFRS and non-IFRS financial measures can be found in our shareholder deck in the financial section of our Investor Relations website and also furnished today on Form 6-K. And with that, I'll turn it over to Alex.

Thank you, Brian, and hello, everyone. Thanks for joining us. Let me just start with the strength of the quarter. We made several commitments last quarter, and they've all landed either in line or better than expected. Our revenue came in right in line with what we guided at about EUR 5 billion, up 14% at constant currency. MAU also landed right on target at EUR 788 million. As we shared last quarter, we're optimizing our MAU growth across markets to scale our funnel and drive revenue growth over time.

Subscribers came in ahead at EUR 306 million, beating our guidance by EUR 1 million. That strength shows up what matters the most. Premium revenue grew 15%, driven by both subscriber growth and higher ARPU. Gross margin also came in ahead of expectations at 33%. This is a significant year-over-year expansion. Over the past 12 months, we've generated EUR 3.2 billion in free cash flow. Ads is one of the areas of our business that I've been -- I've spent time talking about. So I want to share our progress. We've been open with you that we are rebuilding this business, and we said the momentum would start to show in the second half of the year. And in Q3, adds grew 9% at constant currency, up from the 3% in each of the first 2 quarters. Further, our automated channels continue to scale and sponsorship products are growing, particularly in podcast. We're moving in the right direction, and there's more progress ahead.

And on OpEx, we told you this would be a year of investment with operating expense growth peaking in Q3 and then moderating from Q4 and on. That's exactly what's happening. Christian will walk you through the details further. But as we know from experience, investing in our products, features and brand strengthens our position, and we can see that playing out right now. So to build on this further, I'd like to use the rest of my time on what I think is an underappreciated part of our story, durability. When we went public in 2018, we had 71 million subscribers. Since then, every single year, we've been adding 25 million subs or more. And this year, we expect to reach 316 million subscribers. As I've mentioned before, very few consumer subscription businesses have ever reached a scale and few are still adding at this pace. Through a pandemic, price increases and a changing economy and consumer landscape, this steady growth in subscribers hasn't stopped. And this quarter, that growth came from every region. That's what durability looks like.

Looking across the broader subscription landscape, you all know that not all subscribers are created equal. Spotify not only enjoys industry-leading engagement, but we also have the most passionate and engaged music, podcast and book fans in the world on our platform. We're not just an app or a product sitting on the phone, and that's why we continue to grow and take share. Every time we expand what's on Spotify, we bring in new listeners and we give existing ones more reasons to come back almost every day. Sweden is a clear demonstration of how high the opportunity can go in our first and most established market, nearly 50% of the population pace for Spotify. Globally, that figure is still under 4%. And in key markets like the U.K. and Germany, it's between 20% and 25%. Latin America is around 11% and then across emerging markets, we're less than 3%.

What makes our position unique is how balanced it is. In developed markets, we're growing a highly engaged monetizing base with a lot more room for growth. And in emerging markets, we're still early with hundreds of millions of subs to come. This is a growth engine that compounds, building a bigger recurring revenue base. This is durability at scale. We also kept adding to what a subscription is worth this quarter. We signed a new multiyear agreement with Joe Rogan, who show remains the world's most popular podcast, and we added BELIEVE and TuneCore as a partner for remixes and covers. Remixes are as old as music itself, and we're working on a version that fans love and rights holders trust with consent, credit and compensation at the core. And as we've recently announced, we are expanding audio books to more than 180 markets by the end of the year, making Spotify the world's first global audio book service. This enhances subscriber lifetime value, add on monetization and will benefit Spotify around the world. Gustav will share more about this.

So this was a quarter where we did what we said. We've built a strong business that keeps compounding. We invest when we see a path for growth. Our costs are moderating and there's more runway ahead. And having seen a preview of this year's wrapped, I'm really looking forward to Q4 with a lot of excitement, and I can't wait to see how our fans respond. With that, let me hand it over to Gustav.

Thank you, Alex. So Alex just spoke about durability at scale. And I want to share how we're creating that. So at a recent Investor Day, I talked about 2 ways to predict the future. You can extrapolate what is already happening or you can anticipate what's about to change. And when the world shifted to mobile in 2007, we needed to do a lot of anticipation, imagining and building for a world that we thought would happen, but that didn't exist yet. This worked out well for us, and we accelerate in that new world. For much of the following decade, we and everyone else could instead largely rely on extrapolation of what already existed. So that would be more phones, more ads, more catalog, et cetera. which also got us very far. I don't think it's escaped anyone on this call, but today, we are clearly in an era where anticipation is much more important again.

So today, I want to talk about 3 things that we anticipated some time ago that are now becoming real and the effects of those. First up is agents. So on our fourth quarter call back in February, I said that we were building the world's first truly intelligent agentic media platform. That may have sounded a little bit abstract at the time, but it's hopefully becoming clearer now. What we meant was an intelligent media service encapsulated as an agent, whether you use it directly to our application or by another agent. We made a bet that consumers using services like Chat GPT would also start demanding intelligence from their media service. So we built for that. Spotify is now an agent that you can not only click on in our app, but talk to, ask questions of, and instruct. We can do things today that no other media services can do. For example, you can ask Spotify to go through your listening history, song by song back to 2008, picking your true favorites, beat stretching them by speeding them up or down, and then sorting them by key and BPM. Then you can ask it to mix them together into the perfect running playlist at your exact cadence.

But that's not all you can do. You can also ask Spotify exactly who wrote and performed on each track. And if you want to shift gears entirely, we can also generate an individual podcast just for you. as well as recap the book you're reading up until exactly where you stopped. As we prepared for this agentic world, we also thought through what our ubiquity strategy would mean in an agentic age. Spotify strategy has always been to be the best experience wherever people listen. As an example, nearly a decade ago, as connected speakers took off, we rebuilt our entire technology stack to make Spotify very easy to integrate across speakers, something called the ESDK. So TVs, gaming, console and other devices. That investment turned the growth of the connected device industry into a tailwind for Spotify. One that actually continues to pay off even today. So for the agentic age, we are betting on consumers using many agents. And that Spotify will be by far the best media platform for licensed content inside and across all these agents. So before most people were regular users, we integrated Spotify into Chat GPT, making Spotify the first service available. This was also the case with Meta Ray-Bands, OpenAI's dots and we were the only media service integrated into Meta's news at launch. The list goes on and on. We are simply everywhere.

So that whenever you find a great song book or a podcast or even want to create a podcast of your own, it's right there. You just save it, play listed, and it shows up in Spotify and in your morning commute. Importantly, this is not just a technology strategy. It's also a business strategy. We think Spotify is unusually well positioned for the age of Agentic-AI. This is because Spotify, unlike most companies can monetize from the background. Whether you're a premium user or if we use listening to our audio ads, our business model not only works but thrives while Spotify is in the background. This is actually not something new. The Spotify app has been in the background of apps like Waze and Google maps during the commute for decades now. Zooming out, Spotify is in 1 of the few categories that actually stands to thrive in the agentic age. This is because agents, as I'm sure you know, excel at replacing and taking care of things that people would rather not do like maybe paying bills, answering e-mails, booking restaurants, checking your kids school schedule, et cetera. This is where you see services like me absolutely thriving. People love getting rid of chores.

Entertainment is the opposite. Nobody asked an agent to summarize a song for them. The whole point of getting rid of this chore is to free up even more time for the things that you actually enjoy. The second thing that we anticipated was moving Spotify from a passive and single player experience to an interactive and multiplayer experience. You know our multiplayer offerings. We talked a lot about them, popular features like messaging, jam, collaborative playlists and comments. So today, I'd like to spend a moment on the interactivity side. The original interactive experience on Spotify was not surprisingly playlisting. Millions and millions of people put songs together and helped organize the world's music library. That became the foundation of our recommendation engine. Last quarter, I talked about song DNA as one of our all-time fastest-growing features. This quarter, mixing tools offers another example of what happens when people can do more with the music.

We started rolling mixing tools out about a year ago actually. It was good then. It is much better now. Almost 40 million premium users now listen to mix playlist. Consumption is growing 90% quarter-over-quarter and millions of people create mixes of their own each month. So why does this matter? Well, playlist always told us which songs go well together. But mixing also tells us exactly how and when they fit down to the millisecond. Those signals improve our large taste model. our recommendations and what the spot of agent can do. Better recommendations strengthen retention over time. It also tells us something encouraging about the future of remixing, give people good tools and they will invest in shaping the music themselves. The third thing that we anticipated was the opportunity in books. When we first discussed audio books, we said our geography gave us a unique perspective.

In Sweden, audio books are almost as biggest music. And we wondered whether that was purely Swedish behavior or simply early behavior. What we're seeing now suggests the latter. That's why we're expanding audio books. We want to grow the market itself by giving hundreds of millions of people a great, affordable way to listen, not just compete for shares in today's market. When people adopt audio books, they come to Spotify on more days. Audio books started as a bet. It's now a global business, and it's still early. So all of this connects to how we're building an even stronger subscription business. In addition to the growth of audio books and premium, we're expanding the Spotify Partner program a planned favorite among passion and podcast listeners. The 35 more markets this fall. And 2 days ago, we launched Creator memberships. So fans can directly support creators and get member-only experiences. This is another example of capturing the power law that we discussed at our Investor Day back in May. There is a power law within each creator's audience. Some banks want to go deeper and are willing to spend more. And now they can do that right on Spotify.

These offerings will add value as they scale. And where we've offered audio books and the Spotify partner program the longest, they're contributing acquisition, retention, active days and margin improvement. With that, I'll hand it over to Christian.

Thank you, Gustav, and thanks, everyone, for joining us today. I'll cover the quarter 3 results and then provide some perspective on our outlook. Unless otherwise noted, as always, our reference growth metrics are presented on a year-over-year constant currency basis. We have another solid quarter behind us. Starting from the top, MAU grew in line with our guidance of EUR 11 million to EUR 788 million, up 11% year-over-year. We added 6 million net subscribers during the quarter, growing quarter-over-quarter across all regions.

We reached EUR 306 million, which was EUR 1 million ahead of our guidance. Our outperformance was broad-based and led by rest of the world and Latin America. Total revenue was EUR 5 billion, growing 14% year-over-year. Premium revenue rose 15% year-over-year, driven by subscriber growth of 9% and ARPU expansion of 7.5%. Ad-supported revenue growth improved to 9%, as Alex said, this quarter led by strong growth in our automated biddable sales channel. Our gross margin came in at 33%, surpassing guidance by 10 basis points and representing year-over-year expansion of around 140 basis points. Operating income of EUR 672 million was a bit above our guidance delivering on operating margin of 13.5%. Social charges of EUR 22 million were EUR 13 million higher than forecast due to share price movements in the quarter. Excluding the non-forecasted associate charges, we came in EUR 15 million above guidance driven by favorability in marketing, personnel-related costs and gross margin outperformance.

Finally, free cash flow was EUR 735 million in the quarter and included unfavorable timing effects in working capital and cash taxes. Year-to-date, through October 21, we have repurchased 2.2 million shares for USD 1.1 billion. This means that we have neutralized this year's dilution from our employee equity programs and we have also initiated the return of excess cash. Since we resumed our buybacks in August 2025, we have repurchased about 3 million shares or approximately 1.5% of shares outstanding. Our capital allocation strategy remains focused on attractive return opportunities. First, through organic and inorganic growth initiatives, followed by opportunistic returns to shareholders. As of the close of the quarter, we had EUR 9.9 billion in cash and cash equivalents and no debt other than lease liabilities. Looking ahead to quarter 4, we are forecasting MAU of EUR 818 million, an increase of EUR 30 million from quarter 3. Our guidance reflects healthy growth across all regions. Growth is not as high as last year's all-time high, which benefited from a very successful rollout of our new free tier.

On subscribers, we're forecasting EUR 316 million for quarter 4 or a net addition of EUR 10 million. We're also forecasting total revenue of EUR 5.2 billion in quarter 4. This reflects a year-over-year ARPU increase of 4.5% to 5%, driven by recent pricing actions and the performance of our audio books Plus add-ons. This is partly offset by the lapping of prior year pricing actions across more than 150 markets. Our advertising business is coming out of a longer period of single-digit growth. In quarter 4, we expect to continue our progress towards double-digit growth. We anticipate a quarter 4 gross margin of 33.8%, approximately 70 basis points above prior year. Our gross margin outlook includes the initial investments in the expansion of Audi books to more than 180 markets and the Spotify partner program to more than 50 markets. These rollouts can drive new value for our subscribers and the business, the same way we have seen it over the last 3 years. Taken together with the first 9 months of the year, our quarter 4 outlook implies a full year gross margin expansion of approximately 130 basis points compared to 2025.

Moving to operating income. We're guiding to EUR 820 million in quarter 4 OpEx growth is now coming down meaningfully, and we expect that moderation to continue into 2027. We see that this year's incremental OpEx is driving multiple benefits to our business. Our marketing investments have helped consumer awareness of the value we deliver, supporting future subscriber growth and monetization. And on AI, our investments have accelerated feature shipping while keeping headcount flat, setting the business up for further engagement and monetization potential. Our taste model investments are already paying off. Early deployments show double-digit gains in content discovery and our users are spending more time in select algorithmic sets. As we have said before, we remain focused on striking a clear balance between enhancing LTV and sustainable margin expansion.

In conclusion, we're very pleased with how we're tracking into the end of 2026. It's too early to give guidance on 2027. And as I've said before, quarterly progression of our margin can be variable due to seasonality and the timing of investments. We remain confident in our path and expect another year of progress towards delivering on our 2030 goals. We are well positioned to continue compounding growth, profitability and free cash flow. With that, I hand it back to you, Bryan.

All right. Thanks, Christian.

[Operator Instructions]

And today's first question is going to come from Sean Diffley, and it's on the free tier. Please discuss early learnings in markets like India and Indonesia, where you're adding some friction to the ad-supported tier and how we can think about conversion to paid in those markets.

Thanks for the question, Sean. I've been rolling up as the most important question here in the queue. So let's go right at it. So last quarter, I was making a few comments on some changes that we're making to our product and our funnels in particular in emerging markets, and you're mentioning 2 of them here. These changes include things like better data hygiene and our sign-up flows ad load adjustments and effort around migrating users from lower end device clients over to a better client that retains you better and thereby giving you high LTV and so on.

So all these things that we're doing that you're alluding to and I just spoke to are business positive. These are good things for our free tier. These are good things for our subscription tier and the our revenue. And we have a long track record of durable growth. I just spoke about that in our early -- in our initial remarks here and this durability that we've been talking about is really the result of a lot of these types of optimizations. And this is just another example of that. And speaking of like India, specifically, it's a market where we have 1.4 billion users. We see GDP growth of 7% to 8% several years in a row. What better market is there for us to work on to improve our business growth as you know other. This is an incredible market and tremendous opportunity for us.

We're going to have another question from Sean Diffley this time on capital allocation. It appears you've stepped up the pace of share repurchases. Can you discuss how you're approaching capital allocation with free cash flow ramping -- and is there room to increase the buyback cadence further?

I'll start and then you can jump in, Christian. So we mentioned during our Investor Day now almost half a year ago that the way we approach this is we will invest in organic opportunities primarily as we see a good return, we will deploy, and you've seen us do that. And with respect to inorganic opportunities, we will do those too. But there's no real change there. You've seen us that many times before with companies like WhoSampled, who helped us provide unique data sets to ramp about the song, which is now used by almost 100 million people.

You saw us acquire Findaway, which helped us accelerate audio books. You saw us buy Symantec, which helped us do AI DJ. So we'll continue to do this as we see opportunity. And then beyond that, if there is excess cash, we will start engaging in buying back shares. And you've seen us do that this year. We've mentioned that we're going to buy back shares to counter the dilution that coming from the stock -- employee stock programs. And you mentioned that, that's about 1 million shares, and we've done that. We're now up to 2.2 million shares in buybacks, totaling about EUR 1 billion or a little more than EUR 1 billion. And so we're making progress also there. Christian, is there anything you would like to add?

Yes. I just want to wrap it up by saying that we will maintain a degree of strategic flexibility with a strong balance sheet. And so you will see us have a strong balance sheet and a cash balance that makes us be flexible in strategic moves. In the same time, as Alex said, we are -- it's obvious with the cash flow we have compounding and on the balance sheet that we will start to return excess cash to shareholders, which we've proven this quarter.

Our next question is going to come from Jessica Reif Ehrlich on our Ubiquity strategy. As listening shift to third-party AI agents, as with the new music integration, who owns the customer relationship and the data? And how do you keep that from turning Spotify into a back-end supplier?

Thank you, Jessica. It's a great question. So I get the chance to talk about things I love. So a few things. First of all, it's important to say that listening is actually not shifting. All the listening is happening through Spotify. We are not sending the music or anything to any of these agents. What is happening is you're talking to that agent with remote control Spotify in the background. So the listening is not shifting. It's actually happening and thus increasing through Spotify.

What -- how we think about this, though, is, as I said in my prepared remarks, as another example of the ubiquity strategy. So when connected speakers started happening, we try to figure out how we turn that into a tailwind for Spotify and grow with the connected speaker market. As I said, we rebuilt our technology stack something called the SDK, the embeddable SDK, making it that easy for any speaker provider to integrate Spotify. That turned into a great growth vehicle for us. This is why we're ubiquitous today. I think in the same way about this we rebuilt Spotify as an agent, so that is very easy for other agents to integrate us and talk .

So what this means is that inside an agent like news, you can say, I would like to have -- I would like to create a podcast about this and that, that you've been talking to me, agent about this podcast gets published to Spotify, but only visible to you so that you can listen to it in the morning commute. Now what happened there is actually that we learn more about you because that podcast is now inside Spotify. So we know things that we wouldn't have known otherwise about your interest. So this is actually a positive data loop for Spotify rather than the other way around. So this is the reason why we made all of these investments, specifically the large taste model. I've gone on and on about it, but this is the reason we built this because this is a value of Spotify.

Our agent is the best in the world at understanding your taste across all of these mediums. So we are not sending the data to these partners. They are asking us about something. We do the reasoning over everything we know about you and then decide what to play for you. So this is also the reason why we've built all of this technology, as I talked about in my prepared remarks, to be able to beat stretch the music, put it together in the right way. As you know, we're also investing in remixes and covers and so forth. So our goal is to be the media service that you use from any agent, really turning the growth of agents into a tailwind rather than a headwind.

And that's exactly what we're seeing now. We're seeing really good adoption of Spotify inside these agents. And so while other companies are maybe trying to figure out what to do and many are leaning out, we're actually leaning in and participating in the growth instead of standing by the roadside and looking at it. So we're very, very excited about this. This is what we said we were going to be the world's first truly intelligent media service, and this is what we've invested in all of this technology.

Okay. We've got another question from Jessica Reif Ehrlich this time on the premium business. In the third and fourth quarter, there are many new product rollouts from audio books globally to reserved fitness and the expanded Spotify Partner program, taste profile in the U.S., et cetera. What is the 2027 road map for monetizing all of these products into features, i.e., through new tiers, add-ons or price increases?

Jessica, Alex here, I see that we're excited about 2027. I am really excited about '27 as well, but it's going to be premature for me to talk about specificity around next year. But I'll give you a bit of like how Gustav and I think about the underlying recipe here. So really, the work to be done inside Spotify is to add value to our free tier, add value to create a better and better free product. And you've seen us do that. About a year ago, we launched the new Spotify free tier, which is the best free tier out there, and kept yielding results over the past 12 to 18 months.

The other thing we do is, of course, to enrich our premium tier. And to your point, I can't really remember a time in Spotify's history where we've added so much value back to the premium tier like this current year here. And then we create products on top of that for the niche audiences and the power law, like we've talked about. And then the third step in this is really just to figure out how to monetize all of this value that we add, whether that be by way of advertising sales or price increases, add-ons, more subscriptions and better engagement across more days of the month. This is really like a simple but very powerful recipe that we have followed and deployed for many, many years now.

Okay. Our next question is going to come from Eric Sheridan. Some on the ads business. With respect to ads, can you discuss how the third quarter results track relative to your expectations for a second half 2026 growth inflection. Is there any color on the underlying drivers of advertising performance embedded in your overall Q4 revenue commentary?

They're tracking really well against our expectations. We've talked about this before. We have been hard at work for some time now in rebuilding the underlying stack and foundation for advertising sales business at Spotify. And I'll tell you this, there's a lot of things that have been changing, but there's these 3 things that have not changed, and they remain why advertisers are interested in count as Spotify.

One is that we have a beloved brand. Second of all, we have high-quality content. It's licensed content, and we also have high-quality engagement. It's not just about the hours, it's also about the moments of the day and the context you're in and as many days in a month as possible. We've talked about that before. So these remain the reason for why our special corner of the Internet is still very interesting for advertisers to associate themselves with. Now what then is our job internally will this in light of this to just make it easier and easier for advertisers to buy this special inventory.

Whether that be by making for easier automated attachment to Spotify, or whether that be creating better measurement, or whether that is to broaden the demand for audio specifically, whether it's making it easier for folks out there to create audio ads and so on. All of this is -- are things that is underway. We've done a lot of work already, but this will just continue to improve. And this is what's sort of powering the Q4 guidance.

Okay. We've got another question from Eric Sheridan. Some on investments. Can you discuss how investors should think about the forward trajectory of growth investments, especially across AI and cloud when measured against the potential for scaling AI-led experiences and products on the user side in the coming quarters?

Yes. Thanks, Eric. This is Gustav. So I'll talk about this 2 different lenses. There's obviously productivity within the organization, then there is cost on the consumer experience. First of all, Alex and Christian and I, we said earlier this year that we were going to invest a little bit ahead because we saw a lot of opportunity. So one question that you didn't ask, but I'm going to answer anyway. It's like, what did we get for the investment. Well, first of all, we also said that these investments and these costs were going to start moderating in Q4, which they are.

As Alex and in his opening remarks, this is a quarter of doing what we said we're going to do. So they're moderating in Q4 and into next year, just as we said. But it's still valid to ask what we got. Well, we got a lot of investments in platform that excites us. I've spoken at length about the large taste model. But I also wanted to talk a little bit about the results of the large taste model that we're now seeing already. So we're seeing double-digit growth in discoveries, which is 1 of the leading metrics for how exciting you think Spotify is. I think it surprises no one, but if you never find any new music, eventually you're going to get less excited about this product. So that is a very important metric to us.

I also want to say, I mean it's very early. We're just rolling this out, but it is already on track to add billions of listening hours per year. And my experience with these things is you get a lot of incremental improvement that you start iterating on these things. So I'm very excited about what we're seeing because this was a large investment. This also goes to the earlier question of the value we're creating in a world of agents where you interact with Spotify through other agents. This is the value. So we're seeing exactly what we want to see. But more than that, we also invested in a lot of AI features. I talked at length about user control, interactivity, being able to ask for what you actually wanted and this idea that what LLM's allow you to do is to finally talk to Spotify and English.

So one question could be, is anyone talking to Spotify. The answer is yes. There are now tens of millions of people speaking to Spotify in English, which I think is remarkable. That doesn't really happen on any other media service yet. So we're very excited about the adoption that we're seeing of these features. And another favorite I mentioned in my opening remarks is mixing tools, which is scaling like crazy. So we're feeling very good about the return of this investment. But I want to reiterate, we said that the costs were going to moderate, and they are moderating now in Q4 and into 2027. So I think that covers roughly how you should think about it.

I just want to comment also on the productivity side of our engineering. Not only have you seen large cost cuts from the labs in terms of token costs, et cetera that are obviously very helpful for us. But we have been investing ourselves in these platforms that you heard about, SERP, et cetera where we can route between agents, including opensource models, we've done a lot of investment in controlling our own costs. And now we're seeing 2 things I'm very excited about. We have very clear cost controls, where we can route to the models that we want. But we're also finally seeing the next level of productivity. I think most -- many companies have said that they see 100% growth in lines of code, PRs, et cetera, and so have we.

But there is a question like, does that actually translate into end-user features. And now as we've gone through, we have 6 months development cycles, we are seeing significant acceleration in end-user products, they are shipping what we call DoDs, definitions of done, things that are merchant shipped to end users. So we are shipping much more. And then the last part of that question is, well, does that translate into actual value? And I just told you that it does. We see engagement, retention, active days going up, not just across products like audio books, but also across discoveries, sales, listening hours, et cetera. So I feel very good about where we are right now. As Christian always asked me to say and always says, we are going to keep being diligent with our cost, as you've seen us be for the several last years. But you will also see us take these opportunities when we see them.

All right. We've got another question here this time from Rich Greenfield on the advertising business. While ads growth recovered as you expected, is there a realistic path where advertising actually lift Spotify's overall revenue growth rate? Could that be a 2027 event?

Thank you, Rich. Christian here. So as you say, we are recovering as expected. As we said for a long time, we will move towards the double-digit growth in the second half of 2026. And in quarter 4, we are also continuing to do our progress towards double-digit growth. This is driven by biddable, which is now up to 40%, and also podcast, as Alex alluded to before.

So going into 2027 and going into a path journey in the future where we are in double-digit growth, of course, that is important. Even if ad support is only 10% of the revenue today, it's much better to have 10% revenue growth or above than having a low single-digit growth. So that will, of course, drive the revenue growth from the total.

We've got another question from Sean Diffley. This one on our in-house tech. You recently started selling your own internal software tools to other companies as you are becoming an R&D operating system. Can you please discuss the rationale here and how big of an opportunity this can be?

Yes. So I think the way to think about this right now is mostly as option value. The reason we're doing this is because as we just talked about, we invested quite a bit to be able to be at the very forefront of agentic development. And so then what happened is, not surprisingly, a lot of other companies asked us about that and said we would also like to use this technology. And because we've taken these costs anyway, we could choose to just amortize them over our few thousand developers or we can choose to amortize them over more developers.

So that's how we're thinking about it. We're taking these costs anyway to stay at the forefront, and this is a way for us to amortize those costs more efficiently. That's how we're thinking about it right now. I'm not going to give any more guidance on this right now. Think about it as option value for the time being.

Our next question is going to come from Jason Bazinet on the family plan. It was recently reported that you're beginning to crack down on Family Plan subscribers that don't live in the same home. What markets are you pursuing this enforcement? How long before the implementation is complete? And what financial impact do you expect from this?

Jason, this is not as much a crackdown as it is actually a routine improvement of our verification methods for our family plan. Family plan has existed for a long while. It's been around for -- I think it's now close to 12, 13 years in Spotify history, and it makes up a pretty significant proportion of our subscriber base. And as such, it's important for us to just make sure over time that we improve the verification methods that we have because there's suddenly ways to, over time, to find holes around it. So -- and as that happens, we figure out how to improve it over time. This is not something that has an end date. That's not an implementation that's going to complete. This is just ongoing routine.

Our next question is going to come from Justin Patterson on AI investment. Now that you've had nearly 1 year of deploying new tools like Claude code. Could you talk about your view on AI ROI and how that's evolved and shaped your thought on investment levels?

Thanks, Justin. This is Gustav. I think I already mentioned this. We saw the typical early productivity metrics of lines of code, pull requests, et cetera, that I think everyone is seeing. But I don't think everyone is yet seeing the harder productivity metrics. And we are, as we've now had about 2 cycles and with cycles, I mean, 6-month development cycles because we roughly plan in 6-month increments. And then we measure. We decided we're going to do for 6 months, then we build it and then we can measure how much of that we delivered. And we are seeing very significant acceleration in the last 6-month cycle and actually building and shipping end-user features.

So I feel very good about that AI ROI. And obviously, as I said, the next step is to figure out shores great shipping features, but is anyone using them? Are they producing engagement, retention and revenue. And as I said before, it's actually all of the above. It's producing -- we have adoptions, producing engagement, increases retention. But it is also, in the case of audiobooks driving direct ARPU. So we feel very good about what we're seeing right now, which is why you should expect us to sort of remain at these investment levels. But as I said before, hopefully, by now, it's becoming clear that we're pretty diligent about these opportunities.

We try to understand what the business case is. So you're going to see us roughly at the same level. We're going to take these opportunities when we see them. And we're going to communicate them the way we have.

We've got another question from Jason Bazinet this time on capital allocation. You've got no debt, nearly EUR 10 billion of cash and cash equivalents. How do you expect to use this cash to create shareholder value?

So Jason, Christian here. Thanks for the question again. I will just go back a little bit to what we said before. I mean having a strong balance sheet gives us strategic optionality and flexibility to create shareholder return. And we have said that we will do that by investing in our organic journey, but also in organic journey. And on top of that, as we were very clear, we think that with this high number of cash pile that we have on top of the cash flow compounding over time, that we will start to return cash to shareholders of the excess cash. And that's what we have started doing in quarter 1. So there's no news on that. And I think it's quite clear message, and we work very opportunistically in how we invest.

Our next question is going to come from Justin Patterson this time on Studio. While agents and assistants do not seem disruptive to your business, it does seem like something that could encroach upon emerging products like Studio by Spotify, which builds custom podcast and has assistant-like capabilities. How do you believe the opportunity for this product has changed?

Yes. So I think the way to think about studio is back to anticipation. We anticipated that these kind of agents were going to happen. So we built the ability to use Spotify agentically in our desktop clients for the sort of hard core frontier users. And we learn a lot. This is why we have these features like creating podcast. Then we also built skills for them so that third-party agents could also create them.

And as I explained before, it is very valuable when someone creates Spotify content through these third-party agents using their personal context about their life that just makes Spotify more valuable. So we think this is definitely a tailwind for us. But you will still be able to create these things inside Spotify as well. I think, again, the best analogy is our ubiquity strategy that has been very successful for us in the age of connected speakers and devices, where we built this layer, where you can use Spotify from any third-party interface, but using Connect, we can still control and understand the playback.

That is the way to think about this as well. It is sort of connect for the identic age. I think the opportunity is very large for us. I think personalized content is clearly happening, and that's why we invested towards it early.

We've got a question now from Doug Anmuth on our audio books expansion. How should we think about the margin impact of expanding audio books from 22 markets to more than 180 by year-end. Can you see similar positive benefits as you did in the early launches?

We certainly see similar positive benefits, which is why we've decided to go broad and basically have the first global audio books business. And I want to take you back also a little bit to how this started. One very powerful way to detect really what the desirability is of the different types of content is to just follow your users lead. And this is now almost 3 years ago when Gustav and I saw the uptick of audio books in Germany popping just as real as an accident, someone uploaded some audio books onto our service and really saw that users were captured by this type of content.

And so we started this little project between Gustav and I and a small crack team. We worked at it. We saw that there was tremendous opportunity and that we can make a difference. We could certainly be helpful in bringing more book listeners to the world. So we decided to set a sale. And now we're 3 years later, and we've had a good 3 years of real positive benefits. We've increased our audio books listenership by 40%. This is even before launching the rest of the world. And we've seen listening hours grow as well.

And the impact -- the way you think about the impact is really that we've increased the number of days that people are active on Spotify, which ultimately drives retention and also lifetime value. We've also seen early but very strong indications on add-ons for this type of category really working out. So that taken together, this is great for our users, and this is great for Spotify. And we are super excited about the launch that we're doing right now. And as far as margin goes, the way to think about that is we've set targets at Investor Day, and we're marching towards those targets.

We've got a question from Rich Greenfield on AI agents. As agents like Muse and Instinct take over the interface, they could compare subscription prices, switch services seamlessly, or cancel ones that go unused. If the agent owns the relationship, what keeps Spotify from becoming an interchangeable back-end pipe is churn from agents a real risk?

Thanks, Richard. Excellent question. I'm going to answer in 2 parts. First, I want to again push back a little bit on the agents like Muse and Instinct take over the interface. The way to think about it is Spotify has been integrated into, for example, Google Maps and Waze for decades. We haven't talked about it because I don't -- I didn't want competition to understand, but it's been fantastic for us. So people have been using Spotify through Google Maps and Waze during their commute for years. That has been tremendous growth for us because Spotify and its business model works in the background. So that was not negative for us. We didn't get commoditized.

We actually grew tremendously. So that is the way to think about this as well. Spotify being integrated is a growth vector for us. As long as we feel comfortable about our differentiation in terms of data and experience, which I've talked at length about, which we feel very comfortable about. So yes, these things are an interface in front of us, but that's been true for some time. And we think it's a good thing. It's driving growth for us. Now on the second part of the question, which I think is excellent, the first thing that Muse as an agent asks you as a user is often like, hey, I want me to go through your e-mail and try to help me, help you find subscription that you're not using. And the important part of that is the less symptoms that you're not using right?

So the good thing for Spotify is now we will never bet on you forgetting about your subscription. We were never on breakage or trying to trick you. In fact, I think Alex has talked about this. We have over 100 million users that use of sort of 28 days of the month. We're one of the most highly engaged engaging services in the world. So when we ask our users, we're not interested in breakage either. When we ask our users, how many of them subscribe to Spotify without realizing it. It's basically no one. So we think we are one of the best positioned services in the world for this age. I actually think this will be helpful for us. It's a bold bet, but I think on that list of things that you unsubscribed from Spotify is going to be the last thing that you unsubscribe from.

We know this from -- previously, we've been around for 20 years. We've gone through a financial crisis, et cetera. Well, one of the most resilient subscriptions that exist and it is because we never bet on you forgetting about the subscription. I think the other thing, the opposite could also be true. I think these agents are going to help you subscribe to the best music service, to the best podcast service and help you understand that Spotify is actually a better deal.

We've got time for about 2 more questions. The next one is going to come from Batya Levi on new product. How has demand been for the new features? You've launched this year, taste profile, prompted playlist, et cetera. And as the product delivers more value, how do you balance raising prices against growing the subscriber base?

Thanks for the question, Batya. So we've used the concept of value to price ratio and also the value stack many times and allow our remind you of this one because this is really how we think about launching product, adding value and then how to price it. It really comes down to us figuring out how the subscriber is going to win, meaning to get an improved value to price ratio over time. Now in the first 15 years of Spotify, we had a lot of investment in just value, better product, better content experiences just better everything all the time, every year.

And as we sort of grew and got scale, then we started engaging in price increases, which helped us monetize and reinvest that monetization back into the product for more value. So that's the journey we're on. So as you can see us launching more products, adding more content verticals onto the platform. It's just simply us wanting to add more value to subscribers and users so that they can win when it comes to value to price ratio over time. And so that's really how we balance raising price against a growing subscriber base.

And just to fill in there. I think I covered already the demand. We're very excited about the demand that we see for these for these AI-based features. We talked about some DNA, but also features like about the song is also on its way to 100 million users with tens of millions of people talking to Spotify, several tens of millions of people listening to these identic sets. So we feel quite good about the demand for them.

And our last question today is going to come from Michael Morris on music industry partnerships. The Universal Music Group and Warner Music Group agreements reached their 2-year mark in the first quarter of 2027. [indiscernible] of year 2027 pricing plans and the add-on tiers factor into renewal talks on core streaming terms? And do you expect the renewed agreements to be structured like your current deals?

Now of course, we don't speak to the specific of agreements with our partners. But I can say this, this is a reoccurring 2-year rhythm that we've more or less had forever in Spotify's lifetime. And to your point, now we're coming up on another one. And we're excited. We're working with our partners and relationship just improving. And it's improving primarily because our interests are aligned. So when our interests are aligned and growing even more aligned, then that makes it easier for us to create win-win situations.

All right. Great. So we've reached the end of today's Q&A session. And I want to turn the call back over to Alex for some concluding remarks.

Thank you, Bryan. So to close this out, we are building a durable business at scale with a tremendous amount of opportunity ahead. And as I said at the top of the call, this quarter, we did what we said we would, and that's how we'll keep running the business. Thank you all for joining us.

Thank you, everyone, for joining and for your interest in Spotify. A replay of today's call will be available on our website and also on the Spotify app under Spotify earnings call replays. We look forward to speaking with you all soon.

This concludes today's conference call. You may now disconnect.

Okay. So if everyone can find their seats, we're going to go on to our next fireside chat. Good afternoon, everyone. It's my pleasure to welcome Gustav Söderström, Co-CEO of Spotify to our Communacopia and Technology Conference, his first investor conference in that role.

For those of you who haven't met them before, Gustav is an engineer by training and a founder by instinct. He built Kenet Works, which was acquired by Yahoo! in 2006 and 13th Lab, an augmented reality start-up acquired by Oculus. He joined Spotify in 2009, spent the next 15 years as Chief Product and Technology Officer. In that time, he called the mobile shift early, better machine learning more than a decade ago and help transform a music app into a place for nearly 800 million people listen and watch podcasts and books as well. He became co-President in 2023 and stepped into the co-CEO role alongside Alex Norström this January.

Gustav, welcome to the stage of Communacopia.

Thank you. Appreciate it.

I always love welcoming people to their first Communacopia Technology Conference. Thanks so much for taking the time to do it. I really appreciate it.

Thank you for having me. It's exciting.

Let's start with the future and the technology shifts that are underway. You've been a key architect of Spotify's evolution through a number of technology shifts. Drawing on that experience, how are you thinking about Spotify positioning itself for where the industry landscape is going over the medium to long term?

So the way I think about technology shifts often called macro waves, that's what we talk about internally is that in times of no change, market shares tend to stay stable, in times of changes where you have opportunity, the Spotify was borne out of one of these opportunities. It was the shift to low latency, high-bandwidth broadband business while Spotify could start in Sweden because Sweden, fortunately, for us happened to have that before everyone else. It was one of these technology shifts that enables Spotify.

And then Spotify grew. We had our desktop and mobile proposition. And then the smartphone happens, and it was a big change. It was scary, but the outcome was that Spotify figured out how to reposition itself for this age. And once we did, we started growing very quickly. Then, the connected home happened. We figured out with connect, and we started riding that macro wave or surfing the wave driving the tailwind.

So this is how I think about AI and where we are right now. The job for me and Alex, the other co-CEO, is to be able to understand technology deeply, try to understand what it means for Spotify, for the business model, reposition the company to turn it into a tailwind and then write it. So I always tell everyone, I've been at Spotify for almost 18 years now. And I haven't had this much fun since the smartphone because now everything is changing. So now there's opportunity to do something, to get bigger, to raise their ambition and to increase market share.

Let's build on that last answer because you guys as a team hosted an Investor Day just a couple of months ago in May. You laid out a lot of key strategic priorities that are anchoring the business going forward. How would you frame those key priorities and how you're thinking about the execution road map ahead for the companies when measured against those priorities?

So Alex and I, obviously, we've seen this AI wave coming, but everyone says it's coming. The interesting question is, what does it mean? And what we saw happening -- we saw a few things happening a few years ago, and we had a few answers to what it would mean. One thing that it would mean would be that for the first time in history, computers would start to speak English. So there was about 1 million people globally who could speak to computers, they were called developers on GitHub. It's been evident for some time that anyone will be able to instruct the computer. And today, you can do that.

So we realized that all 8 billion of us are going to be able to talk to computers. So the question is, what does that mean for consumer services? So we started rebuilding Spotify to be the first truly intelligent media service. We could see consumers sitting there with ChatGPT over here, basically AGI. And then over here with the media service that at least a few years ago, was done with a [ rock ], that's not going to last. Of course, you're going to want to be able to talk to your media service, the way you could talk to ChatGPT.

Previously, when a consumer heard a song on Spotify, if you go back a few years, they might say, this is a great song. Now I want to see the music video, I have to go to YouTube to do that. That's not great for us. Today, you have all the music videos on Spotify. But you may also say like who is this? What is this band? Who is it? When are they touring? All of those questions, well, we sent them away.

So now we rebuild Spotify. So you ask all of those questions to Spotify, right there, and it tells you who the band is, who the drummer was, who produced this song, when they're touring, where they're touring. It has both all of our proprietary information that we've licensed or bought even who you sample this song from, but they also have access to all the world information of what the people are doing right now. So we create a new vision for the consumer product, and we think we're early with that. And we think right now, we're quite far ahead in the capabilities that Spotify has and what you can ask it to do. So that was one change.

The other thing that happened was that -- because more and more features would start using AI and inference, the Internet would start going from what has for the longest time, been a fixed cost amortization business into a marginal cost business. What I mean with that is since before software, since Silicon, Silicon Valley has been about fixed cost upfront investment amortization and then after Silicon software had the same dynamics. This is now changing. Now you're starting to have marginal cost per user in terms of inference.

Fortunately, so we looked at business that this could be a challenge and a headwind for a company like Spotify. Let's turn it into a tailwind. Fortunately, for Spotify, we're one of the few companies that always had marginal cost. We've always had per stream fees in the free tier. If we had grown too quickly through our journey, we could have gone bankrupt. So we were never -- we were never fortunate enough to just let growth run wild and then monetize later, we had to grow and monetize. So we developed a lot of discipline in this, in this genre over the years. So Alex and I looked at this and we said, how can we turn this into an opportunity.

But Investor Day in May, we presented this power law. And it's been true forever that usage of services is not a linear curve. It's a parallel. We have a long tail of users. They use the service a little and you have people to use it more and more. But then you have a head who do not use it twice as much. They use it literally 10x as much.

Now if you think about having marginal cost, in a fixed cost environment, those 10x users, they don't matter that much. It was just the upfront offer cost. We have marginal costs. Now these 10x users will cost you 10x each month. So you have to have a business model that supports this or you're just going to have to cut them off and shift them up to service.

So we had started another business a few years ago called audiobooks, and audiobooks has that same dynamic. We have some amount of cost per listening hours. So what we did was, we put a large amount about 15 hours of audiobooks listening into premium, an amazing offer. The average audiobook is only 7 hours. So for most consumers, this is all they have they can listen to in a month. This was very well-received. The audiobooks business is growing like crazy right now.

But you have these power users who did not want 50 hours. They wanted 100 hours. So we created add-ons for them where you can buy additional hours. We were very hopeful that this would work well, but it worked much better than we thought. This add-on is already on $100 million ARR after only about a year. So very encouraged by this. We said this is the model for inference-based products as well.

We put a bunch of inference into the free tier. We put more inference into the paid tier, but we control how much. We control our margin. This is -- the margin is a managed outcome. And then if you want more Spotify instead of saying, no, go away, go somewhere else, go to a competitor. We say, sure, you can pay for more. You can pay for as much more as you want. So this is how we think about our business now. We have a free tier that maximizes the opportunity, right? I think all subscription businesses eventually are going to have the free tier. We were just early to that. If you want to maximize the opportunity. We think the TAM for music is literally 8 billion people. If you want to maximize that, you need a free tier.

Then we have one of the world's largest subscription tiers, which lets us use bundled economics to enter new areas of audiobooks, et cetera. But what we didn't have until the spring was the ability to also monetize the rest of this power law, the head, which we now do with add-ons, with audiobooks, with inference add-ons and several other add-ons that are coming along the way. So we feel that this is the right business model for a modern company in the age of AI. You need to be -- you need to let users buy as much as they want of your service.

Okay. So against that, how do you -- probably a question, I get a fair bit from investors as well is how do you see your own competitive positioning in the audio landscape, and when you think about some of the growth opportunities you laid out at Investor Day, how do you think you could possibly change the positioning you have competitively and build even larger amounts of scale around the business, mostly tied to engagement is what I thought the messaging was coming out of Investor Day.

Yes. So there are a few different dimensions that we can compete on. As I said, the business model itself is one competitive advantage. The premium business model that we've now added add-ons, too. So we can both play with growth. We can play with price rates for the premium tier, but we can also play with finding niche audiences that have much higher ARPU, like audiobook listeners, heavy AI users, other things that are coming up. So this is one dimension.

The other dimension that we've been playing with is to add more verticals. We went into podcast because we saw that there was a lot of engagement there but no one was really innovating on product. We went in there and we became market leaders. Then we saw audiobooks, which we also thought was a great fit for Spotify. And if you look at the Scandinavian countries, where I come from, audiobooks is not a niche feature, it's a mass feature, which is why we put it into premium. So we are going to go into more and more verticals.

And one of the things that we think is unique about Spotify versus many other consumer apps is, the most consumer apps, you take a video app. That's a use case. It's a situation. Spotify is not a use case. Spotify is you're studying, you're running, you're dinner with friends, your car commute. We're everywhere. So we have so many use cases to go into. One that I'm very passionate about, for example, is fitness. Almost everyone uses Spotify when they're running and when they're in the gym. So we think we have the brand promise to go into many more areas than other brands.

So many people look at Spotify and say like, okay, maybe they have 3 verticals, music, podcasts and audiobooks, but how many more can there be? We think there are many. We think our brand is strong enough and has enough elasticity for a lot of areas. And we think we're already in those use cases.

The last thing I would say is, Alex and I, we look at others, we try to learn from the best, but you would like to have your own strategy, right? You would like to be differentiated. So one of the bets that we made that we talked a lot about at Investor Day was that, it's clear that short-form videos is eating enormous amounts of engagement. It's very effective. It monetizes, advertising extremely well. We have an ad break like every 30 seconds. It's also very addictive, and it's also true that most of the consumers regret most of the time they spend on these services. This is not something I made up. What we did was we asked someone to survey our user base, 50% our user base, 50% non-Spotify user base. They asked across all the big service, all of them, Spotify, Apple, YouTube, TikTok, all of them.

Two questions. How much of the time you spend do you regret? And how much of the time you spend do you value? Which is the same question as two ways just to control for the answer. And what turned out in this survey, which we talked about was that Spotify was the lowest regret content on the Internet, at least in this group. So people regret less than 10% of the time they spend on Spotify. And conversely, they value more than 90%. This is not true for most of the other services, some of them people regret up to 70% of the time they spend. This was an insight for us.

I previously thought that I have kids on my own. When they sit there and scroll and scroll and scroll, my view was that they're probably trapped and they love it. It turns out, now they're trapped and they know it and they don't like it. They hate it. So we decided to turn this into a strategy. Because we were the lowest regret, we said we are going to beat the lowest regret or the most valuable time spent on the Internet.

Why is that a good strategy for Spotify? It is because Spotify still sort of 90% subscription revenue. If you -- if we were 90% advertising revenue, going after max engagement, would probably have been the best strategy, and it probably is for some of those companies. But if you're 90% subscription, you should maximize for subscription retention. So the question is, at the end of the month, when they used to decide if they want to pay again, when they vote with their wallet, what do they ask themselves, do they ask themselves like where was my max engagement? Where did I they scroll the longest? Now they don't. They ask themselves, do I regret the time I spend? Or do I feel good about it? So that's what we're trying to maximize. And I think that's differentiated those subjectively because I haven't seen anyone else say it, but also structurally because if most of your monetization is from ads is going to be very expensive to follow. Does that make sense?

It does indeed, yes. Really interesting. Okay. Let's come back to the Analyst Day for a second because you see in the Investor Day, you threw out some targets around where you want to go over the next couple of years after 2030. Thinking about mid-teens growth, gross margin ranges and 20% or better operating margin. When you guys think about all that you want to accomplish over the next 4, 5 years, how do you think about striking the right balance between investing in growth, making sure you capture the growth opportunity that sits in front of you, but also delivering on that margin trajectory.

Yes. So I think what is nice about Spotify. I'm sure you've heard a little Lindy effect. What has happened before is very likely to happen more. So Spotify has almost 20 years of the Lindy effect. And what I like about this is sometimes when I talk to investors, I say the following, actually, I'm sort of paraphrasing Alex Norström here. We have something like between 3% or 4% of the world's population, paying us every month today for subscription.

If you look at a market like Sweden, 50% of the population are paying for Spotify, does a percentage of -- and that includes babies and the elderly. You could imagine that the conversion percentages is very high. And it doesn't stop, it just keeps going up. We have never seen it stop. Conversion has never stalled out in any market, right?

So then you say to yourself, maybe Spotify won't convert 70%, 80%, 90% of the world to premium, but is it unreasonable that we would convert 15% of the world. Then you have a 5x story already. So then the question is, what do you have to believe in a 5x story? The truth is just more of the same. Because Spotify started in Sweden, we were still paid users. It's gone from 0% to very, very high percentages. But this is true for every market. Conversion is a function of time. The longer you stay in the market, the longer conversion goes up. So Spotify has something like 40-ish percent conversion on average. But that average doesn't exist. It's a blend of super high conversion, what we've been for a long time, lower conversion where we're nascent.

And so for the longest time, people said, okay, I buy that Sweden converts well, but Swedish are different. And then he worked in Scandinavia and they said, well, I buy the Scandinavian and even are different, but it will never work in Europe. Many work in Europe, and people said, but never in the U.K., right? It's a different market. Guess what? It worked in the U.K. And then we came to America and people said, well, not America, surely, it's the world's biggest music market. Same story, and then they said, okay, but never ever in Latin America, right? Cannot be. Guess what? Exact same story. We're converting like crazy in Latin America. And now they're saying like, well, what about India? It can't be true, right? Of course, it's going to be true. And it's going to be true for Africa as well. So really, what you have to believe is just more of the same, which I think is a very good base. Now Alex and I are not content with saying like we're just going to do the same thing for another 20 years. But it is important to know that you don't have to believe more than just the same for a few more years for Spotify to get and the music industry to get many X bigger.

Now on top of that, we are going to do a lot more. As I said, we're going into more and more verticals. We are trying to become something very different for consumers, a truly intelligent media service. We are going from what we said at Investor Day is we're going from passive single-player services to interact with multiplayer services. What do we mean with that? Well, multiplayer means we have a feature called Jam, there's over 50 million users, where you play music together, listen in the same room, but also remotely. This means that if you're in college, it matters which music service you have. You have to be on Spotify or you can't be at the party.

So we think multiplayer network effects are very important, especially at our scale, but we also think interactivity is very important. So Spotify started as a pretty passive consumption service. The thing you did, though, was your curated playlist. That was very valuable for Spotify, users help tell us like these songs go well together into playlists, that was the basis for machine learning.

What they're doing now since the year back since we added mixing is they're not saying just what tracks go together in a playlist. They're also saying how they transition well, exactly in which millisecond. So if you listen to our automatic mixes a year ago, they were okay but not great. If you listen to them now, they're really good. Why is that? It's because millions of people have told us exactly how these songs go together. So they're curing the catalog for us.

Now why are they doing that? It's not because they're working for us. It's because they love to interact with the music. So this is why we're so confident about the thing I'm sure going to ask about remixes and covers using AI to be able to play much more with the music. To take your favorite song and transform it, not just beat stretches and do a nice DJ transition but actually change the whole song. Do a remix. So we're betting a lot on interactivity. These are some of the questions on how we are planning to grow. I think the baseline is incredibly strong, but the ambition is much higher than baseline.

Okay. That's super interesting. And I do want to come back and go a little bit deeper in some of those topics. But let's end this part of the conversation. You talked about the way the consumer thinks about your product. You talked about layering in more engagement, more utility, and obviously, the conversion theme that we talked a lot about at Investor Day, how do you think about the pricing dynamic around the product longer term? If you're delivering more utility to the consumer, how do you think about pricing elasticity?

Yes. So for the longest time, Spotify held the price at sort of $9.99. And actually, if you then come for inflation, we actually lower the price. And with family plans, the effective price actually went down over time. At the same time, we just poured value into there. More machine learning, the catalog went from, I think, 2 million tracks to 200 million tracks. So like more and more value, kept the price the same. So the price-to-value gap increased.

And then a few years ago, we started taking back some of that price, capturing some of that value. But the rule that Alex and I have is the value always has to be vastly bigger than the price you're paying. This should be a no-brain. This should be the best proposition on the Internet. But we've now proven several times that we have more value. This is the question like how much price elasticity do you have? The answer is what happens when you price it? Do you get churn or not. We do not get churn. We've been very comfortable in these price rises.

The second test is, do you dare to price lead? What happens if you're more expensive than your competitors? We're more expensive than our competitors in all markets, and we still don't see the churn. We feel very good about the value we have there, but we're not complacent about it. So we have literally a strategy called value and premium, where we're trying to make sure that we always put enormous amount of value in premium. All these mixing features I told you about, free in premium. You don't have to pay for those, right?

So there are a few levers. One is pricing of the premium tier, where we think we have more room to grow already, but we also keep putting in more value. So that gives us more room to grow. And then, of course, we have the add-on where we think we could have much higher, and we do have much higher ARPU for some users. So we're going to create more of these add-ons and music and podcast, in audiobooks and in other verticals.

Very clear. Okay. When you think about the opportunity set you're laying out for AI to transform the industry, how do you think about what you probably want to do, which is being innovative in moving the platform forward, but also recognizing that there's an industry structure, there's relationships in this industry and bringing the industry along and making sure that the relationships with the industry are fostered and grow alongside while you're trying to build an innovation curve?

Yes. So the way I think about AI is in 3 different buckets, right? If you think about Spotify and AI, there is productivity where we could either be the most productive or we could fall behind and be nonproductive and noncompetitive. There's productivity. Then there's a product proposition where I just said, I think consumer products will change drastically in the next few years, and we're held in on being the one that changed it.

And then there is content, generative content and music. So if we actually start with generative media and content, which I think is, you, as investors probably think a lot about because if there is one thing that could be dangerous for a company like Spotify should be if the core economics of content somehow shipped. And there are hundreds of millions and billions of tracks being created on these generative services.

So what's happening today is all the music generation is only about net new music. You're only making new music on these services out there. Not on Spotify, we don't do that, but on these other services. Most of these services are sued by the label. You're making new music there. And that is because -- it's not because they can't make a remix of the covers because the remix and the covers are copyright-protected, so they can't legally, right? So you're making a new song.

And Spotify always had the view that for a creator, we do not want to decide -- we should not decide what tools they're are allowed to use. I think if you look historically, there was a big upheaval when the electric guitar came along, right? It was cheating or different. And then we got rock music. And then in the '80s, the synthesizer came along and clearly, people were cheating now. But then we had synth music. Then, close to my heart, in the '90s, Avicii came along and because it couldn't play an instrument or sing, establishment said, that's not the real artist, right? It turns out one of the artists we're the most proud of now.

So I think of generative music models as tools. And it is a fact that most creators are using these tools to some extent, at least in ideation today. So then the question is, what does that mean for Spotify? Well, to the extent that people are using these tools and creating songs, the way for them to get the distribution and monetization is to upload them to Spotify. So we are participating in -- if there's a hit made, it's very likely to be on Spotify. So in that sense, for an aggregator, the fact that the catalog is bigger is a positive. But what we think is wrong with this scenario is that AI is not only a story for new creators and for the existing artists, it's only a story of replacement from here on.

So what we decided to do is we're saying that no one is solving this, the other problem of making remixes and covers for existing IP because it would be too hard for them. They would have to get every artist on earth signed up and start paying out to them, guess who has every artist on the earth signed up and paying out to them already, Spotify. So we are in the perfect position to solve this problem. How all the existing artist participate in AI instead of getting replaced by AI.

So we have taken the laborious path of training our own generate music model legally asking for permission, slowly and boringly, instead of just running ahead and doing them illegally. It's slower, but we think it's the right thing to do. That's what we did against piracy. We didn't cheat with piracy. We actually went and licensed all the music, many labels were hesitant, artists were hesitant, but it was the right thing to do. So we're taking the long path, training our own models, which I feel very good about because we've been working on this for some time.

But the interesting thing is, and then we go and get opt-in from the artists who want to participate, we are not forcing artists to participate. Instead what we're saying is, you probably want to participate because if one of your fans create the remix of your song, that actually increases the share of the streaming pool that you get. So if you're an artist today from the '80s or '90s, the way that you would make more money today is to hope that some other artists would create a remix of cover of your song because then you get more royalties. Now you can hope that all your fans actually create remixes and covers of your songs.

So the economic incentives are aligned with the artists. And we're not taking anything of that. All those royalties are going to the artists. So even more of them, if someone made a cover because then the artists would have had to share the revenue with the cover maker, you get all of it. The fan doesn't get anything. We don't take it. You just get all of it. So the incentives are aligned for artists, but we're not forcing them. We're asking them to opt-in.

So we think this is the way -- it's just like with piracy. The way forward is to also make a great product, not try to stop it, but to make a better product that is legal. So this is how we're thinking about it. We're very excited about it. We think all existing artists deserve to participate in AI if they want to, but we're not going to force them.

Just following up on that, what signs do you think investors should continue to watch for to see, you've had some good industry adoption and agreements struck already. More of the industry coming along for this as a broader theme. And then broadly, how it also fits into commercialization longer term as well?

Yes. So we've had UMG, a couple of Merlin signed up. And we're making really good progress with them. The thing that has been the most important to me is actually that the tools are really good. So I've been working very hard on the models themselves. I feel very good about where they are right now.

The next step for us will be a research preview. Why would we do a research preview? Well, it is because the way these models work is, you can train them in private, but then the way they get better is by lots and lots of examples, right? So what we want to do is, we want to ask our users for a prompt, for a song, then they create a remix. And then we showed them 2 versions, and they said this one was better than that one. And then this is called preference data. And then you can do what is called reinforcement learning on this preference data. This is how you win. This is why Anthropic ran away because they had more users given in preference data. This is why some of these -- well, you have one player that is the best at new music because they got the most users given the most preference data.

The benefits of Spotify is we have the distribution. We have almost 800 million users who could give us preference data. So I think structurally, we're both the ones that are best positioned to do this on the payout side, but we're also one of the few companies who we get the preference data for this model to become the best in the world very quickly. So that's the next step. It's already very good. But getting preference data from lots of uses is what is going to improve it quickly.

Understood. Scale beginning or scale, certainly understood. You talked earlier about some of the format innovation that's happened on the platform over the last couple of years. 2-parter for me, really. What have you learned the most as you've introduced a wider range of formats on the platform? And specifically, what have you learned as more video has become prevalent on the platform and how that changes user behavior?

Yes. If we start with video, so there were 2 things that happened for us. One was we went into podcast when they were audio. But fortunately, for us, we did, if you remember the deal with Joe Rogan, and he said, I need to have video. So we built video because we needed to. But that gave us a window to consumer behavior. And we saw what was happening that consumers are actually watching this video and dipping in and out of it, even though most of the consumption is when the phone is in your pocket. And then the rest of the industry -- of the podcast industry just started becoming video very quickly. But then because we were early to that and we saw it, we pivoted and we built out podcast video very quickly. And now we have a very good podcast experience, which is why it's really only us and YouTube that are in this game because the others miss the video if we're going to be honest about it.

So if you look at video, you see 2 things. You see a very clear split between audiences where older people still listen to audio-only podcast and younger people, if there's no video, they contact customer support and say, the podcast is broken. I don't understand why there's no images here. It's just so -- they don't have the concept of audio-only anymore, right? So that's on the podcast side, and we were fortunate enough to act on it technically.

But then we actually had one more stumbling or one more barrier, which was the monetization. So the monetization was much better if you were audio-only than if you were video without going into details, DAI, Dynamic Ad Insertion with this whole own ecosystem, it doesn't work for video. So we had this problem where technically we could have video, but the creators were not incentivized, too.

So back to incentives, we launched something called SPP, Spotify Partner Program in January, about 1.5 years ago, where in premium, we actually removed the Spotify ads and we started paying out from the premium pool instead, which meant that the podcast products got better for consumers, fewer ad breaks, which increased the retention and listening for the creator, but the creator still got paid magically. So the product got better, it got fewer ads and the creator got paid. So this meant that all of a sudden, all creators started uploading video and since then we've been growing, I think video has grown 50% year-over-year on Spotify. We have over 500,000 shows now. So that's on the podcast side.

On the music side, I just talked about sending our consumers to YouTube a few years ago to see what does the artist actually look like. That never made any sense, but it took some time for us to build out the video stack. Now we have all of the music video, all the official music videos. But we're also recently getting artists to upload their unofficial music videos that they record themselves. So we have this catalog now, and it's very interesting because in the data, we see exactly what we thought, like the music video, it's incredibly important. The first time you hear a song, and then it's not that important anymore because it's the same video. When you listening in your pocket, the 100 stream of the same song, the video isn't important, but for discovery, it's incredibly important.

So actually, I think a song is like 24% more likely to be streamed or saved if it has a video versus not. So it's incredibly impactful for discovery and Spotify, it's always all about discovery and we know that discovery directly correlates to retention. So this is why we're betting so hard on video. It's been a huge lift for us over many years, both building and licensing. But now it's there. Unfortunately, we're seeing exactly what we hope for.

Okay. I'm going to try to squeeze 2 in before I lose you. At Investor Day, you talked about getting to 1 billion MAUs on the platform by 2030. Talk to me about the role emerging markets will play in getting to that type of target? And how you think about the monetization curve of those types of users relative to what you've seen in developed economies?

Yes. So we said 2 things about long-term goals. We said 2030, we hope for 1 billion MAU. And then we said long term, well, for 1 billion subscribers, just to make sure that the ambition is very high. We want to be the biggest subscription business on the planet. And that's where we're going. We feel very good about the 1 billion MAU. Alex and I take nothing for granted. Every day, it's a fight, but the trajectory is very much on track for that. So we feel good about that.

In terms of monetization, you're right that a lot of the growth is happening in emerging markets. And as I said, we're in this fortunate position where the mature markets just keep converting. So we can -- Alex jokes and says, we're using the West to fund the East, right? Because a lot of growth is in the East. But it's also true. This is the benefit of us. We can keep that average conversion. We can keep the average monetization good but we can actually fund our own growth over here because we know there's Lindy effect. We trust so deeply in it.

So a lot of the growth is coming from there, but you also see us actually being very disciplined about that growth. So you saw in the most recent quarter where we said that in India, we've actually played a little bit with the ad load. We've done individualized ad load. We played a little bit with the conversion gate to make sure that the conversion stays on the track that we want to have it, we feel comfortable about the plan. But by and large, because we trust them much in this model and it has so much precedent, the main opportunity -- the main focus for us is to just keep it growing. What we see is that it's so much cheaper toeat market share early in the market than when it's mature. I mean, this is obvious, but it's still true. So when you are growing quickly, you should try to capture that market share because we have so much data saying that we're going to be able to monetize it. It's much more expensive to try to buy market share when the market is already mature.

Understood. Last question for you. If I have the opportunity to have this conversation with you 12 months from now, 24 months from now, what are you most excited about building and scaling in this business that you'd want to come back and keep talking to investors about over the next 1 to 2 years?

I mean there are a couple of things. I'm an engineer. I'm a tech nerd, I'm going to talk about some features that we're interested in. But by and large, from a systems point of view, the thing that Alex and our laser-focused on now is to prove out this power law or rather the power law is true, and we have proof points like audiobooks plus the add-on, we want to deliver more proof points. So what I'm hoping we can say in 12 months is we don't have one add-on. We have several, and we can show that it's possible to monetize all of these niche audiences that we have in the user base. So that's one thing I would like to deliver.

Personally, one of the things I'm the most excited about is the fact that because of large language models and the fact that these computers are not going to speak English, Spotify is starting to become something different where you can literally today, the taste profile is rolling out in the U.S. as we speak. You can say to Spotify, Spotify shows you who it thinks you are. And to me, it's just like I think you're a big EDM users, they would get all of this. And I can say like, well, I don't feel like that anymore. I want to be different. I can instruct the system for who I want to be. I can speak to it in English, both through text and increasingly through voice. So Spotify is becoming this interactive conversation.

And so right now, one of the things I'm most excited about this summer has been something called running mode, where we use our Prompt-to-Playlist and you can go in and you can say, I want running playlist for running a 5-minute mile, I want it to be 170 steps per minute because that's the cadence I want to run in, if you don't want to hurt your knees. And Spotify goes in, it looks to all of your listening history since 2008, it looks through your genres. It takes the music that is roughly in that BPM. We have perfect BPM data, which no LLM has, takes it and then they actually beat stretches the music to exactly 170 BPM. So every step lands on the beat.

But then on top of that, it actually audio coaches you. So you can say, do you want the pyramid run, do you want interval run or straight run. So Spotify is starting to become something very different. It's starting to become an intelligence that can soundtrack your life with high intelligence. So I'm hoping that 12 months from now, this is a highly interactive experience. And you just think of it much more as a friend than a service. Hope that makes sense.

Great. Well, why don't we leave it there? Thanks so much for the opportunity. Please join me in thanking Spotify for being part of the job.

Thank you, everyone.

Hello, and welcome to the Spotify Q2 2026 Earnings Call. [Operator Instructions]

I would now like to turn the conference over to Bryan Goldberg, Head of Investor Relations at Spotify. You may begin.

Great. Thanks, operator, and welcome to Spotify's [ First ] Quarter 2026 Earnings Conference Call. Joining us today will be our co-CEOs, Alex Norström and Gustav Söderström; and our CFO, Christian Luiga. We'll start with opening comments from the team. And afterwards, we'll be happy to answer your questions.

Questions can be submitted by going to slido.com, S-L-I-D-O.com, and using the code #SpotifyEarningsQ226. Analysts can ask questions directly into Slido, and all participants can then vote on the questions they find the most relevant. If for some reason, you don't have access to Slido, you can e-mail Investor Relations at [email protected], and we'll add in your question.

Before I begin, let me quickly cover the safe harbor. During this call, we'll be making certain forward-looking statements, including projections or estimates about the future performance of the company. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed on today's call, in our shareholder deck and in filings with the Securities and Exchange Commission.

During this call, we'll also refer to certain non-IFRS financial measures. Reconciliations between our IFRS and non-IFRS financial measures can be found in our shareholder deck in the financial section of our Investor Relations website and also furnished today on Form 6-K.

And with that, I'll turn the call over to Alex.

Thank you, Bryan. Hey, everyone, thank you for joining us. I hope you're having a great summer. Today, we'll pick up where we left off at our Investor Day in May, updating you on what we said, what we've shipped since then and also what the early signals are telling us.

So Q2 was another quarter of healthy broad-based growth. Revenue grew 15% year-over-year on a constant currency basis, accelerating from 14% in Q1. Gross margin hit a record of 33.4% and free cash flow continued to strengthen. And we beat our subscriber guidance, crossing 300 million subs for the first time, all while continuing to grow engagement with the number of active days for global subs increasing. What pleases me the most is the shape of the quarter. More people are choosing Spotify, they're engaging more deeply and they're converting.

We've been working on turning our outperformance in MAU into revenue growth. So to capitalize on this opportunity, we are adjusting elements like product optimization and ad load, among other things, in select emerging markets. Now this strategy carefully increases friction in our free service with a goal of driving higher user conversion and revenue growth down the line. Yes, this will show itself in our Q3 MAU, but we believe it's well worth it. And as we've shared previously, the free to paid conversion cycle in emerging markets grows differently than our established markets. So while a move like this one will take time to play out, the opportunity is vast. This will be additive to our potential over time. And as you will hear soon from Christian, we do not expect it to come at the expense of our subscriber growth.

Now we've talked before about rebuilding our ads business, and the results are really starting to show. On the supply side, our audience of very attractive global users keep expanding our inventory. And on the demand side, the enhanced technology we've deployed is making it much easier for advertisers to reach these engaged users. Just one example. Our automated channels represent nearly 40% of ad-supported revenue in Q2, up from over -- just over 30% in Q1. And active advertisers grew 60% year-over-year. We're now set up in a way we weren't a year ago, and we will keep building from here.

Another development from the quarter worth calling out are launch of Reserved. At Investor Day, we called it one of the most wonderful improvements to premium in our history, and the early signs really back that up. So since launching in the U.S. in June with Live Nation, Reserved has supported multiple tours, nearly 100,000 tickets reserved through Spotify. For some tours, we sold through 100% of our allocations. And Live Nation upsized the mid-run. The biggest fans get first access, artist get their most dedicated audience in the room, and every seat we fill makes a Spotify subscription just more valuable.

I'd like to use the remainder of my time on something that Gustav and I think about a lot, Spotify's position. And these are unique times. Business history has produced just a handful of companies with hundreds of millions of recurring paying customers worldwide. And Spotify is proud to be one of them. And like many of the others, we built that scale on a single product. That is unique territory to be in.

I'm a student of Charlie Munger, who once said that the one structural advantage that matters disproportionately is scale. If you're choosing a music streaming for the first -- music streaming service for the first time, it matters that one brand comes with several hundred million passionate ambassadors. And perhaps most consequentially, the scale and the cash generation we now have lets us innovate and invest in building a much better product, adding more value for every subscriber around the world in the most cost efficient and competitive way.

The point is scale matters. In the past 5 years, we've added more than 25 million net subscribers every year, growing in developed and emerging markets alike. So with over 300 million subscribers and 777 million users, we have achieved consequential scale. Our financial picture tells the same story. Since our last Investor Day in 2022, revenue has compounded at 18% a year, reaching EUR 17 billion in 2025. Gross margin went from 25% to over 33% this quarter. We became more disciplined with OpEx, which has turned into a growing positive operating margin. And last year, Spotify generated EUR 2.9 billion of free cash flow, and we expect that growth to continue.

That strength is why we set the 2030 targets we did in May, a mid-teens revenue CAGR, gross margin of 35% to 40%, operating margin above 20% and strong growth in free cash flow. Gustav and I believe there are opportunities only Spotify is positioned to invest in because of our scale, the health of our business and our focus. So we rigorously explore new premium offerings and new verticals with our customers. We covered these at length at Investor Day, but there are a few that's worth repeating.

The first is AI. Many investors ask about our large taste model, which learns from the 3.4 trillion events our users generate on the platform every day. But the reality is we've been investing in AI-driven personalization for more than 7 years. Today, AI-powered experiences like DJ are used by roughly 1/4 of our active users, and Prompted Playlists, our newest addition, gives users direct control over the algorithm. Around 14 million of the first 100 million users we've rolled it out to are already using it, and the early retention improvements look promising.

The second big idea is the power law. As we've grown, we've observed that the usage of our products, features and content follows the power law. At the head of that curve are many millions of people who simply want more, and they're willing to pay for it. Audiobooks proved it first in just a handful of initial markets. We see that overall Audiobooks penetration among premium listeners has more than doubled this year, and Audiobooks+, the add-on has passed $100 million in annual recurring revenue. It is subscriptions on top of subscriptions with more on the way. So combined, these two just make for something powerful.

Inference-driven products carry a marginal cost per use, so they need a compatible way to monetize. And that is exactly the muscle we've built over 20 years of freemium. Feature gated, usage-driven products optimized for the best value to price ratio. Now we will price and optimize these features and content just as we have successfully done with our premium product.

So in conclusion, we have a scale that few companies in history have reached, a business that is healthy and compounding and opportunities only we are positioned to pursue. Spotify lives across your whole day, the commute, the workout, studying, gaming, the dinner table and sleep. At our scale, that is rare. Most products own 1 or 2 contexts. Our position gives us an opportunity space as wide as our users want it to be. And at the Investor Day, we told you where Spotify is going, and this quarter, we're building momentum behind that.

With that, let me hand it over to Gustav.

Thanks, Alex. So I want to use my time on 2 things: how we're building and what we're building. And both matter for the durability of our business over the next several years. So a couple of quarters ago, I mentioned our internal tool, Honk, which enables our engineers to go on Slack from their phone and ask an AI agent to fix a bug or add a feature, and then they get a testable build back before they even reach the office. That way of working is now ubiquitous and it's unlocking a compounding advantage. So Honk is our coding agent, but there's something new that we call Chirp, which is the engine that we've built underneath it. And you can think of Chirp as something that you use instead of using Claude code or coders directly that sits in front of it. So Chirp lets our engineers switch models mid task and run every job to the best available price performance, including Open Source models that we host ourselves. So we are never locked in.

It also shares the context across not just different models and different developers, but across the company. So we don't pay for the same reasoning twice, and we don't lose our own data. And it also shows us our inference spend down to the individual developers. There is plenty of industry debate about AI investment and costs. But our view is that being an AI beneficiary means winning on the cost side, too. We hold a high bar for every investment that we make in this area. And we invest only where it generates real advantage and sets us up well to drive growth and improve margins over time. If something works, we double down. If it doesn't work, we eventually move on.

Over the last 3 years, we have not increased headcount, while revenue per employee is on track to double. So as you can see, the operating expense growth is now coming from people. It's coming from compute and marketing. Both of these are variable and entirely in our control. And we will continue to invest in AI on our terms. We're vendor agnostic. We have controls over our usage, and we always undertake these investments relative to the returns that they can support. The inference we give users is also under control -- under our control, which means that the cost curve is also under our control.

At Investor Day, we laid out 4 big ideas about where Spotify is heading. One quarter later, we've shipped against all 4. We said the world is moving from recommendation to generation with users in control. Today, Talk to Spotify, Personal podcast and Studio by Spotify all in users' hands. And in the coming weeks, we'll be rolling out Prompted Playlists for Audiobooks, our best-in-class books experience.

And Alex mentioned our large taste model, which is a big investment for us. Let me tell you what it's doing so far. In the first 2 months, since we deployed our new Autoplay recommendation system powered by the taste model, active days have increased, which is very hard to do at our already high engagement levels. Autoplay minutes and track sales have both grown significantly, and Autoplay drop-off has declined. And in our chat experiences, the large taste model is doing the same. Minutes are up double digits, more active days and more sales into libraries and playlists. These are powerful inputs to our customer retention rates and lifetime value and among the most challenging metrics to move for us.

Now the industry -- watch this scaling curve and the scaling loss play out with general LLMs. And when we think about it is that now we are watching it play out with our taste LLM on a model that no competitor can buy. We said that engagement follows a power law, and we launched our first onetime credit add-ons to serve the head of that demand curve. From DJ to daylist, we know these investments take time to scale, and they pay off over time. These add-ons are capped by design. Every credit purchase carries a defined amount of inference behind it. So usage, cost and monetization stay connected.

We also said that Spotify is moving from single player to multiplayer. And this quarter, that stopped being a road map and became behavior. Messages is live, and people now react to tracks, reply and share music directly inside Spotify. Listening activity shows you what your friends are playing right now. And listening stats is becoming something you share and compare, not just a private report for you. Almost 50 million people are already using Jam every month to listen together in real time. You're no longer alone on Spotify, you deal with your friends, your real-life friends.

And we said we would keep optimizing for time well spent and increasing the value of premium. One example that I'm personally very passionate about here is fitness. And last week, we began rolling out running mode. You tell Spotify in plain language to build a running playlist for an 8-minute mile or an interval session, it understands not only your taste and BPM, it serves you your favorite tracks to your exact cadence, mixing them together seamlessly so that you can literally run to the beat. It adds optional audio coaching right in your ear and it stays fresh every week. This is an experience that only Spotify can deliver because of the investments we've made.

Looking beyond running mode, I'm excited to share that Song DNAhas now been used by more than 100 million subscribers, making it one of the fastest-adopted features that we've ever shipped.

Finally, our music agreements capability. We're excited about the product experience and what it will unlock between artists and fans. Our model is one where artists choose which songs they want to make available for remixing, with consent, credit and compensation to sign in from the start. That model is winning over the industry. Following our agreement with UMG in May. Today, we're announcing a deal with Merlin, the digital licensing partner for the world's leading independent labels and distributors. The agreement gives artists across 30,000 labels in Merlin's network the opportunity to participate and make their catalogs available for covers and remixes. The enthusiasm for the independent community has been striking, and we hear that same support across the wider market.

Deals like these take time, but we built this so that virtually every rights holder who wants can join in. Big picture, there is more work to do before launch, and it will take time to scale into a material revenue driver. But we are very excited about the potential for Spotify and for artists.

So if there's one theme I would leave you with today, it is this. Investor Day described where we believe Spotify is going in the future. And this quarter demonstrated that we are already building that future, better engineering, faster shipping, new products and new ways for users to engage. We're still in the very early stages of what is possible and we'll continue to have a high bar for investments. Our margin is a managed outcome, not a byproduct. Our job remains the same: understand the technology early and deeply, and turn it into something that people love, creating value for our stakeholders.

Now Christian will take you through the numbers.

Thank you, Gustav, and thanks, everyone, for joining us. I will cover the quarter 2 results and then provide some perspective on our outlook. Unless otherwise noted, as always, our reference growth metrics are presented on a year-over-year constant currency basis.

We're pleased with how the business performed in the quarter. MAU continued to grow healthy at 12% year-over-year with notable outperformance in Europe and North America. Our net additions of 16 million were 1 million below forecast. We added 7 million net subscribers during the quarter, growing quarter-on-quarter across all regions with notable outperformance in Rest of the World and North America. We finished at 300 million, 1 million ahead of our guidance.

Total revenue was EUR 4.8 billion, growing 15% year-over-year, which was an acceleration of the 14% we delivered in quarter 1. Premium revenue rose approximately 16% year-over-year versus 15% last quarter, driven by subscriber growth of 9% and ARPU expansion of 7.4% year-over-year. Our ad-supported revenue grew 3% year-over-year, which is consistent with quarter 1. Our automated sales channel continued to grow fast and represented nearly 40% of our ad-supported revenue in quarter 2, up from just over 30% in quarter 1. This strength was largely offset by expected declines in our direct sales channel. Importantly, our price optimization work is now complete, and this channel is stabilizing. We have also completed the migration of our ad inventory to our in-house ad server, allowing us to further streamline our sales process and capture more demand.

With respect to our outlook, nothing has changed. We continue to expect our ads business to inflect towards double-digit growth in the second half of 2026. Gross margin came in at 33.4%, surpassing guidance by 30 basis points, the year-over-year expansion of 193 basis points. Favorability versus our guidance was driven by primarily quarterly timing shifts related to our growth investments. We also saw a small onetime benefit from a cancellation of the digital service tax in Canada, where we reversed an accrual from previous years.

Operating income of EUR 655 million was EUR 25 million above our guidance of EUR 630 million, delivering on operating margin of 13.7%. Social charges contributed to EUR 9 million of outperformance, and that was against our forecast, of course, and due to share price movements in the quarters. Excluding the non-forecasted social charges favorability, we came in at EUR 16 million above guidance, driven by the gross margin outperformance. Finally, free cash flow was EUR 797 million in the quarter, up 14% year-over-year. The quarter was slightly lower relative to quarter 1, partly as a result of timing of cash tax payments. Our first half working capital benefited from remain -- benefit remained consistent with the prior year.

On capital allocation, we have repurchased $662 million in shares year-to-date through August 3, representing 30% increase over 2025 levels. In aggregate, we have bought back nearly 2.2 million shares since we resumed repurchasing activities in 2025 or approximately 1% of shares outstanding. Given the stronger cash flow in the years ahead, even with M&A, we expect that we will also return cash to shareholders. As the close of the quarter, we had EUR 9.4 billion in cash and cash equivalents and no debt other than lease liabilities.

Looking ahead to quarter 3, we are forecasting MAU of 788 million, an increase of 11 million from quarter 2. As Alex discussed earlier in more detail, this guidance includes product optimization activities in emerging markets while growth rates in developed markets remain stable. On subscribers, we are forecasting 305 million for quarter 3 or net additions of 5 million. We continue to see the business as well positioned to drive another full year of healthy MAU and subscriber growth.

We're also forecasting total revenue of approximately EUR 5 billion in quarter 3 or 14% growth. This reflects an ARPU increase consistent with quarter 2 and improved growth in our advertising business that I mentioned earlier. We anticipate a quarter3 gross margin of 32.9%, approximately 130 basis points above the prior year. Our gross margin outlook incorporates continued strengthening in our core business, reinvestments into new products and the typical charge we take in the third quarter to account for our annual exposure to regulatory fees in one of our markets.

Moving to operating income. We're guiding to EUR 670 million in quarter 3. This reflects the above, along with a temporary elevated operating expense in quarter 2 and quarter 3. We continue to expect these marketing and AI-related investments to drive approximately EUR 200 million in incremental operating expense for the full year.

Quarter 4 is well positioned to see a moderation in the rate of year-over-year operating expense growth as we move past the heavy concentration of this year's marketing activities and calibrate on the other costs.

In 2026, we continue to be flat on the number of employees. So this year's investment cycle is not driven by structural expense additions. It's marketing and AI related, both for investments that are entirely in our control. As we stated at our recent Investor Day, we remain focused on striking a clear balance between LTV-enhancing investments and sustainable margin expansion.

Although we do not provide full year guidance for gross margin or operating margin, we continue to expect both to improve in 2026 on a full year basis. As we have said, the quarterly progression of our margins is variable and dependent on the timing of investments. As you've seen from us historically, the rollout of new features and products can temporarily moderate margin expansion while setting the business up well for future monetization potential. We continue to expect meaningful year-over-year growth in free cash flow in 2026.

So in conclusion, we had a solid quarter 2. We remain well positioned to continue compounding growth, profitability and free cash flow.

And with that, I hand it back to you, Bryan, and Q&A.

Great. Thank you, Christian. Again, if you've got any questions, please go to slido.com, #SpotifyEarningsQ226. We'll be reading the questions in the order they appear in the queue with respect to how people vote up their preference for questions.

And our first question today is going to come from Jessica Reif Ehrlich on the product road map. You have a unique global platform for both audio and video products. You provided a robust product road map in May at your analyst event. What products are you most excited about in the near term? And where do you think you will get the most traction over the next 3 to 5 years?

So thanks for the question, Jessica. This is Gustav. I'll start and then maybe Alex wants to jump in because I know he's also very excited about the product. But this is kind of like asking me to choose between my children. So it's a tough question, but I'll try. But first, I kind of want to level up a little bit because what I am most excited about is the system that we've built and what we presented at Investor Day. So the way to think about it is some time ago, over a year ago, Alex and I spoke, and we realized that the world that we were in where software development was mostly an amortization game, right? You developed once and then you amortize your developer investment over more and more users. That world was going to change because inference adds a variable cost per user.

So we looked at this and we said the game is going to change. There's going to be more variable cost per user. This could be a headwind or it could be a tailwind. So we decided to start working on changing the model where this power law that Alex and I talked about were some users use the product a lot more than others, which didn't really matter so much in the amortization world because it didn't have large variable cost, but it will matter a lot in this new world. We decided to change the model. So we've built this platform where we can decide how much influence we want to put into the free tier, how much we want to put into the premium tier. And then instead of saying, that's where the party ends, you have to go somewhere else. We say to people, if you want to live in the future, you can, you just pay more.

So we let some people who are prepared to pay for it run ahead of other users. And we demonstrated this model with Audiobooks, which works exactly like this. We give about 15 hours of Audiobooks in the premium tier. Some people want much much more than that. They're allowed to run ahead of everyone else and pay for it. So we spent a lot of time building that infrastructure. And as we don't like to ship ideas, we didn't really talk about it until Investor Day. That's kind of what we revealed, this system to be able to have different types of users with different levels of monetization and different needs on the same platform instead of being sort of kept back by the average or what the least engaged user can afford or what we can afford to give them. So that is what I'm excited about, having built this platform.

Now we're launching a long range of products on top of this, and I can tell you sort of what I'm excited about there and which ones in the near term and longer term. But it's important to think about the structure on the systems type of guide. That's what really excites me.

In terms of actual products, I would say right now, the thing that excites me the most is Reserved. It is probably the feature that the most people ever have said, "This is the best thing you ever did at Spotify." And we've seen, as Alex said in his introductory remark, really exciting numbers there. So I think this is one of the biggest values that we put in premium ever. And as we said before, this is actually unique to us because of the structure of these deals. So that's very exciting to me.

The second thing I would say, more in terms of AI, which I mentioned in my comments, in my prepared remarks, is the LPM. The LPM, we talked a lot about at Investor Day, pretty big investment for us, both in terms of personnel but also training costs. So it's very good to see it paying off. The bet we made there was that the old type of machine learning had capped out. More data and larger models did not produce better results. The sequence-based LLMs follow different loss, the loss that are called scaling loss where more compute, more parameters and more data actually produces better results. And now we're seeing those. We're seeing the scaling loss play out on the inside in terms of taste and recommendations. So that's very exciting to me.

The third thing that I'm really excited about, which I think Alex mentioned as well is SongDNA, which is a feature that we put a lot of love into. We acquired a company called WhoSampled to power this feature. So we invested something there. We took some cost and now it's paying off with over 100 million users using it and loving it. It's also very unique to us. So that's maybe my third if I would rank them.

Another one, which we don't talk so much about, but then I'm personally very excited about is music videos. We invested in music videos and a great music video experience for a very long time. Now we have both a good experience and a catalog. And we are seeing that songs with music videos, specifically new releases, are performing much better, which was the bet, meaning that music videos is of outsized importance when you're discovering a new artist because you're wondering who they are, you want to see them. It's not that important, the tenth time you listen to the song, but it's very important the first time. So that's quite exciting to me.

Obviously, I think it's a tie between maybe [indiscernible] pods and running. Running just because fitness is so close to my heart. I think we have a very unique experience there, which no one else can really do. There is no other service that can give you a playlist at the cadence you're running in with your favorite songs and beats stretch them and mix them together. [indiscernible] excites me because it's a podcast that didn't exist before. It's a podcast about you, both your taste, the new releases that came out in terms of music, the podcast that you missed last week, the books that you should have read or that are coming out. But also if you ask for it, exactly what happened in your neighborhood. There's no podcast about your actual neighborhood, but now there is. So that excites me and what we see the very, very early signs, I want to say, but the very early signs are exciting. This is something that is new to people. I think those are the ones that are near term and exciting.

Longer term, I was also, obviously, I'd be remiss if I didn't say that our remix and coverage, I think is an incredibly exciting product, again, because there is no one else that can really do this. Normal generative music will happen with or without us. This product will not happen without us, and it needs to exist so that existing artists can participate in this. So that's very exciting to me. It's a lot of work. It's going to take more time. but I'm very excited about what we're seeing internally.

Lastly, I would say the longer term back to systems thinking is really what you can see in Talk to Spotify. So if you've been lucky enough to be in the U.S., we started rolling this out and try it, you can literally talk to Spotify now and you get very good answers about the music, about who played in what band, when they're touring, what the song is about, these are better answers than you get from any LLM, certainly within our domains, about podcasts and books and music. So without stretching it too far, I feel like Spotify is coming alive and you can literally start talking to it. That's a long answer, but that's what I'm excited about.

Man, you covered all of the ones that I would wanted. I wouldn't have to add. Sorry.

Great. All right. We'll go on to the next question. And another one from Jessica Reif Ehrlich on advertising. Advertising growth in the past year has been subdued despite programmatic now comprising over 25% of ad-supported revenue. Can you provide an outlook for the coming year or years? And what can you do to drive momentum in what is a very high-margin business that monetizes your engaged and growing base of users?

Jessica, this is Alex. I'll start. I'll actually take the opportunity to organize this a little bit differently because I do think that this similar question is coming further down the line from Richard Greenfield. So I'll try to do both at the same time. I'll speak to maybe most to why should investors have confidence in us when it comes to the ad sales business as Spotify, and then maybe Christian can talk about the margin side of things.

So I want to pull the lens back a little bit and talk about the past 2 years here. I've said many times now that we have been in a transitional phase with ad sales. And in the beginning of this year, we completed that transitioning. We now are entirely on the new ad stack that is proprietary built inside the walls of Spotify. I think 99% of all the impressions that we serve are now on our own ad stack. But the big thing is the addition of the [indiscernible] change that we put in place and the automated sales channels. These are now almost 40% in Q2, up from 30%. And if you ask me, I can tell you that it's even going up further from here.

So the two things to think about is obviously supply and demand. We'll start with supply. The supply picture has actually never been stronger. It's not only about user growth and reach, which is obvious because we grow and then the reach follows. But it's also about [ MFT+ ] and the new placements we have in the free tier. It's also about us launching personalized ad load, and it's also about the depth of the engagement that we have.

So this, in turn, drives a lot of supply for us to sort of match demand against. Now on the demand side, for the longest time, since the inception of Spotify really, up until 2 years ago, the way to buy ads on Spotify is a brand would call us, literally call us or contact us via e-mail, and they would buy fixed and guaranteed campaigns from Spotify.

Now that's all good, but it's also capping us in several ways. One is it's really capping us in terms of pricing and sell-through. So when the inventory is bought, it's bought. And it's also capping us obviously in the ways that people want to buy, not everyone wants to write e-mails, sign IOs and make calls. They further wanted to automate the buying as well. So what we have put in place now actually uncaps this, unlocks both of these things. One of the obvious thing is that it's -- a lot of it is self-serve and automated. The other thing is that now people that find our ad inventory valuable can go in and bid up the pricing. So it unlocks really both of these things.

And the bottom line is really that this has led to not just existing advertisers moving over to this new way of buying. But it's also that we have increased the active advertisers. We are now at 33,000 active advertisers. This is 60% up from last year, which is great. So it's really the right plan, and we need to just keep working on it.

A funny sort of tidbit in this is that we recently launched plug-ins and MCPs towards Claude, ChatGPT as well as Gemini. And people are now actually prompting to create campaigns and audio assets. I think out of the 33,000 active advertisers, we now have 7,000 of them using our AI audio asset creation tool, which just makes it easier for brands to buy on Spotify.

So there's a lot of change going on. But I'll just rinse repeat. There are 3 reasons that there's -- well, something that hasn't changed, and that's the 3 reasons that people come to Spotify to buy ads. It's a beloved brand, it's the high-quality content and it's our high user engagement.

So Christian here. Just on the margin side to fill in on that. I mean one of the things you brought up, Alex, is very important to understand. I mean when we move to an automated sales channel, and we also have self-served, it becomes a scale business different from before. So as we scale and the ad monetization, both from music and podcast, we will also be able to improve our profitability. And as we said at our Investor Day, we believe that we can move from the 20% range we have today towards 40% over time. And music, as we scale in emerging markets, we should see healthy margin flow through on ad sales. So that's what I wanted to add on the margin side.

Okay. Our next question is going to come from Rich Greenfield on music add-ons. Are you surprised more artists have not signed on to the AI music tier to enable you to launch? What is stopping artists from participating?

I'll start, and then maybe Gustav, you can jump in. Following our agreement that we had with UMG and Universal Music Publishing Group in May, we announced today the deal with Merlin which adds 30,000 labels in Merlin's network, the opportunity to partake into this new product that we're building around covers and remixes. I think it's worth rinse repeating what we said during Investor Day. What we're trying to do is very considerate and planned out. So we're trying to -- we call it the 3Cs at Spotify. First of all, we are looking for consent. We want artists to be consenting their work into this catalog, so people can play around with covers and remixes based on their art. We obviously want to give them credit. And last but not least, this is about compensation to the labels and publishers and artists and songwriters. Not only do we have the consent and give credit, but we also drive the compensation for this. So really, we're talking about the first legal way to partaking this AI tailwind that we see coming for interactive music basically.

And I would just say we have really strong momentum there. One thing that I think is important to remember is that while you can see that there is skepticism around net new artificial music for many people out there, what we're doing is something different, and artists see that. Our products are about real artists, not fake artists. And in the case, our remix is real artists with real voices, right? So you're listening to real people. And that's a very different proposition, which is why we're focusing on this. This is the thing that doesn't exist. And artists remain excited about that, and consumers remain excited about that. But it is an ever-changing landscape.

I would say what to expect from us is that you should expect to see a research preview coming out of our model where we start to give this to some users. And for that, we do not require, as we've said before, a full catalog. Why is this important for us? So this is not a test of the product. It is the thing that guarantees that the product will be very good. So for those of you who know about machine learning, you know that one of the most important thesis is the post training using reinforcement learning. So what we will do is we will allow people who are fans of a certain art to start making remixes with songs from that artist. And what they do is they say, "I think this remix was better than this remix." And then we get the preference data that actually makes the model better. And this is our unique advantage in this business. We have now 777 million people and music fans to do reinforcement learning with, which is why we think we're very well positioned in this business.

So that's kind of what you should expect as the next step. We're going to launch the product when it's ready. And we think it's good enough, and it has the right appeal to consumers.

Okay. Our next question is going to come from Justin Patterson on AI tooling. Over the course of 2026, we've seen meaningful momentum in Open Source. How are you thinking about the costs and benefits of deploying Open Source more broadly versus how you're using Anthropics, Claude and other models today?

Yes. So I'll go here as well. Of course, the Open Source movement is very helpful for us. And we've talked about this, the large taste model is based on Open Source. It is using what is called CPT, continues pre-training, where you take a model that was trained in an Open Source Model and you continue to train it on your proprietary data. This is what I talked about that is performing really well for us. So the fact that these models come up more often are much better and cheaper at the same time. It's obviously very helpful for the consumer product.

But it's also helpful for our development environment and our developer cost, as I said. We've built this internal product called Chirp that we will also offer to other companies actually because they're asking for the same thing where you can seamlessly switch between one of the paid models and a hosted Open Source model, keeping the context of the project that you were in, right? This is why it's important for us that we control the context of the development we're doing so that we can always go towards the best price performance.

Also, I think you can all see that this is putting pressure on the pricing. And there are lots of announcements of prices coming down per token, which is obviously very helpful for us, like on a constant per feature or quality level, it's pretty clear that the costs are coming down for a certain level of quality. That doesn't mean that we won't use more advanced models, but for a certain feature of level of quality, the costs are coming down quite fast.

Okay. Our next question is going to come from Batya Levi on MAU. What's informing your guidance for slower MAU growth in the third quarter? Do you see a change in the competitive environment or the general intake for your campaigns? And then if I may, I see Benjamin Black had a question about some initiatives to drive MAU growth in the future as well. So you might want to address that also.

Yes, I will. Thanks, Batya and Benjamin. Just to hijack this for a second. You don't see us here, but Gustav and I are in Stockholm. The sun is shining, and we're happy about the fundamentals of Spotify. It's really in a good place. We just hit 300 million subscribers, and we're super elated to be in this sort of rarified air, and it just keeps growing.

On the question of MAU. So we've had a few years of outperformance in MAU. And maybe more recently and maybe past 4 or 5 quarters, we've had outperformance relating specifically to emerging markets. I think we've pointed that out in past earnings calls. And of course, emerging markets includes countries like India and Indonesia and so on. And as a reminder, these are very populous nations. So they're a very lucrative opportunity for us. And what you're seeing us do now is that we're making changes to the product and the value proposition and strategy in these markets. We've made changes like tweaking the sign-up to get a higher quality MAU throughput with deprecated [indiscernible] and Android device support, which builds the business and makes it more efficient for us. We've carefully introduced some friction in both ad load and some limitations in our free tier.

All of these things are positioning us for more monetization. And Gustav and I have the saying where we say sometimes we pull the growth lever and sometimes you pull the monetization level. Now here, we're starting to pull the monetization lever. So our belief is that this is going to take some time, but the shape of the growth curve follows other markets. And the way to think about it is really when you start out in the market, you work on getting product market fit and get some end use. Slowly and surely, that MAU growth will increase. And then all of a sudden, you have a base to convert from. Then you have some subscribers come in, there's some conversion coming. And then as you calibrate the product and value proposition, that growth then continues to become something like a [ LatAm, ] which also started out with very low conversion, but massive MAU growth. So our planning here is very considerate. And I think also a consequential point here is that this will not affect subs growth in the near term.

All right. Our next question is from Rich Greenfield on Reserved. You started a meaningful ad campaign for Reserved ticketing after role model. How many concert tours have you worked with since? And are you starting to see an uptick in conversion to paid tiers to excess Reserved? And how do you see Spotify's positioning in the broader live event ecosystem evolving?

That's a good question. Thank you, Richard. Whenever I get to talk to users about Reserved, we get so much praise. We get praised. Live Nation gets praised for the partnership with us and the way we're sort of shaping this feature. And just as a reminder, the big idea with Reserved is that the biggest fans get access to tickets. Secondly, artists get to have the biggest fans in the room. And third, Spotify gets to have unique value for our premium subscribers, which obviously gives us differentiation, the way the deals are structured, to Gustav's earlier point, but it also increases value to price perception for Spotify. It really is like a triple win.

It's still early to your point on how many tours we've done. It's been a few. It's U.S. only for premium right now. So the rough numbers that we've had about 100,000 ticks reserved -- tickets reserved. And in some instances, we've blown through the allocation, and Live Nation has even upsized mid run. Obviously, I'm looking forward to many more tours and more markets. And as far as monetization goes, this is currently about increasing the value to price ratio on premium.

All right. Our next question is going to come from Jason Bazinet on music add-ons. You now have AI music deals with UMG and Merlin. Do you need deals with all the majors before you launch an AI service? Why or why not?

So I can start there. So the answer is we do not need deal with all the majors. We would like to have as many artists as possible, obviously, but we don't expect to have all artists. And if you go back to the beginning of Spotify, Spotify started without significant parts of the catalog. It took many, many years before the big acts like maybe the Beatles, Metallica were on. So we don't need full catalog. Of course, we want as many as possible because that's better for consumers and for creators. But as I said, what you should expect is that we start improving this product in the public as a research preview so that we can start getting the preference data that automatically improves our model. So that will be the next step. And then we'll decide when we launch based on where we are. There's more to come, but very strong momentum.

All right. Our next question comes from Eric Sheridan on monetization. On the heels of Q2 '26, premium subscriber growth reaching 300 million. How should investors think about the scope for monetization efforts as a result of more interactive tools and live event integrations across the subscriber base?

I'll take that. So you're basically baking in an opportunity and TAM question and also sort of like a pricing question in here and product as well, I guess. And we've said it before, but we're early in our days. I think we've reached this sort of 300 million mark, which is rarified air. There aren't many other companies that have built one product and have 300 million recurring customers come back again and again every month. So we're now close to 4% of the world's population.

We've said before that maybe we'll not reach 90% of the world, but it's not impossible that we'll get to 15% penetration of the world. So our most important line of work here for Gustav and I is actually to drive the value to price ratio upwards, meaning we need to keep building interactive tools like you talked about, including covers and remixes, but also some of the more recent ones like taste profile, personalized podcasts and so on and so on. And Audiobooks is a great example of an add-on on Spotify that basically generates more sort of structural ARPU increase than just price increases.

And I've spoken to MAU as well. So there's a bit of a differentiated approach depending on if we're talking about developed market or established -- developing markets or established markets. And so we do think that the opportunity ahead of us is still enhanced.

Okay. Our next question comes from Justin Patterson on time spent. In 2025, you streamed 211 billion hours of content versus Netflix's 191 billion. As you expanded new formats like fitness and deepen personalization capabilities across the platform, how do you believe time spent can evolve on Spotify?

It's a good question, Justin. You're pointing to Netflix and sometimes we also get a similar comparison with YouTube. And I think the important comparison and observation to make here is that we're very different from these other streamers. When it comes to engagement, our engagement typically spans many more devices than our friends here in the industry, whereas most of them are big screen and maybe small screen. We are speakers. We're gaming consoles. We are cars. We are context like sleep, we're a context like studying, where you actually find Spotify actually much more compatible. So you have sort of the context universe spread out over our billions of hours.

And I think it's worth pointing out also that the one metric that we pay, especially put special value on when it comes to engagement is the active days. And we've talked about before that we have over 100 million of our subscribers spending more than 20 days in a month with us. And so the reason why we're tracking this number, the active days is that we find it to correlate very well with lifetime value, which is great for us, right? So we've seen that increase again and again, and even this quarter, active days in the month has increased overall for premium subscribers on Spotify.

All right. Our next question is from Deepak Mathivanan on AI products. You've launched several AI-powered products in the last 6 months, including Prompted Playlists. Can you discuss what types of benefits you're seeing in the KPIs such as listening hours, conversion rates or churn?

Sure. Thanks, Deepak. So I think in general, some metrics is that AI powered experiences now reach about 1/4 of our active users. And this year's launches, I talked to Spotify Studio personal podcast from the playlists, they're scaling really fast. So it's already reached more than 25% adoption among active users. So we have scale and a healthy compounding business and opportunities that we're then uniquely positioned to pursue. So we feel very good about the overall adoption. Prompted Playlists specifically, I think has reached already 14 million of the 100 million active. So that's pretty quick adoption for a feature like this.

And in terms of what we're seeing, I shared a bunch of metrics in the prepared remarks here around the large taste model, where we are moving some of the metrics that are absolutely the hardest to move, which are active days. And sort of related to the previous question of viewing hours and engagement. As Alex has said before and I, we focus on active days as the most important metric to try to drive rather than only engagement in the moment. And so we are seeing those effects from this. And I think overall, since 2010, when we started investing in personalization, the correlation with personalization and retention has been super clear for us.

Okay. Our next question comes from Doug Anmuth on third quarter operating expenses. Can you talk about the drivers of the implied acceleration in operating expenses in Q3?

Thank you, Doug. Yes, I just wanted to -- I understand there could be a little bit of confusion here on our expense for this year. We have said we're going to elevate it with EUR 200 million for this year, something that is very much in control and structural. And just to give a little bit better guidance on it, excluding the currency and social charges we see on our expenses, our expense growth in quarter 3, we expect it to be roughly consistent with quarter 2. So it's going to be pretty much the same growth. So I think it's important to be careful with the rounding nature of our guidance. We talked about EUR 5 billion. We also had, I mean, growth, 14% growth and ARPU consistency between the quarters.

So we're well positioned to actually moderate this into quarter 4 and to keep it consistent into quarter 3. And this is a structural, nonstructural cost change, personnel is in the same level. We do this investment to increase engagement and LTV and marketing. We have a lot of new features coming out, and we are also boosting a bit on our AI, and we talked about that at Investor Day. So nothing strange, nothing new. And we are keeping this consistent with what we have been thinking all along from the beginning of the year, and we are in full control. So excluding currency and social charges, we see our expense growth to be roughly consistent in quarter 3 with quarter 2 growth.

And I would just chime in here. I said this in my prepared remarks, but we started this year by investing to make sure that we were leading in this wave of using AI. And we are leading according to other companies actually. Now we're starting to focus on cost and efficiency, which is always the second step. This is what I talked about when we talked about Chirp, where we have control over our spend, we can choose models, et cetera. So we are sticking to our cost moderating in Q4. It's also important to just remind all of you that these costs are compute and marketing. They are within our control. These are not long-term CapEx investments that needs years to roll back.

All right. We are coming up on the hour, so we've got time for a few more questions. And we've got a follow-up from Doug Anmuth on product tiers and ARPU. Can you help us understand the timing of add-on to your rollouts across verticals? And how should we think about their impact on premium ARPU in the second half of this year and into 2027?

Doug, Alex here. We don't comment on timing for launches, and we don't give guidance on ARPU either. But I can comment on this in a different way. You heard Gustav talk and [indiscernible] passionately about the different products that we've been rolling out and how the sort of usage-driven paradigm is one important paradigm for us and how we convert from free to premium from premium to add-ons. The one example I want to share is that Audiobooks+, which was launched a while ago, since we last shared a number on that, that has now doubled, which is great. And it just keeps growing, and this is just in a select few markets. So obviously, that introduces another type of change to ARPU. ARPU obviously can change by way of price increases. But when we have success with an add-on like this, it will structurally increase ARPU in a different way. So in the sort of like price to quantity equation, we're really providing a different type of price increase here than just sort of moving the price of premium upwards.

Okay. And our next question is going to come from Jason Helfstein on the pricing environment. Is there any read-through from the Apple Music price increase that was announced in July? And how does this impact your thinking about price increases going forward?

We don't comment on other companies' price increases, but what it does show is that this is an example of just continued valuing in music streaming services, and we're happy about that for the ecosystem. Our category leadership in not just user scale and subscriber scale, but also our leadership and engagement keeps on being our focus. And of course, the more value we deliver, the more pricing power we will have. And as of right now, we're happy to be the price leader in our category.

Okay. And our last question is going to come from Jason Bazinet on the subscriber opportunity. You had solid premium net adds this quarter, but the record labels suggested the industry's premium growth slowed in the second quarter. How confident are you in the long-term growth of premium subscribers for the industry and Spotify?

I'm very confident. We don't give guidance for long term, but we're optimizing for a healthy funnel. This not only builds our business, Jason. It's, of course, aimed at helping our subscriber growth and not slowing it down. So very confident about the long-term growth.

All right. Great. So that concludes our Q&A session. Thank you, everyone, for the questions and it also concludes today's call. A replay of the call will be available on our website and also on the Spotify app under Spotify Earnings Call Replays. And thanks again, everyone, for joining.

This concludes today's conference call. Thank you for joining. You may now disconnect.

Good morning, good morning. I'm Brian Goldberg at a Investor Relations at Spotify. Its my privilege to welcome everyone in the room and on the live stream for our 2026 Investor Day. Over the next several hours the Spotify management team will be providing a detailed into look to our business, where we've been, where we are in today, and the growth opportunity we see ahead.

Now before we begin, we are going to be making statements that are subject to risks and uncertainties. So please review the safe harbor statement on the slide behind me, and if reading is not your things than simply listen to DOGG.

Welcome to Spotify Investor Day. Now before we [indiscernible] to that good stuff [indiscernible] we call the safe harbor. Stay with me. So look, so today, you're going to hear some forward-looking statement. That means we talking about what the company be headed, projections, expectations, estimates and all that future talk. But let me keep it real, the future [indiscernible]. Things can change. Actually, results could come looking real different, materially different from what's being discussed today. If you really want to understand [indiscernible] with the SEC. That's where it's all laid out. Now on top of that, now on top of that you're going to be hearing some non-IFRS measures. Yes. I know that sounds fancy but what that means is [indiscernible] look at the number, the way that helps [indiscernible].

[Audio Gap]. Today is to today. That's how we rock. Just like that you're safely harbored. Now let's get into it. Over to the team. Over and out from DOGG.

Good morning, everyone. I'm Alex. [Technical Difficulty]

The majority of the subscribers come back over 25 days a month. With over 100 million of them spending more than 28 days a month with us. That's 100 million people with almost 100% DAU over MAU.

That also means that 3.5% of the world subscribed to Spotify giving us more than 96% of the world left to win over.

So there have been more than 10 billion playlists created. And our global user base now generates 3.4 trillion taste signals every day. Across all of our verticals and surfaces, and that's up 43% since just the top of this year.

And Spotify is also 1 of the world's largest music communities with nearly 500 million people subscribing to someone else's list and over 45 million people enjoying collaborative players each month and almost 50 million people listening together in real time using Jam.

But Spotify is also more than music today. So over 500 million people, 0.5 billion people stream the video podcast on Spotify, up nearly 50% year-over-year.

And in just a couple of years, we've already captured roughly 20% of the Audiobooks market in the U.S. As of today, you all are going to hear much more from our members of our team about where we've been and where we're going. And as most of you know, Spotify was born during the Paris era when the music industry was in free fall. So from day 1, we set out to solve problems that others thought were unsolvable. Now this mindset has defined everything since. Before we look ahead, Gustav, why don't you take us back a bit.

Lets do it. So let's go back to 2018, our first Investor Day. The big question that many of you were asking yourself then was, okay. So Spotify was right about access versus downloads. But in a world of competitors, with walled gardens and massive distribution advantages, how can you possibly win? Our answer was counter positioning, built on three ideas. First, was Premium. We focused on maximizing reach while lowering the [indiscernible] and building engagement. Second was ubiquity. Rather than sort of being a walled garden of our own, we chose to be everywhere, across devices and ecosystems. And third was personalization. We invested early in machine learning as the core driver of retention. Now that's pretty obvious, maybe in the age of AI, but it was not obvious back in 2013 when we started -- it wasn't.

But of course, investors also wanted to understand how do you win in a category where everyone licenses the same catalog. Our solution was that we would use the Premium tier to build a global scale, and then we would win by out innovating on the product itself. And we didn't just rely on 1 or 2 differentiated features. We built a platform that continues turns user behavior into new product experiences and ways to create value. Spotify became the R&D department of the music industry, where new offerings are tested at scale adopted across the ecosystems. So when we met again for our next Investor Day in 2022, 4 years later, we have delivered on that strategy and quite a bit more actually.

But then the new question was, okay, so Spotify is now a great product, but will it ever truly be a great business with solid margins. And even more, can you ever actually go beyond music. Our answer to this question was the Spotify Machine. The idea was pretty simple. It was to take all the capabilities that we have built for music, and then extend them into new verticals, creating new business models, combining music, podcasts and audiobooks into a single unified experience.

All right. So let's take a look at what we have delivered since 2022. Let's start with users. So we've added nearly 340 million people to the platform. So the pace of this progress puts us well on the path to 1 billion users. We grew our subscriber base by over 110 million to reach 293 million subs. So this makes Spotify one of the largest subscription businesses in the world.

And in revenue, we had a currency neutral CAGR of 18% reaching EUR 17 billion in 2025. Now that almost reaches the long-term target we set. And we achieved a 32% gross margin in 2025, up from 25% in '22, beating our 30% goal. We shifted operating margin over 18 percentage points from around negative [indiscernible] to a positive of almost 13% in 2025. And importantly, this has flowed through to cash. Free cash flow went from close to 0 in 2022 to nearly EUR 3 billion in 2025. So we've got a scaled profitable business with a large and growing audience and multiple engines of growth. The Spotify you see today is very different from the one you saw 4 years ago.

How did we achieve this while continuing to grow users, subscribers and revenue at high rate. Well, first, we renewed our conduct with the rights holders in the music industry. And we did this twice to make our music business model much more sustainable. Second, we grew our marketplace business at a much higher velocity, which contributed to improving our gross margin. And third, we reimagined our ads and podcasting businesses. While these were pretty hard pivots, they're putting us in a much better position long term. We then licensed one of the most compelling catalogs of Audiobooks and added it to Spotify Premium in over 20 markets.

Next, we launched global improvements to Spotify Free making it even more competitive as a growth driver. And finally, we redesigned and reduced our org size to match our road maps, which resulted in operating leverage. Now the countless other wins, we're not covering here, but the progress is evident.

I love those Audiobooks. All right. So let's jump into what you're asking now in 2026. We think the first question you have on your minds is, okay, you're a real business now. But is this it? Is it mostly just incremental growth from here on? Our answer, absolutely not.

You will hear much more throughout the day. But here are two key takeaways that I want to take with you. Spotify is not a single product company. And our next chapter is not just about scaling the verticals that we already have. Sure, it's about continuing to improve our current monetization but also what opening up new ways to monetize. Second, Spotify's opportunity to grow goes well beyond just pricing. There is actually no such thing as an average user, you will hear more about today. Engagement and willingness to pay follow [indiscernible], and we see clear opportunities to capture more value from our most engaged users. The second question that I'm guessing a lot of you are asking is, what does AI mean for Spotify? Is it a tailwind? Or is it actually a headwind? Guess what? It's a tailwind.

Our view on AI, is both pretty straightforward, but also somewhat contrarian to what some in the Valley may tell you. We do not believe that the advantage for us comes from owning our own general reasoning from tier model, what is called an LLM. Instead, we believe that general domain reasoning, like maybe coding, math will stay widely available, especially given the massive investment and intense competition that you are seeing between the hyperscales right now. So instead, our bet is that buying this capability on the open market will continue to be the most cost-efficient strategy. The advantage from us instead comes from applying general intelligence to something that is proprietary dynamic and deeply personal. It essentially comes down to the unique data and context that only Spotify has about users, what is often called taste.

Taste is continuously refreshed. It's grounded in real behavior and very, very hard to replicate. So rather than training general large language models, we are training what we call our large taste model. We have also referred to this as our large personalization model in the past. We know it's the same thing. This strategy lets us retain significant advantages and still benefit instantly from any frontier advances, and the very aggressive price performance cost curve that we're seeing there. We will cover this in much more detail today.

Now at Spotify, we don't capture people's attention with empty calories. We do it by delivering an experience that people truly value. And they stay because the product earns its place in their day every day. Now after nearly 2 decades, we understand that growth is driven by engagement and retention. Today, most platforms compete for time on app, whether it's minutes per day or hours per session. And Spotify performs well on that dimension. So from 2021 to 2025, streaming hours per subscriber increased globally by 10%. But we've never believed that all time is created equal. This is where Spotify breaks from much of the consumer Internet.

We are not trying to spark a binge. We are trying to become a trusted companion across more moments in people's lives. So we measure value not only by how long people listen, but how often they choose to return days in a month, not just minutes in a session. And that distinction matters Spotify fits into the morning commute, the study session, the workout, a dinner prep, the evening wind down and the story before bed. And importantly, a growing number of those moments are spent with Spotify around the world and people listen across every device, their iPhone, Garmin Watch, Tesla, Roku and PS5 just name a few. And in fact, the number of times that you come back to us in a month and the number of devices you use might be among the most important metrics that we monitor, so this is how we think about engagement on Spotify.

The other key unlock to our effectiveness is our verticals. And music came first and remains the core of Spotify, layering podcast on top adds more days of engagement. Most recently, we've introduced hundreds of millions of people to Audioboom and the result has created our most active and well retained group of all. So those who use all 3 verticals, music, podcast and audio books are engaging with Spotify almost every day of the month. It's pretty remarkable.

Now we have improved all 3 dimensions: use cases, devices and verticals. And we've done so consistently over the last 5 years. This is exactly the type of engagement and retention that drives the growth of Spotify. And we're not stopping there. We recently introduced fitness, which we believe has the potential to become a meaningful vertical in its own right. And we have our eye on several more. Even our pricing is a retention story. We've raised prices multiple times now with minimal churn. And because users, they see the value and stick around. So what you'll see today builds on that trajectory, continuing the Spotify growth story. So what does this all mean for our goals for 2030? What does it mean?

Well, here's what we expect to deliver a mid-teens revenue CAGR, a gross margin of 35% to 40% and operating margin above 20% and strong growth in free cash flow. And we also remain committed to our North Stars 1 billion subscribers, $100 billion in revenue and over 40% in gross margin.

Now let me give you more insight into our approach to capital allocation. So we will keep a strong balance sheet. This provides us with the flexibility to execute and reinvest in our strategy. We will also continue to explore inorganic investments like we always have that will strengthen our existing businesses and accelerate our strategy. We will keep countering dilution from stock-based compensation through share repurchases, and we will also continue to see strong cash flow generation. And even with these efforts, we plan to start returning excess capital to our shareholders.

Now Christian will elaborate more on these plans. We think this is an exciting outlook.

Very exciting.

Now I want to take you into how we plan to achieve these goals. We're betting on 4 big ideas. The first is that the world operates as a power law. And for Spotify, that opens up significant monetization. Let me unpack what that means. So in the industry, we often talk about averages like Gustav said. But there is nothing, no such thing as an average user. It's just a way to represent very different underlying usage and willingness to pay. This is our demand curve. So far, Spotify is focused on capturing two sections of that curve. With our scale free tier, we capture and monetize the very, very, very long tail of people using Spotify, supported by ads. This is what gives us a massive universal TAM. Next, our paid tiers, meet the demand with a range of options. For example, the $6.99 student plan and the $12.99 individual premium plan, that means today, we have almost 300 million people on what is one of the world's largest subscription platforms. We have expanded this premium segment, both up and down. by making more plants, more affordable with family, student, duo and others and also by raising price as we've added more features and offerings into premium, again, with minimal churn.

But there are lots of people in Premium who are prepared to spend even more based on their incredible usage. Now for some time, we have been talking about add-ons that would let us capture the full ahead of that curve. Now we all thought that music was going to be first out the gate.

I certainly did.

But it turns out that it was our newest vertical, Audiobooks that got there first. And let me tell you about Audiobooks Plus. As Audiobooks and Premium rolled out across our first 22 markets, we saw listening growth significantly. But what stood out was a group of highly engaged users consistently hitting their monthly usage limits. That was a clear signal of unmet band. So we introduced Audiobooks Plus, allowing those users to extend their listening by purchasing an add-on for additional hours. And the response has been strong. So in less than a year, more than 1 million users are already paying for Audiobooks Plus on top of their Spotify subscription. And even more importantly, these are very valuable users. These users these subscribers have lifetime values that are multiples of premium-only users. They spend far more and they stay much longer. We see this parallel of usage across all of our verticals, creating significant potential. And in many industries, this type of demand curve typically gets divided between different players exactly.

We are one of the few companies in the world that has the business models and the skills needed to cover the entire demand curve. So from the outside, Spotify has always looked like a simple two-step funnel, free and premium large in size with a massive TAM, but ultimately a capped ARPU. But what we're outlining today is actually a platform for a diverse set of higher ARPU products, each with a smaller individual TAM but much higher ARPUs. And thanks to our scale, this represents many millions of users and a tremendous upside. This is just the beginning of our next monetization chapter.

As of today, Charlie will show that music fans will be able to interact with their music in entirely new ways, something that we know that you've all been waiting for, and as Roman and Maya will explain, we will also allow users to create truly personal podcasts for the first time, in addition to unlocking creative membership add-ons. And finally, Owen will talk to us about what is next for Audiobooks, which I won't spoil. But it turns up that even Audiobooks Plus didn't satisfy the full demand curve of our user base. Book lovers are asking for Audiobooks Plus and plus-plus-plus and so on. So across all of these use cases, the opportunity is consistent. We will give our most engaged users the ability to pay for more so that they can use more, control more and access more.

So this brings us to the second big idea that we're doubling down on. Spotify is moving from single player in passive to multicar and interactive. When our users adopt new behaviors, even before the product fully support them, we pay attention. That signal is actually one of our most valuable advantages. We see what people do, what they choose, what they share and even what they say in natural language these days. So years ago, we saw something interesting in how our playlists were used.

One person would start a playlist, then their friends would take back and forth to add some and then the original creator could share it with the group. At the time, Spotify wasn't designed for collaboration, but the signal was very clear. People didn't just want to listen. They wanted to listen together. So we added on-platform messaging and created the shareable playlists. Now it's obviously everywhere with more than 0.5 billion people subscribing to someone else's playlist. And then we went all in on these network effects, introducing JAM, a way for users to listen with their friends and maybe family in real time. And with nearly 50 million people jumping together, we are seeing even more engaged users.

Now the collaborative playlist is also another popular Spotify invention, which turned playlisting into something like group build, share and actually revisit. But almost another 50 million people streaming from a collaborative playlist, we've made music something that you just do together. All of this results in a pretty simple fact, you simply need to be on Spotify, end of story. Our experience is not about amassing followers or meeting strangers. It's about your real-life connections and hanging out with your people.

The next big idea, surprise, surprise, centers on AI. The world is moving towards generation, where our users are in control. And our goal is to give them exactly that. Spotify launched in the era of curation where the world's music was [indiscernible] our passionate users into tens of billions of playlists, building one of the richest collections of human taste signals that was ever assembled actually. But -- next came in recommendation, powered by algorithms and machine learning. And we turn those billions of curation signals into features like Discover Weekly, we release Radar and Personalized Services that made discovery effortless for hundreds of millions of people. And now we're entering the era of generation, where the experience isn't just selected for you from a catalog, it's actually shaped by each of our users in real time around their taste, context and intent.

For example, with generative AI, for the first time in history, it's now possible to create and consume truly personal media, individual media, a podcast that was made for you. An audience of you or maybe at [indiscernible]. When you are Spotify to give me the news, we will deliver a daily brief built around your interest, your inbox, your calendar, even the presentation that you're going to have later today. But this media obviously needs a trusted private space, not a public fee. So we built exactly that. We're already seeing people take advantage of this with tools like [indiscernible], which we launched a couple of weeks ago, where you can use your agent of choice like maybe Claude Code, Open Claw, Codex to create individualized content, like a narrative travel plan for your trip to Barcelona or maybe dive deeper into subject like token economy, based on what you've shared with your agent, notes, files, articles and more.

But today, there is no media player for both public and private content. Or put differently, there is no media player for the generative age. We believe Spotify will become that. Another way to think about this generative era is that computers finally understand English. This puts infinite creativity and control back in the users' hands. So for example, from the playlist, where you can ask it to create a playlist using your entire listening history going up to 20 years back, almost or to create one around who won best new artist, a fan favorite, make your playlist with main character energy, and send it to me every monday morning to get me pumped up and confident for the week. This is a real user example, not made up.

It's yours.

And if you want to save Spotify more broadly, Taste Profile, let's you tell Spotify who you are, and even who you want to be. No one else offers this level of control. Spotify truly becomes your media service.

Okay. That brings us to our fourth big idea. Time well spent. So the most precious commodity that we each possess is our time. Yet across much of the Internet, too many platforms treat time as something to be captured and not really respected feeds keep you endlessly scrolling, often leaving you feeling regretful and empty. We believe there's another path. We enable experiences to generate love and bring joy and inspiration and insights so that the time that you spend with us doesn't deplete you, it energizes you. And we actively measure not just time spent but how much of the time users consider valuable versus regrettable, and Spotify consistently ranks among the most valuable time that people spend online. And in our surveys, users support feeling good almost 90% of the time that they spend on Spotify. That stands in sharp contrast to broader industry patterns or users, especially younger ones, report actually regretting up to 40% of the time that they spend on other platforms even more in some cases. Even more. And in some cases, they regret up to close to 70% of their time. This is what makes Spotify different.

We are not maximizing engagement at any cost. We are building for something more satisfying and more importantly, durable. And this is not just good for users. It's good for business, too. because it turns out that all time is not created equal, and people are willing to spend and pay for time that they value. And with that, let me invite another Gustav. I'm living in a world of Gustavs. This one is [ Gustav Gillen Hamer ] to show you how this all translates into subscriber growth around the world.

Thank you both. Hi, everyone. Historically, we have framed our opportunity to the smartphone. But music is not tied to one device. It is universal. Hardware is expanding beyond the phone and software is redefining what listening can be across every surface. So now when we think about TAM, our ambition is total population because everyone has a relationship with music. So what I want to show you is how our Freemium system plays out free fueling paid country by country, culture by culture, all around the world. So we are very proud that over 3% of the world's population pays for Spotify on a monthly basis. But the global average hides an even more important story.

So when you look market by market, you can see that we are already capturing a significantly higher portion of the potential audience. In Sweden, our most established market, paid penetration is approaching 50% of the population. That's more than 10x the global average. We don't think this is just Swedish pride because other established markets are not far behind. In established markets like the U.K., Netherlands, Germany and Australia, penetration typically ranges from 25% to 50%, while faster-growing markets, they are earlier on this journey. Brazil is at 12%. The Philippines is at 4%, just above the global average. Our growth doesn't come from a single lever. It comes from a repeatable global playbook that we adapt locally to maximize growth.

Simply put, first, we attract listeners. Then we build engagement, -- from here, we convert to subscriptions and then we deepen retention further. And over time, we grow revenue user. Every market, every stage, it works. This is exactly where our conviction for 1 billion subscribers come from. It is not a top-down TAM exercise, but built from what we've already seen playing out in the markets where this model has been running the longest. And AI is accelerating every stage of the playbook with faster localization and a hyper-personalized premium funnel every single time a user owns the app. But our conviction is also grounded in something structural that we are very proud of.

Spotify's business is both global and local in a way that is extremely hard to replicate. Global scale gives brand power, data advantages, network facts, while local expertise makes Spotify fill native, each market with the right artists, cultural moments, tiers, pricing and partnerships. It all starts with winning listeners. Before someone becomes the power users, subscribes buys an add-on, they choose Spotify. And first come to Spotify because they're looking for music. They choose to stay on Spotify because it quickly feels like the most personal social and culturally connected [indiscernible]. They also choose Spotify because it is free. It can be easy to forget how magical these experiences. Remember when you first downloaded the app, you had instant access to all the world's music. So free is where it all begins.

71% of subscribers spend time on free, before converting to premium. And thanks to our investments in the free experience, we are creating an even bigger base of free users globally, migrating them to our paid product over time. And our updated free experience that rolled out globally last year. It has improved engagement and retention across the board, resulting in double-digit engagement lift, without positive impact for Gen Z and since our last Investor Day, we have increased our number of free users by roughly 90%. This free growth is accelerating, and we believe we are on the right path to reach 1 billion users before 2030. So music is universal, but taste is local.

So what works in Stockholm doesn't automatically work in Nashville, Rio, Mumbai, only 47% of music streamed on Spotify is in English. Local news pops the charts and dominates listening in most countries around the world. So in 90% of the cases, the top artists is performing in a local language. So to truly win, our product has to speak the language of the market both literally and culture. That's why Spotify DJ, one of our highest engagement features has just expanded from English and Spanish into French, German, Italian and Brazilian Portuguese. And we will continue to expand this feature to more languages in the future. And this expansion will happen much faster. What once took years of mark-by-market investment now takes a fraction of the time. And we are combining nearly 20 years of taste data with the speed of AI. This is where our global platform also becomes a local advantage.

So we combine superior discovery, personalization and brand relevance with deep local understanding, strong partnerships with artists and other creators. So take our recent BDS album campaign, it was uniquely Spotify. You saw millions of fans engaging in app, while thousands of fans enjoyed our concerts and [indiscernible] we had in New York, Seoul, Sao Paulo, Mexico City, Tokyo Jakarta and Manila, it was truly one global moment, made local and interactive everywhere. So when we get this right, product love, brand love, they reinforce each other, word of mouth and artist advocacy they are two of our most important acquisition levers. They're leading to astounding growth in every market. So free is where the relationship begins, but at our festival, Premium is the headliner. It is the best place to be a fan. It's a clear destination for the most engaged users who want more from music, podcasts, audio books, video and fitness.

So the Freemium model is all about driving this conversion. So 10 years ago, only 32% of our U.S. and Canadian users paid for a Premium. Today, 60% are on Premium. This is off a base that is 4x the size it was a decade ago. In Brazil, we've doubled the conversion rate since 2016 from 22% to 44% today. while the user base has grown 14x resulting in a 27x growth in subscribers. And in our earlier stage markets across Asia, Middle East and Africa, we're seeing massive free user growth. So these two forces, significant and strong conversion in established markets, alongside massive free user growth in developing markets means our global conversion rate has actually stayed around 40% for many years. And this is exactly how the model is supposed to work. This doesn't just happen.

Over the last 20 years, we have fine-tuned one of the world's highest performing Premium engines. We know how to best design our Free and Premium tiering system when to bring Premium marketing and offers the right user at the right time. And now AI is turbocharging this. Over time, users can move through the portfolios, their needs and willingness to pay [indiscernible] to individuals to dual or dual to family and eventually into add-ons and higher value experiences. So a user who enters an individual and moves on to family and then buys an Audiobooks Plus subscription is our highest LTV cohort.

So to help you understand the full picture, I want to visit three markets. they show the arc of our model from established to scaling to enormous long-term opportunity. We will start with the U.S. The U.S. is the world's biggest music market, and we have been capturing more of it every single year. Our free tier is increasing engagement and retention amongst U.S. users, and this engagement is converting. Media data shows that we have grown our U.S. premium market share by 8 to 10 percentage points over the last 6 years, with gains every single year without exception. And where we have established a large subscriber base like in the U.S., it's also where we have most permission to introduce additional paid products. So our U.S. Premium users, they are deepening the relationship with Spotify. They're adding Podcasts and Audiobooks on top of Music, meaning more listening days per month, stronger retention year-over-year, and this deep subscriber engagement leads to higher ARPU as we can serve our power users with products like Audiobooks Plus, and with paid penetration still under 20% in the U.S. There's a lot of run left here across our established markets show the same similar story.

So now let's move to Brazil. Brazil is a passionate music market where culture moves fast. Spotify has built exceptional brand strength in Brazil. What matters most is what we're building beneath this growth. It's infrastructure that compounds local artist partnerships, culturally resonant editorial, campaigns that embeds Spotify into the moment people care about. So like our Q1 Summer Hit celebration, over 300,000 fans voted in app crowning [indiscernible] as the queen of the Brazilian summer and local payment options, Pix, reaches almost every adult in Brazil. And we were one of the first merchants to integrate Pix Automatico, the recurring version in 2025 at a 90% lower cost than taking credit cards. So since 2022, we have doubled net additions in Brazil. 2025 was our strongest year ever for subs intake. And this momentum is accelerating. In 2026, revenue is going to grow with more than 30% year-over-year.

Let's close out with India. 150 million smartphones are shipped in India each year. According to World Data Lab, India is contributing the largest share of new consumer growth in the world this year, surpassing China for the very first time. India's potential is enormous. When we launched in India in 2019, we were the 10th player in one of the most competitive streaming markets in the world. Today, we are the leader in audio streaming. India now sits alongside the U.S. as one of our largest markets by MAU, and it has some of the highest brand love of all of our markets. The subscription economy opportunity is enormous, even with unique dynamics such as low data costs, high ad tolerance, today, less than 10% of our Indian users are on Premium. This isn't the challenge. It is our runway, user growth, especially when coupled with brand strength, market leadership has been a consistent predictor of subscription growth across all our markets. And we are adapting with local entertainment partnerships deeper payments integration like UPI AutoPay, which accounts for over 90% of our intake at an 85% cheaper effective rate than credit cards.

We've also introduced a new pricing tier, Premium Platinum, priced at just over 2x the cost of our standard premium offering, the early signals are very strong. And just a few months after launch, with minimal marketing, more than 7% of our subscribers are already on this higher value tier. So even here, where we're still building the base, the demand curve is already showing us there is no such thing as an average user. It points to significant upside as we scale further.

So overall, conversion is accelerating in India. In 2025, we added 3x as many net subscribers as in 2022, and our subscriber count is 7x higher compared to when we presented at the last Investor Day. So with 1.4 billion people rising consumer spending, we can imagine a future with more than 150 million subscribers in India. So if you zoom out, this playbook is working everywhere. This growth creates the foundation for the next part of the story, monetization. So over the last 20 years, we've proven people will pay for music globally. But for [indiscernible] history, we have kept pricing law, which helped us first introduce streaming at scale. And 3 years ago, we hadn't moved the baseline price in 15 years.

Now pricing strategy is showing up in the P&L. We're continuing to scale while raising price and because we keep expanding value, churn remains low while the revenue impact is highly accretive. So pricing will continue to be a tool in our toolbox. We think long and hard about when to increase. You can expect us to continue on this journey. But as we've said before, we always want the user to win. They should always feel like they're getting more value. And this is how we ensure that their time and money is well spent. It's the perfect recipe for lifetime value. And with highly retained and engaged subscribers, this revenue opportunity goes beyond price. This is the power law in action. So markets with the highest level of engagement and where we can see the stronger subscription performance, the highest level of podcast and Audiobooks adoption and the highest willingness to purchase additional items.

So today, we have nearly 300 million premium subscribers. This is the starting point, not the ceiling. So every market in this company's history has followed the same arc. We know this playbook works, and now AI is helping to accelerate every stage. So the path to 1 billion subscribers is not just a long-term aspiration. We believe this is an extrapolation of what we've already proven, continent by continent, market-by-market, user by user. So to talk about why people stay why they spend and why they love Spotify more than any other audio product on earth, I'm going to pass things on to Nicole.

Thank you, Gustav. Every December Wrapped takes over. Social feeds fill up at levels usually reserved for championship games or the biggest award shows. A Spotify product experience quickly becomes something people use to express who they are and connect with others. That's because Spotify is where product and culture meet. Last year alone, Wrapped generated more than 620 million shares. Why is Spotify able to deliver a marketing campaign that becomes a cultural phenomenon year after year. It starts with the simple idea. No regrets.

Every day, we make deliberate choices so that time with Spotify feels worth it. We take ordinary moments and make them more engaging, more personal and more meaningful through the experiences we create. This belief and the choices we make as we build trust with the user, shapes how we design. It keeps us focused on experiences, people value and deliberately choose to come back to, making us more efficient in how we invest our time and effort. AI is accelerating that dramatically. It is helping us move from signal to insight faster than ever before. Interpreting user intent identifying what matters earlier in giving our teams a clear view of where Spotify can create even more value. That matters because great product design starts with human judgment. AI does not replace that judgment. It strengthens that. It helps us focus our teams on the opportunities most likely to deepen the relationship between Spotify and our users.

That means we can deliver a better Spotify more than 760 million users while staying disciplined about what deserves to be built and scaled. When users feel their time with Spotify is time well spent, that encourages exploration. When people feel Spotify is genuinely enriching their lives through music, they become much more open to discovering podcasts, fitness, audio books and other experiences across more moments of their day. We've pressure tested this beyond our own data. In April, we partnered with [ Morning Console ] and [ Berson ] on a major brand affinity study across 6 major markets. What stood out was not just the ranking but how people describe their experience across major platforms, Spotify ranked #1 for time well spent, asked the inverse which service they never regret using again, Spotify ranked #1. Two questions, same answer. This signals even stronger with Gen Z, one of our fastest-growing audiences.

Gen Z was our strongest generational cohort on time well spent with almost 90% reporting overall satisfaction with Spotify. For Gen Z, Spotify is not just something they use. It consistently feels worth it. That matters, especially at a time when parents, myself included, are increasingly mindful of the time their kids and teens spend with screens. Not only is this the right product philosophy, it is also good business. It builds trust. It strengthens habits, and it makes people more likely to recommend the experience to others. And the single biggest source of new Spotify users is still a recommendation from an existing user. That only happens when the product consistently delivers. Brand Love is not just a sentiment metric. It is acquisition leverage. It improves the efficiency of paid marketing, reinforces conversion from free to premium and strengthens retention once people subscribe.

In fact, just last week, we launched a special on-platform experience to celebrate Spotify's 20th birthday. In the first 6 days, almost 100 million people engaged in the experience, helping drive our single biggest day of subscriber intake ever. When you choose what to listen to, shape a playlist or go deeper into a song's DNA, you are investing attention. And on Spotify, you leave with something a mood shifted an idea sparked or a connection deep end. We hear from users again and again how Spotify is their companion throughout the day. even enhancing the experience of tours, cooking and focused time. Music, books and podcasts are not disposable formats. They ask for attention and intention and that effort creates meaning because in a world of infinite content, the winners will not be the platforms that take the most time. They will be the ones that make time feel most valuable.

Now Mad we'll show you how that philosophy comes to life in the product.

Thank you. Thank you. At Spotify scale, product development starts with noticing user behavior, whether it's a playlist people share a prompt, they repeat. The feature used in ways, we just didn't expect the opportunity is not to chase every signal, but to identify the ones that can improve retention, conversion and long-term value. That is the model we're focused on, observe demand, build the right experience, measure whether [indiscernible] in habit, then scale, what strengthens the business. Song DNA and about the song, are good examples. Fans, don't just want the track. They want the meaning, the collaborators, the samples that influences in the creative process behind it all. So we turned that desire into a native Spotify experience.

Since launching in March, more than 70 million subscribers have used Song DNA, generating more than 265 million interactions with Gen Z leading the way as early power users. But the songs shows the same pattern with 3 out of 4 users rating the feature positively. The important point is not just that users like these features. It is that deeper context creates higher intent sessions, turning listening into discovery, fandom and repeat engagement. That gives users more reasons to stay inside Spotify. And it gives creative and rights holders better ways to connect with the audience already there. That is what separates meaningful discovery from empty engagement. And it also shows how time well spent changes the way we build.

When you are clear on the kind of time you're trying to create you stop investing in features that simply fill the space and focus instead on experiences, people actively choose return to and share with others. That focus becomes even more powerful when the path from vision to execution gets shorter. AI is dramatically reducing the time and cost of turning ideas into real product experiences, months become weeks, weeks become days and work that once took entire planning cycles can happen far faster.

As Nicholas will discuss later at Spotify, any employee cannot create a new Spotify experience and instantly make it available in our internal app store for others to try. This kind of AI-powered prototyping expands who contribute ideas. It helps teams align around something tangible and then accelerates learning about what deserves deeper investment. This speed and focus benefits the product and the users in three ways: more control, deeper connection and richer personalization. First, control. People want Spotify to respond to them, not the other way around. That is why we build features that let users tailor the experience around the moment that they're in. [ Video Toggle ] is a simple example. Users can decide when video adds to the experience. They kind of control builds confidence. You can see it in the way people spend time curating their exact [ Olivia Dean ] or Justin Bieber playlist and then later on line with a Bobby Lee Amy Poehler podcast.

When people can customize the experience they trust it, return to it and make it part of their daily lives. Second, connection. As generative AI increases the volume of content, connection to the people behind the art becomes even more important. Spotify goes beyond helping people buying something to listen to or to watch. We help them understand who made it, why it matters and where to go next.

Third, personalization. Taste profile gives people more direct control over how Spotify understands them across Music, Podcast and Audiobooks. And increasingly, users can engage with Spotify in natural language and have the experience adjust to them in real time. This is where AI becomes a true tailwind. Spotify is not just predicting what might come next. It is becoming more interactive, listening, interpreting and responding while building a deeper understanding of who you are and how your taste is changing. That shifts the relationship, the more you invest, the more Spotify feels personal, useful and relevant.

As the platform grows, every new single helps us understand users better and increases the value they get. And the richer that system becomes the smarter and more effective Spotify gets across every vertical you will hear about today.

To take you deeper into where it all began and where the opportunity is still expanding. Here is Charlie Hellman, Head of music.

Thanks, Dan. Even at the scale we've achieved, hundreds of millions of subscribers. Spotify continues to strengthen its role as the primary driver of growth for music. In 2025 alone, we paid more than $11 billion to the music industry, increasing more than 10% year-over-year. That's more than double the growth rate of the music industries other revenue sources combined. Our all-time payouts now exceed $70 billion. No retailer in history has put this much money back into music. And that, in turn, has created the capacity for more successful artists than ever. The number of artists generating more than $100,000 a year from Spotify alone has more than tripled since 2017. And that earning potential is powered by our subscriber base expansion are personalized recommendations that connect any type of artists to the right fans and our marketplace promotional tools that allow artists to benefit themselves and propel their own success.

Our promotional tools for artists have become the most relied upon marketing engine across the industry for both new releases and older catalog from the biggest labels in the world to the do-it-yourself artists. And that value we're providing to the industry is reflected in the increased demand we see for these tools. The gross profit contribution of marketplace tools has grown 4x in the last 4 years. This is what we do. We identify hard problems in music for artists, for fans and build solutions that move the industry forward. We did it with Piracy, creating a legal experience better than the illegal one. We did it with Streaming, turning the access model into real income. And we did it with Discovery, helping more artists find and connect with audiences even as the volume of music has grown exponentially.

And it's only continuing. Technology has been expanding music creation for decades from bedroom production tools to do-it-yourself global distribution more artists have been able to reach audiences and create than ever before. Spotify has always benefited from that growth. And our job is to make sure that, that growth translates into a real opportunity for artists. Today, we're entering a new moment. generative AI is accelerating creation at an unprecedented pace. In many ways, this feels like a continuation of the same trend, more music, more choice, more ways for fans to discover what they love. But at the same time, things are starting to feel like the Wild West.

Alongside new original work, there's a surge of covers, remixes, reinterpretations built on existing music. And without a right system in place, artists can lose control of their work and value can be created without it flowing back to the people who made it. That matters most for established artists, the ones who spent years building iconic bodies of work. This is exactly the kind of problem Spotify was built to solve. Done right, fans desire to reinterpret music is an opportunity for revenue, for driving attention back to the original work. Catalog growth has always been good for Spotify. We want to make sure that this next wave is good for artist too. And that means building a legal responsible experience that's better than today's rogue alternatives, where fans can create and artists can choose to participate and benefit.

Today, we're announcing landmark licensing agreements with Universal Music Group and Universal Music Publishing Group. For the first time, fans will be able to legally create covers and remixes from participating artists and songwriters catalogs with both the original artists and the songwriter sharing in the value created. This will launch as a paid add-on and our Premium users will be able to try it out first. All users on Spotify will be able to enjoy these songs. So fans create, they share, they bring new audiences back to the music they love, artists and songwriters participate in the value that their work inspires as a brand-new source of income on top of what they already earn on Spotify. And for Spotify, it unlocks fan spending amongst our super users that doesn't exist today.

The goal is simple: ensure that when fans create artists benefit, this era of generation doesn't need to threaten the future of music because we built the system legal, trusted and aligned, we can make sure that the value flows back to the people who created it. We're building with artists and songwriters. That means consent, credit and compensation by design. That's how Spotify operates. And it's how we'll lead the industry into what comes next. Now over to Joe.

All right. Thank you, Charlie. Spotify has helped shape culture for years. It's probably not lost on anyone here that the most streamed artists in the world, 4 of the last 6 years, sings in Spanish. We're proud to have played a role in helping Bad Bunny's music reach every corner of the world. But here's what most people don't realize. That doesn't happen automatically in some algorithm. We have people who live and breathe music culture all around the world. They know what's bubbling up before it hits a chart. And when they spot something real, we can help it travel in ways no other platform can. That combination is hard to copy. Most platforms operate globally from a distance, we don't. We have the local instinct and the global reach, and they're working together in ways that no one else can replicate.

In a world that is increasingly reliant on AI, the human expertise behind it becomes more scarce and more valuable. As Gustav said earlier, AI is only as good as the information it has access to. And we have 2 decades of it, 2 decades of editorial taste and cultural instincts from the world's best music editors. You combine that with a deep understanding of how hundreds of millions of people actually listen, and you have a foundation, no one else can touch. I mean anyone can tell you that Bad Bunny has over 100 billion streams, but it takes taste and real human judgment to spot an underground breakout in Puerto Rico or an emergency in Copenhagen before anybody's notice. That's a proprietary foundation that took us 20 years to build. You can't shortcut your way to it.

We're investing in bringing that same expertise to the surface, so fans can experience the human side of Spotify. That instate is what's bringing our playlist editors in front of the camera. Next month, New Music Friday, one of the most recognized brands in music discovery becomes a video series. Every week, our editors will bring their taste and authenticity directly to fans breaking down why the world is talking about the songs that just dropped. That's what makes this different from anything an algorithm can produce. And it's not just our editors, artists are embracing video on Spotify too. Here's something that might surprise you. Spotify is now one of the largest music video services in the world, official music videos, live performances, covers all of it lives on Spotify, and it's seamless. You can flip from a track to a video with a single tap on your phone, tablet, TV, desktop. And today, more than 2/3 of all premium subscribers have watched music videos on Spotify. 65% says it makes their premium subscription more valuable. And for our most engaged listeners watching a video leads to an 85% increase in streams of that song in the following month.

You might wonder how much more value can we add to A premium subscription after 20 years? The answer is a lot. As Matt mentioned, Song DNA and About The Song have already transformed how fans connect with the music they love, you add video in the mix, and we've added more to the core music experience in the last 12 months than in many of the previous years combined. And we're moving faster than ever. that video experience spans a full spectrum, official music videos and live performances to original programming like Countdown 2, Spotify Liveroom and Billions Club Live.

Let's talk about Billings Club Live for a second. Billions Club Live celebrates artists who streams across 1 billion. For each performance, we've bring the artist's top fans into the room with hundreds of millions of fans on our platform and the data to know who listens the most, it's something only we can do. Each show is captured and film and release globally. You've got The Weekend in Santa Monica, Miley Cyrus in Paris, Ed Sheeran in Dublin, Bad Bunny in Tokyo and our most recent Olivia Rodrigo in Barcelona, just wait until you see the final edit of that show. Let's just say our sound engineers are in their [indiscernible], and every clip I saw, you could barely hear Olivia's voice. The crowd was singing every word back at the top of their lungs.

Now imagine, if we could ensure that fans like those kids in Barcelona, the ones who truly deserve to be in that room actually get there, not just for a handful of superstars for artists and tours at scale. Renee is going to tell you more about how we're making that happen.

Thanks, Joe. We have all experienced it. Your favorite artist announces a tour, you were desperate for tickets. You clear your calendar, you set an alarm for the moment you can buy. The club strikes you are in, you're ready to go, but somehow you're already behind thousands of people. Likely also including bots and scalpers planning to buy tickets that you or they will personally never use. You refresh you wait, you finally get through and the tickets you want to already gone, or they are there, but they are already being sold at 3x the base by a scalper. It is one of the most frustrating experiences in music today. It's frustrating for fans. It's frustrating for artist too, who look out at a crowd and wonder, are the fans who built my career actually here?

The tragic irony here is that the most dedicated fans are too often the ones that don't make it into room that is deeply unfair and it has been unfair for far too long. But today, that changes. Spotify is proud to introduce Reserved. For the first time, an artists most dedicated fans on Spotify Premium will have 2 tickets held just for them before they go on sale to the general public. No racing bots, now chasing around online for presale codes, just 2 tickets held for you. Why? Because you've earned them. Here is how Reserved works. We don't just look at streams. We look at everything, streams, yes, but also saves, how deep you go into an artist catalog, how you engage with an artist across the entire Spotify experience, the full picture of what it means to be a true fan. If you're selected Spotify holds 2 tickets for you, actually puts them aside. You'll then have dedicated window of time to buy before the general public rush. One tap, and we guide you directly to our ticketing partner to complete your purchase.

Only Spotify can pull this off, here's why. First, verified humans. Our premium subscribers are real paying fans, not bots, not brokers. Second, we know who the die hards are, nearly 2 decades of listening data across hundreds of millions of users means that we can identify true fandom at a depth that no one else can come close to. Third, we have the scale to really meaningful for artists. Spotify has millions of verified super fans ready, more than enough to fill every reserve seat on any given tours many times over. And we've already proven it. We've been quietly building towards this moment for years, having worked with more than 40 ticketing partners and driving more than $1.5 billion in ticket sales to date.

Reserved is the evolution of that work. This summer Reserve arrives with Live Nation as our launch partner in a multiyear agreement. Spotify is the exclusive audio streaming service offering this type of reserved access to Live Nation tickets. We will help fans get access to many of the most anticipated tours in the U.S. with more markets coming fast. Reserve is one of the most substantial improvements to Spotty Premium since the founding of the company. And this is just the beginning. We see clear opportunity over time to expand the experience in ways that creates even more value for fans, for artists and for Spotify alike. Every streaming service has the same music, but Reserved is something that only Spotify can offer. And that change is what it means to be a subscriber.

Up next [indiscernible] and Maya dive into podcast.

Thank you, Renee. Four years ago, at Investor Day, there were some significant questions around the business model behind Podcast. Our Podcast business was a highly negative business and a drag on overall company margin. Today, Podcast on their second year of profitability and growth is accelerating. And from here, we see a path to 40% margins in the long term. Strengthening economics goes hand-in-hand with user value. In fact, Podcast engagement has doubled since we last met, and in our mature Podcast markets of 40% of premium users listen and watch every month. This is the advantage of moving first. We made a bet on Podcast and amazing creators behind them, and we did it years before most saw the opportunity.

Today, Spotify is the R&D engine of Podcasts. We made the investments. We built the tools and the outcome is clear. We've contributed more than $10 billion to the podcast industry in the last 5 years. The reason we can drive that much value back to the industry is simple. We are the only platform that operates at three layers. Number one, we are a leading consumer platform for Podcasts. By bringing Podcast into the core Spotify experience will drive meaningful incremental value. We deepen habits and that directly drives retention. Premium users who stream audio podcast in addition to music are spending 3 more days on Spotify each month. Users who stream video podcasts spend one more day on top of that.

Number two, as a premium publisher, we are scaling our advertising business by leveraging deep engagement. Sponsorships, our fastest-growing format are up over 100% year-over-year. And we are unlocking a huge commercial opportunity with the ability to insert those sponsorships dynamically. Our new creator sponsorships product allows shows to monetize up to 50% more inventory by providing better tools to schedule, replace and analyze their supply. Ultimately, this drives higher revenue while reducing the overall ad load, creating a better listing experience for users and helping each advertising partner stand out [indiscernible].

And number three, we are building the most effective tools for creators. The Spotify Audience Network and the Spotify Partner Program creates a unified foundation for monetization across platforms. Our distribution API enables more than 1.5 million shows to bring video to Spotify, while keeping their existing hosting providers. Later Summer, we're taking the next step by introducing memberships. A set of tools that allow eligible creators to offer subscriptions directly to their most dedicated fans on Spotify. Alex and Gustav has talked about add-ons. This will bring the model to Podcasts. Passionate fans unlock deeper experiences and fandom becomes recurring revenue. What makes our approach different is that we're not sitting between creators and their audience. Creators own the relationship. They have direct access to their subscribers with the ability to import and export across platforms. And for those who choose to manage subscriptions elsewhere, Spotify Open Access remains our open offering, allowing creators to distribute gated content on Spotify while using any of our partners. Everything we do is powered by world-class talent.

The Ringer continues to define the category with authority and taste. Bill Simmons remains one of the most iconic voices in sports and culture, whether it'll be his shows or sold out live events. Amy Poehler's Good Hang won the first ever Golden Globe for Best podcast. In fact, for those of you in the room, you can check it out, right there. And the Joe Rogan Experience helped Spotify Wrapped year after year. Wherever a creator builds, we give them the tools to grow. If creators win, we win. Next up, Maya will show you how the product drives the next phase.

Thank you, [indiscernible]. For us, the future of podcast on Spotify is all about making them easier to find, easier to use and more valuable to the user and creator. Let me show you how we're building that. Let's start with video. As you heard earlier, more than 500 million users have streamed a video podcast on Spotify, up nearly 50% year-over-year. This growth reflects how video expands the format. It gives creators a richer way to connect with their audiences and gives users a more immersive way to experience the shows they already love. Across both video and audio, we've been focused on making the podcast experience on Spotify, more intuitive and more interactive. Transcripts make the catalog searchable, automatic chapters take you straight to the moments that matter. And now you can also ask questions about anything you hear and get answers in real time without leaving the experience. It's an amazing way to engage with podcasts, letting you go further on any topic, the moment something sparks your curiosity.

Imagine you're listening to your favorite podcast about music history. They mentioned something that catches your attention, but then they just move on. Now you can just ask, wait what music video did [indiscernible] Jones [indiscernible]? And because Spotify understands what you're listening to, doesn't just answer the question. It picks up the exact moment in episode and gives you the answer in context. But then it goes a step further, linking you to other songs and videos he's directed so you can keep exploring without breaking your flow.

That leads to the next piece, discovery. My favorite example is prompted playlists, which we recently expanded to podcasts. You write a simple prompt like, find me interviews with authors whose books recently got made into movies. And you get a completely personalized list of episodes. And what we're seeing is that more than 50% of listeners who use prompted playlists discover a new show. That's another signal of how powerful personalization can be. The next step is building a podcast experience made just for you. One that hasn't existed before and couldn't exist at scale until now. We're already seeing the demand for this. Some users have started creating custom audio using their own agents. And when we introduced the ability to save those episodes to Spotify, the response exceeded our expectations. But today, this is still a very manual and technical process. So we are making it easy for users to create personal podcasts right inside Spotify.

Just like with Prompted Playlists, all you'll need to do is write a prompt, and we'll generate short personalized private audio based on your input. It draws on world knowledge, your Spotify taste profile and any additional context you import to create something that's relevant, dynamic and shapes just for you. Here's my daily briefing as an example.

I live at Hudson Valley. I'm interested in what's going on in my area and the top tech headlines. So this morning, it opens with a quick update on the new AI release that everyone's talking about. Then it flagged an artist I've been listening to that's playing right near me this weekend. And it even pulled in a podcast episode from a show I hadn't discovered yet, but was exactly in my wheelhouse. Another way, I'd love to use this feature is to prepare me for the workday ahead. The other day, I had a meeting with a few of our podcast partners to get their feedback on a new feature. So I uploaded a doc with details about the update and some notes from the last time we met. And Spotify made me a personal podcast summarizing their feedback from last time, predicting some questions they'd have this time. And it even gave me some headlines about their recent episodes, so I have some talking points. This saved me a ton of time, and let me head into the meeting with everything I needed with a really short convenient summary to listen to on my commute.

Just like the monthly allowance of hours we provide for audio books listening, all premium users will have a monthly allocation of credits to generate podcast included with their subscription. And power users who want to be able to do more with personal podcasts will be able to purchase additional credits for more inference. And speaking of helping user, let's talk about Fitness. This is a behavior that already lives across Music and Podcasts and Video. And Spotify has the audience, the personalization engine and the daily contextual relationship to make that behavior more valuable over time. We've been the sound track of people's workouts for almost 20 years.

Now through our Peloton partnership, Premium users have access to more than 1,400 workout videos. And in just the first 4 weeks, we're already seeing strong engagement. But it turns out, people don't just want to follow workouts. They want to shape them. So we are making that possible very soon with guided adaptive running sessions. You can prompt something like give me a playlist for a 30-minute run at an 8-minute pace, and Spotify will select tracks in your taste, stretch them to the exact right tempo, seamlessly mix transitions between the tracks and layer in coaching cues to guide you through your run. We see significant potential to build more experiences tailored to fitness enthusiasts. And that's how we think about the all-day user, someone who turns to Spotify across more moments, more use cases, and more parts of their daily life. Now let's turn the page to the only audience at Spotify that more engaged than podcast listeners. Here's Owen.

Thank you. Thank you, Maya. So as Mayo mentioned, when someone adds a book habit to their existing podcast and music listening, they become part of the most engaged audience on the whole of Spotify. And this additional engagement, it's important because books are some of the most meaningful time well spent. Books they inform us, they educate us, and of course, the entertainers as well. And this makes them fit naturally on Spotify.

So just 2 years ago, we entered a $10 billion global audio book market that was underserved by the existing players. Since then, we've expanded to 22 markets bringing audio books to tens of millions of new listeners. But what matters most is how we've approached this category. A credit-based model does not allow every book to find an audience. So we introduced an hourly consumption model that unlocks discovery across a much broader range of titles, especially shorter format such as poetry or children's books. As a result, our already sizable audience of younger readers and families continues to grow as more people explore the kids and family catalog that we keep investing in. And as a new father, this is really top of mind for me.

At the same time, we scaled the catalog from 150,000 titles at launch to more than 700,000 titles today. It's a huge catalog to explore. And we've opened up the ecosystem with many English language publishers moving away from exclusive deals to reach broader audiences through Spotify for the very first time. We've introduced industry-first experiences like Page Match and Audiobooks Recaps, redefining how people discover, navigate and return to books. And just like in music, when we lead -- the rest of the industry follows. In a short period of time, we've established ourselves as a major force driving where this category is headed. And what's become increasingly clear is that the industry has been waiting for a platform like Spotify, a platform that can connect formats, platform that reduces friction and that can bring in highly new audiences into books. And we're just getting started. We see significant opportunity ahead, and we're going to keep growing the books experience for listeners, for authors and for publishers all around the world. And all of this is positioning Spotify to become the home for all books.

So in April, we launched Print Book purchases through our bookshop.org partnership, because we know that many of our users, they want to go back and forth between a physical book and an audio book and every sale directly supports independent bookstores. We've -- we've also invested in reimagining the reading experience itself. Our feature Page Match is now available in over 30 languages. And it's been a breakout hit since launching in February. As the first experience of its kind, users move seamlessly between a print or e-book and the audio book on Spotify. And something I absolutely love. I often read the book in the evening. And then I go for a run in the morning. I just switch to the point in the audio, and I can take the book with me. And users are telling us the same thing. We're seeing strong repeat engagement with users returning week after week even as the feature scales. It's quickly become one of our most consistently used and highest-performing product launches. We've seen an uplift in listening of up to 55% over a month when readers use Page Match, and it's particularly popular with younger listeners with the average age of a Page Match user being 6 years younger than the average audiobooks listener.

And what's even better users are finishing books twice as fast. That means user reading more books, generating more revenue for authors and purchasing more listening time. And this is exactly the kind of multi-format behavior that we believe will define the future of books on Spotify. And even best-selling authors agree with us. So thanks, Helen, for helping me make that point. But we're also bringing entirely new audiences into the category.

Almost half of Spotify audio listeners are under 35, which is meaningfully younger than the broader market. The audience is roughly 50-50 male, female because we're helping publishing unlock one of its hardest to reach young audiences, which is men. And the great news is the publishing industry is growing and audiobooks remain the fastest-growing segment with roughly 20% to 30% annual growth in the U.S. But Spotify, well, we're growing even faster than that. Listening hours grew 60% from 2024 to 2025, almost half of Audiobooks consumers started listening within the last 12 months, and our In The Title Catalog grew 50% year-over-year. And as you heard earlier, the economics are working too. I'm happy to announce that we are on track to reach $100 million in annualized recurring revenue from Audioboom Plus only this July. And we're really excited about this product. Because Audiobooks Plus users deliver multiples higher LTV than standard subscribers who listen to audiobooks.

But what makes this especially compelling is the user behavior underneath it. In the U.S., consumption amongst Audiobooks per users increased 18% in the first 30 days of purchasing the additional hours. And that's out of something importance. This is not just another content vertical. We're creating healthy reading habits and high-value behavior that becomes even more powerful when it sits inside the broader Spotify ecosystem. So the takeaway is not that this category is mature. Instead, it's been underserved, and we're showing the industry what's serving it well looks like. And that brings me to where we go next. The model, it's straightforward, whether you're a casual listener or whether you're devouring a book every single week, we want to offer a plan that fits your life. Audiobooks and Premium builds a healthy habit of listening to books by offering great value to our subscribers and meaningful revenue for authors and publishers. Audiobooks Plus drives additional revenue by monetizing heavier users.

But people don't stop there. Some of these users go on to purchase even more top of hours. So that's why this summer, we're expanding Audiobooks Plus with new add-on tiers designed to serve every single type of reader. So like Alex said earlier, you could think of it as Audiobooks Plus or Audiobooks Plus Plus. But I promise you it's not going to be called that, and we're going to have a much better name. So we'll introduce a number [indiscernible]higher our plans, giving our most engaged listeners the flexibility to go deeper and to enjoy even more books and then launching later this year, family and student plans for Audiobooks Plus will bring the experience to entire households and to the next generation of readers.

We're, of course, building more great tools for those who fuel the books ecosystem. And that is, of course, authors and publishers. Spotify for authors provides direct access to audience data to growth tools and distribution. Today, we are expanding Spotify for authors into 10 new languages, giving authors and publishers the insights and publishing tools to grow their leadership now in the language that they work in. But for many self-published authors converting their book to audio in the first place can be a challenge, whether that's a financial challenge or a technical one. So that's why we've already invested in publishing programs like Spotify Select which provides financial support to make Audiobooks for the very first time. And we're also rolling out publishing funds in markets like France to ensure that all stories can be heard. But now to help bring more books to market in audio for this vital group of authors, we're introducing new Audiobooks creation tools.

Starting in June, we are opening an inby only beta program providing access to best-in-class digital voice technology powered by [ 11 Labs ]. We're building this directly into Spotify authors, enabling seamless generation and frictionless publishing. And authors are not locked into exclusive deals. That means they get the widest possible audience for their books, which is incredibly important to them. I'm also excited to share that we're introducing two new features to assist with audiobook discovery. First up, if you're looking for new recommendations, you can ask a question to Spotify. You might ask, give me some Scandinavia in the [indiscernible] for my upcoming work trip to Sweden. Or maybe you're already deep into enjoying an audio book, you'll then be able to ask, what else has this authors written or what should I listen to next. Then this summer, we'll bring prompted playlist to audiobooks to, giving users more control while expanding our natural language discovery experience to books for the very first time.

If any of you in the room or online [indiscernible], this could be great for you. I'll give you a flavor of how it might work. You could say my book club loves [indiscernible] mysteries by [indiscernible] or Arthur Conan Doyle both Brits, by the way. But we'd like a fresher take on the genre. Give me a list of modern murder mysteries similar to those classics that my book club would enjoy, we'll then create a playlist of audio books to fit the prompt. And these features and our new plans, they all serve the same goal, which is to help people engage with books more by making the experience feel more natural, more connected and more integrated into everyday life. All in the Spotify app that hundreds of millions of people already use every single day.

So now I'll pass the mic to Katie to walk through how we've rebuilt the Spotify ad-machine.

Thanks, Owen. Our Ads business is built on a simple belief. Advertising should respect the user experience. So feel relevant to the moment and at its best, become a part of culture rather than an interruption from it. Last year at Advance, we previewed our new tools and tech, which make it simpler buy, create and measure. Now the theme was automation. But the bigger idea was that our Ads platform should be built for Spotify, not bolted-on Spotify. And today, for the first time, it is -- our tech is now built for Spotify and the 483 million people who use our free tier. It powers advertising across music, podcasts and video bringing targeting, measurement and ad delivery together in one system. And because it was custom-built for the Spotify experience, it's designed to drive outcomes for advertisers while respecting the user.

Every day, we use advertising to support the free experience, introducing users to new products and features and helping free users understand the value of premium. We've built one of the world's largest subscription businesses by converting the users who start on our free tier. In a way, Spotify is the ultimate proof point for what our Ads business can do, and we know we can drive those same results for advertisers. But a few years ago, our advertising business was not where we wanted it to be. Simply put, Spotify was not set up for the market was going. We were too dependent on direct buying, too concentrated in the U.S. and too centered on audio-only budgets. At the same time, marketers were moving toward automated performance-based buying.

Advertisers wanted measurable proof that their investments were paying off. We're the first to admit, it took us too long to make the shift. But the good news is we understood the assignment. So we accelerated the pivot and stopped treating culture and performance as a trade-off Instead, we doubled down on building for both. Now we have high-impact sponsorships. We're the world's biggest brands tap into Spotify's role at the heart of culture and fandom. We also have scaled biddable where advertisers can access Spotify through self-serve and programmatic channels with the automation, measurement and performance tools they expect. Together, these engines unlock TAM by attracting ad partners who want custom partnerships, outcome-focused performance or really both. We've dramatically expanded our potential upside.

So let me explain why we're so confident in this plan. We're already seeing the early results of our investments. Our biddable channels have grown to more than 1/3 of our ads business, and we now operate one of the world's largest global audio ad exchanges. Spotify as manager gives advertisers a first-party pass into Spotify, while the ad exchange gives programmatic buyers access to our audience, the platforms they already use, by the numbers, active advertisers grew 68% year-over-year in Q1, including through holidays and into the spring, a strong trend that we expect to continue. The growth is also becoming more global.

In Q1, grew nearly 10% year-over-year, and LatAm grew 25% year-over-year. Now that matters because Spotify is not just a global audience, we are becoming a global ads business. And that's crucial for two key reasons. First, more advertisers give us the opportunity to drive price improvement over time. And second, it also means that we were able to more effectively deliver personalized ads to our users. Now our sponsorship business is also growing. As Roman shared earlier, podcast sponsorship revenue more than doubled year-over-year, showing the power of connecting top readers, deeply engaged audiences and brands in the moments that matter most. So our direct business is becoming higher impact, while our biddable business is scaling demand. The heavy platform rebuild is now behind us. And our focus forward is on accelerating revenue growth and continuing to improve innovation.

The first priority is further growing the market for Spotify. We're a category leader in audio for advertisers, and we know that ears can be just as powerful as eyes when it comes to driving successful results through advertising. Our measurement capabilities allow us to clearly demonstrate that. And -- as we further diversify our video offerings, we will capitalize on growing those opportunities. So the new engine of sponsorships and biddable is now running.

The second priority is leveraging AI to make our tools even more powerful, taking Spotify's ads offering to the next level. AI reduces one of the biggest barriers to audio advertising, which is the audio, the creative itself. Roughly 70% of the ads we create for our partners in ads manager are built using AI tools. and we're already seeing the economic benefit of reducing the cost rate of creative production. To date, we've generated more than 20,000 ads for over 7,000 advertisers globally and that number is growing. Advertisers can now create scripts, voiceovers and fully mix with background music without giving up any creative control. AI also helping advertisers move more quickly from objective to campaign by improving audience discovery, optimizing delivery in real time and helping us better personalize ad load for each individual user. In practice, that means customizing the volume of ads that each user receives based on their unique behavior on Spotify.

The third priority is building new ad experiences that just weren't possible before. Brands can now sponsor playlists, be in the conversation with creators and as Spotify introduces more AI-powered premium experiences, brands can also sponsor access to those moments. These are not your standard ad impressions. They are deeper, more organic brand integrations that connect advertisers to culture and turn love for Spotify's brand into advertiser value. That's exactly why we expect higher growth in the second half of 2026.

Looking ahead, double-digit growth beyond that and a much larger advertising business over time. When you sit back, advertisers have always loved Spotify for our passionate audience, our deep engagement and the role we play in culture. Now we have the ads platform to create advertising experiences, which fully harness that power. This strategy will drive better outcomes for advertisers, better experiences for users and better monetization for Spotify. And with that, I'll hand it to Gustav to take you under the hood of the intelligence system that powers we're building next.

Thanks, Katie. So 3.4 trillion data points from our hundreds of millions of engaged users every day, tell us what we should go next. Now [indiscernible] Spotify has evolved into a product that others try to replicate but often struggle to match. Now let me take you under the hood to see what drives that advantage. Our intelligence -- just a few reminders. As I said in my earlier remarks, we know that we need general LLM reasoning across facts and domains like math, coding, et cetera. And today, we're buying that and benefiting from that price performed cost curve. We are instead spending our resources on building and training a large taste model an LTM using our proprietary data.

Let me explain a bit further for you. So a traditional language model learns patterns in text by predicting the next word at massive scale. Our LTM actually goes a bit further. It understands not just text but also every historical user interaction and every piece of content on Spotify. Our advantage isn't just in architecture or not in keeping secrets. It's in the data. Both historical, but also ongoing. So training these models requires billions of real user data sequences over long periods of time, literally years, but unlike the static factual knowledge in LLM, like the capital of Texas, taste is constantly evolving. So the model also needs to continuously learn from processing trillions on new signals. You simply need an insanely active user base every single day to stay relevant in taste.

But there isn't just one data set actually. There are several that we need to combine into the LTM. So first is that behavioral layer that I just mentioned, the billions of historical user sequences and trillions of daily data points. But second is the [ method layer ]. So that's all the license and acquired foundation that maps hundreds of millions of pieces of content across our 3 verticals, along with all the retailer data and engagement signals that power this Spotify experience. Third is the creator layer, less visible maybe to you, but equally important, and in fact, you may not know this, but we have proprietary tools developed by us, used by millions of authors and podcasters along with their publishers, labels and distributors. And these applications generate unique data that powers capabilities like some DNA, they correct their own catalog, et cetera. And further strengthens our recommendations and discovery. Fourth is the cultural layer. We're using systems that understand what is happening in the wider world, going outside of Spotify every day to inform features like about the sun or from the playlist about what happens in the world in real time.

But it doesn't actually stop there. Combined with modern reasoning capabilities, this understanding is actually interactive, not ecstatic. So users can ask for, for example, as Maya said, work out playlist, tailored to their specific habits or discover books, as Owen said, that fit their exact taste. This result is not just prediction, but the ability to actually shape and generate experiences in real time. That's how we think about the LTM, not a stand-alone system, but a fusion of proprietary taste understanding with advanced reasoning. And this is where the economics come into focus.

AI isn't just a cost layer for Spotify. It's a product and monetization layer. Our early model deployments are already improving the quality and effectiveness of our personalization, driving meaningful gains across the platform. This included almost 10% growth in autoplay song saves, almost 10% improvement in podcast discovery from home and closed a 20% increase in users interacting with DJ suggestions. This is a really big deal. That's real implications for retention and lifetime value but also our entire user base at scale.

But beyond improving the core experience, our large taste model is also enabling entirely new kinds of products, including Prompted Playlists, The Interactive DJ, Taste Profile and many of the generative experiences that you've seen today. Already, these newer AI powered experiences are being used monthly by nearly 1/4 of our U.S. Premium users, large adoption. And when cost per interaction continue to decline and usage expand, users get more value from Spotify, and we gain more opportunities to capture that value over time.

As Maya and [indiscernible] showed, with personal podcast and new music fan tools, we believe experiences like this will naturally expand users' willingness to pay. Now this allows us to scale a tiered model and turn intelligence from a cost driver to a revenue driver. There is intelligence in free, there is more of it in premium and higher intensive experiences available with add-ons. Again, as costs come down, we can expand these offerings while improving the value. As we said earlier, many times by now, willingness to pay is not an average, it only looks that way when you happen to have a single price point. In reality, it follows a power law with usage intensity and willingness to pay scaling together. And I'm not just making that up. AI has already proven this, if you look at the leading LLM [indiscernible], they are aggressively priced as a power law across usage [indiscernible] because the [indiscernible] users get meaningfully more value and are willing to pay much more. That is why we see AI as an opportunity, not a drag, better product, more value captured, strong margins. That's the model. And that's what Nicolas will show next, how we're putting this into practice to deliver more value, faster and more efficiently. Nicholas?

Thanks, Gustav. Now that Gustav has walked you through the Large Taste Model. I'll show you how we leverage AI to build and ship and why it's so difficult to replicate. Let us start with how we build. As Matt and Nicole shared, this is not just about productivity. It's about what becomes possible when capacity is no longer a constraint for us. And our engineers are spending more time on high impact producst. AI is embedded across the entire workflow. And we've extended its utility with our internal systems, making it secure and scalable. [indiscernible], our background coding agent is a strong example. It builds on leading coding agents, but it's tailored for Spotify, running persistent cloud sessions, so engineers can seemingly switch devices, collaborate in real time and automate routine work.

We're seeing up to 90% reduction in the time spent on common maintenance tasks, freeing developers to focus on user-facing innovation. Tasks like dependency upgrades and migrations, now run fully autonomously, allowing teams to move even faster with less friction. I've been building software for over 30 years, and the AI transition that we're going through now is like nothing I've ever seen before. Today, more than 99% of our developers use AI weekly. Coding productivity is up 76% since last year from what was already a very high level. More than 73% of our code contributions are AI assisted across more than 4,500 production changes that we ship every day. And at the same time, quality remains stable.

In fact, as I've been preparing this presentation over the last few weeks, we've had to change these numbers multiple times because they keep going up. We're no longer primarily scaling through headcount. We're scaling by increasing the impact of the people that we already have. You can also see this in our economics. Revenue per engineer is rising. Each engineer's work reaches more users and supports more use cases. Our ability to scale our R&D has changed with AI. And once these systems are built, the cost to serve each additional user will further improve. In practical terms, 1 engineer now supports more output, more features, more services and more use of value. The same team can power a broader and more complex set of experiences.

Next, let's take a look at how we ship. As Matt mentioned, we moved beyond traditional prototyping. Today, anyone at Spotify, not just our engineers, but also our product managers, our designers and business leaders has, in fact, all the way up to our executives like Gustav can both can and do build working prototypes right on top of our production code base, our real data or real design system, all running inside our actual act. We have an internal app store where these prototypes can be discovered, installed and tested, all kept in sync with our live code base. Ideas are now tested in real conditions and with far fewer resources than before. What used to take weeks can now be validated in minutes. For most of the streaming era, platforms had a wide downlink and a very narrow uplink. We could deliver millions of pieces of content but user could only respond back to us with a skip or save or like. We then had to infer their intent.

GenAI changes that dynamic, making the system interactive. We move from guessing to understanding and from one-way consumption to real-time collaboration with users telling us what they want in natural language. Today, you've heard about DJ, Prompted Playlist and Taste Profile. Together, they represent a shift towards a more interactive and user control Spotify. And today, I'm very excited to tell you about how this shift is coming to live in studio by Spotify Labs, a stand-alone desktop apps that takes personal podcasts further. It will be available soon as a research preview for premium users in more than 20 markets. Studio understands your Spotify taste across music, podcasts and Audiobooks. It can draw on world knowledge and with your permission, connect to services like your calendar, inbox, nodes and feeds. You simply ask for what you need, like your briefing for your day or overview of your weekend plans, and studio creates it for you. And because it's built for Spotify, the output can be saved directly to your library, where your personal private content lives alongside the music audio books and podcasts you already love.

By understanding building and shipping faster than ever, Spotify is becoming the home for personal media, not just what already exists users create and carry throughout their day. Finally, let's dig into what sits underneath all of this. Just described our large taste model and the data advantage behind it. Let me show you what's actually inside. The model is trained through continued pretraining on our proprietary data set. Every track

artist and podcast in our catalog is mapped to a learnable token that captures both what the content is and how users engage with it. And like traditional recommendation systems that predict from historical patterns, the model generates candidates directly, much like a language model generates test. This is the architectural shift that makes the generation here, Gustav described technically possible. That is also what makes our agent fundamentally different from a generic AI assistant. Those start from a recession. Spotify reasons namely over pages so that conversation reflects years of real listening behavior, not just a prompt and a search query. But what we've built is not just a model. It's a system where data, models, agents and our engineering platform work together to deliver personalized experiences at scale. And because it runs on what we believe is the world's largest licensed audience taste data set, it compounds. Every interaction improves the model and every improvement can reach hundreds of millions of users through a single platform. And because this system is built on license data, trust is foundational. Spotify's role is at the center of the ecosystem, strengthening the connection between creators and users rather than abstracting away from it. This is what we mean when we say that Spotify does not rent the future. we build it.

Now over to Christian.

Hello, everyone. Nice to see you all here today. Before I start, let me tell you that all growth rates that I will be referencing are on a constant currency basis, unless otherwise said or noted, I wish I had a cool guy telling that instead for me, but next time maybe. So differentiated experiences trades differentiated economics. And here's what ours looks like. 4 years ago, we made a commitment, turn Spotify into great business by growing music, scaling our podcasting into profitability and launching accretive new verticals like Audi books. We delivered and today, we are stronger than ever, proving that we can scale efficiently and we can monetize effectively.

As you heard, monetization starts on the top of the funnel, where we delivered a healthy 17% CAGR in users over the past 4 years. Growth is coming from every region, -- taking us to more than 760 million users, MAU, globally as we continue progressing towards 1 billion user and beyond. That scale has been a key driver of our healthy subscription business. It's grown at 13% CAGR to nearly 300 million subscribers. So engagement remains strong and continues to deepen. The number of subscribers using Spotify more than 28 days per month across multiple devices and verticals is growing. That breadth and frequency of use is a powerful drive of retention. Those fundamentals, scale, engagement and retention that drives our financial model.

So how -- so here's what that means for our performance. Alex talked you through targets we set forth in 2022. The result speaks for themselves. 18% CAGR, more than 7 percentage points of gross margin expansion and nearly EUR 3 billion in free cash flow generated in 2025 alone. It was the result of a disciplined financial model. targeted investments into music business, audio books, video podcasting and the beginnings of our AI capabilities that we heard about today. As the impact built over time, we stayed patient.

Today, Spotify generates meaningful cash flow, and we are entering this next phase from a position of real strength. Our advertising business grew at a 10% CAGR, even as we were re-platforming in ad stack and absorb the short-term pressure that we came with it. That work is important because it positions the business for a larger opportunity. Gross profit grew faster than revenue at 23% CAGR with gross margin reaching 32% in 2025. About 1/3 of that came from the music business. and with the rest driven by podcasting and order books. Today, both music and nonmusic verticals together operate above 30% margin. In 2025, the gross profit we generate from marketplace was 4x higher than 2021. Our offering of artist tools and licensing initiatives continues to create value for both artists and for Spotify. At the same time, we maintained a tight control of costs. Operating expense growth has remained essentially flat since 2022. And as inflationary increase in R&D and sales and marketing were more than offset by the 23% reduction in full-time head count.

That discipline delivered over 18 percentage points of operating margin expansion since 2022. Combined with our revenue growth and gross margin expansion, this moved us from a loss-making position to generating EUR 2.2 billion in operating income 2025, at 12.8% operating margin. All of this is fundamentally has reshaped our free cash flow profile. In 2025, free cash flow margin reached approximately 17%. That strengthened our balance sheet, and it gives us the flexibility to invest in what comes next. So before we look ahead, let me briefly outline how we think about return on investment. It shapes our financial strategy. At Spotify, we invest where we can generate returns above our cost of capital, and we stay disciplined everywhere else. But what makes our business unique is that the most reliable leading indicator of the return above [indiscernible] is it always IRR on the spreadsheet. It's an increase in customer lifetime value.

And you heard the mechanics throughout the day, the KPI we underwrite are centered on engagement, revenue, efficiency and retention. Our bets from Audiobooks Plus to DJ to Reserve have clearly quantified targets tied to those drivers. And it's the way these bets build on each other over time that drives lasting improvements in LTV. This creates a direct chain to free cash flow growth. In the United States alone, our largest market, customer LTV has increased by more than 70% since 2022, and we see the similar trends across markets of every stage of maturity from developed markets like Sweden to faster-growing markets like Brazil and India. AI accelerates our ability to make these bets with even greater velocity. Our bar for returns stays the same. And the direction is clear, unique economics is keeping improving.

So let's look at what this framework will produce by 2030. First, we are targeting a mid-teens revenue CAGR. The drivers are clear. We believe we're on our way to 1 billion MAU. We have emerging and developing markets as twin engine fueling growth in subscribers. Subscriber retention is already best-in-class, and we see opportunities to improve it even further, will become a more meaningful growth driver, supported by thoughtful price adjustments, more defined product tiers and an expanding mix of add-ons and a la carte offerings. This applies for both premium and add-on supported users.

Our clearly successful Audiobooks Plus shows what's possible when we deliver for [indiscernible] users. The add-on opportunity is significant across music, podcast, Audiobooks and beyond. AI will enhance this opportunity and are already best-in-class personalization. We plan to build on this momentum over time, unlocking new scalable ARPU streams across the platform. We also expect our advertising business to reaccelerate growth into the double-digit range. We expect that to start ramping towards these levels in second half of 2026, more users, more advertisers, better monetization per impression. Now let's talk about where we're going with profitability.

We expect gross margin of 35% to 40% by 2030. Within premium, music has further room to run, supported by marketplace and add-ons. Our higher-margin nonmusic offerings expand to more markets and monetization deepens, the favorable revenue mix shift will drive further improvements. In ad supported, the story is automation at scale. We expect music margins to continue to improve, particularly in emerging markets and through marketplace. Podcasting has made significant progress moving from a deeply negative in 2021 to what we believe will be more than 20% in 2026. And from there, we expect it to grow.

Long term, we see a path of 40%, driven by both first and third-party content. At Spotify, we manage cost with rigor and with constant focus on efficiency. That discipline underpins our ability to scale financially. It gives us both speed and flexibility to invest where we see strong returns. We see strong returns potential we will go there. In 2026, we are investing in areas where we see clear returns. As we mentioned on our last earnings call, the OpEx will grow -- will step up. We have told you that for quarter 2, it will step up in quarter 2 and quarter free before moderating into quarter 4 and 2027. This represents a temporary increase of roughly EUR 200 million on marketing and R&D. We will naturally calibrate these costs as we move through this short-term increase. And as you have seen from us over the last 4 years, we always strike a balance between investments and ensuring sustainable margin expansion. This will not change going forward.

On the marketing front, we are investing opportunistically to drive conversion and increase LTV featuring key product enhancement. Our focus on differentiation, conversion and retention is why we continue to add value to premium. This enables monetization over time. The customer acquisition cost is incurred upfront. We know that. The payoff comes from higher LTV, growing revenue at scale in addition to improving sales and marketing leverage. Our AI R&D spend has two pieces. This is primarily -- the first one is somewhat front-loaded, and that is primarily the large taste model like Gustav just talked about. This will drive improved personalization and scale the new add-ons.

The second one is ongoing recurring developer usage of AI like Claude code. This will lead to shorter build and ship cycles. And our global scale makes distribution and monetization of every new product more efficient. As these 2 forces compound, we will see accelerating LTV expansion, shortened payback periods and improved operating leverage. All of this points to an operating margin of at least 20%, 2030.

Before we get into free cash flow, just a couple of words on our taxes. We estimate our normalized P&L tax rate to be around 22% and foresee that we will become a full taxpayer by 2027. On average, over time, we estimate our cash tax to be around P&L tax rate. So that leads us into the free cash flow. We have a capital-light model. favorable working capital dynamics from upfront customer payments and 1 of the world's largest prepaid subscription business. Our operating improvements directly translates into cash flow. When gross margin expands, it flows when LTV improves, it compounds. We expect free cash flow to show strong growth through 2030. Our free cash flow per share will be part of our scorecard going forward. Free cash flow per share is the metric that tells us without ambiguity, whether we are allocating capital well, executing the model and drive value creation. It's gone from around 0 in 2021 to approximately EUR 15 per share today.

So now let's talk about capital allocation. You all know we carry cash and short-term investment balance of EUR 8.8 billion today. With a free cash flow development, that means that this balance could grow considerably over the next few years. Simply put, capital is not a constraint. That said, we will remain disciplined in how we allocate capital guided by a clear ranking. We will keep a strong balance sheet that gives us flexibility and supports the execution of our strategy. This enables us to move on the right opportunities even in a constrained market condition. First, we will continue to invest organically for growth that drives long-term value into R&D, content, marketing and new verticals. Wherever we have a clear line of sight on returns above cost of capital. The LTV framework is our real-time signal, not a projected spreadsheet.

Our bias remains towards build first as that remains our core strength. Second, we will allocate capital to acquisitions when they can accelerate our strategy. The bar is consistent returns comfortably above our cost of capital with a clear path to cash flow accretion. Third, capital to shareholders. We will, of course, continue to repurchase the equity compensation with grant employees annually. This protects against dilution. It is currently below 1 million shares per year. Given the stronger cash flow in the years ahead, even with M&A, we expect that we will also return excess cash to shareholders. This will be over and above the antidilution baseline. The thesis is straightforward.

Deploy capital where returns are compelling, stay disciplined where they aren't and allow free cash flow to build over time. 4 years ago, Spotify made a commitment. We delivered. What you heard today is how we run the same machine over the next 5 years, not as an aspiration, but as an extension. It is an extension of the framework we have been operating and refining many years. And now back to Alex and Gustav.

Okay. So this brings us to the close of our presentation. Hopefully, after today's update, you have a clear picture of Spotify's future. The scale that we have built unlocks vast opportunities for value creation. And the world is moving in our direction towards more personalized experiences, more interactivity and more control. And these are areas that we know we can lead because living in the future has been part of our DNA for a long time -- getting comfortable, looking to see where technology, behavior and culture heading before it becomes obvious to everyone else. And that instinct has shaped some of our biggest decisions over the years and enabled us to define and build for what comes next.

Now what matters most in this next chapter, taste, trust, culture has always mattered to Spotify. It is why we exist. It is where we succeed, and it is what we will continue building for.

And that's what helped us build lasting differentiation, increase our engagement and involve the business over time to not only meet but actually exceed the expectations of our hundreds of millions of users. Remember, we started with access, we moved the personalization and now going into generation. And each of these transitions has expanded what Spotify can become. And every time our advantage has compounded, because of generative era rewards scale, data and deep user understanding more than any era before, and what excites us most about this journey isn't any single feature. It's the entire foundation underneath it all. We're very proud of what we built and we out of the teams that you today. We're more excited about the next 20 years, and we will continue to raise our ambitions. Thank you. Now let's take some of your questions.

All right. Thanks, Alex, and Gustav. We are going to start the Q&A session. We're going to take questions from the room. [Operator Instructions] Why don't we start with -- the first one here from Steven Cahall. Microphones coming over here.

Steve Cahall from Wells Fargo. I know there's going to be a bunch of questions around the UMG deal that you announced, the ability to create AI music. So let me see if I can just cover all of those in one giant question. So yes, wondering how you're thinking about pricing for this add-on? How should we think about how it impacts your gross margins? Will this be rolled out globally? Do you see this is paving the way sort of a fast follow with the other major labels? And maybe lastly, we'd be able to share it on our TikTok feeds.

I'll start, Steve. Good question. Basically, you had probably 20 questions in there packed into one. I'll start, and maybe you can jump in as well. So today, this marks a landmark deal for us with UMG. I'm very pleased with where we are. We're not going to talk about the specific details of it, but I'll break it down to you in at least how we're thinking about the whole sort of ambition here going forward.

So the first thing that we've done is, basically, we have created the first really legal alternative here to create remixes for fans and user to create remixes. And the second thing that we did here was actually to create a licensed and controlled medium for artists to actually participate in artificial intelligence. And now we all love covers and remixes that's proven. It's largely an untapped opportunity. because there isn't really a scaled way to make money on it. And what we did today was basically to unlock that opportunity. I think it's going to be additive, both to artists, songwriters the community at large, Spotify, rights holders and so on. We're very, very pleased with this. And you can talk a little bit about how we plan to launch the product and so on.

But I want to say also that -- this is also the first time where Spotify does not need to have everyone to launch a product like this. That said, we don't want to leave artists and people outside of this. Of course, we're welcome -- we're welcoming everyone and we want everyone to be part of this because we believe this is one of the greatest products.

It's pretty unique for us to not actually need everyone to get started. So we're excited about that opportunity. A couple of more things. We don't want to go into the economics, but you should expect this to be at least [indiscernible]. We just don't do deals that are bad for any of us, which is one of the reasons why we spend so much time on getting these deals right. Other things that I think are important is the incentives here, so far, AI music has mostly been about net new music, right?

Meaning when you create some that didn't exists before. And those can be new creators, those can be existing creators using those tools. But largely existing catalogs and creators with [indiscernible] catalogs have been left up completely. It's really only about replacement for them. And we think net new music is happening. There are many companies doing this. This music gets uploaded to Spotify. So that is happening. The other part was just not going to happen without us. It would not happen by itself because as Alex said, there was no legal framework. But we think the opportunity is very large. If you look at other media types, existing IP in TV and movies is usually considered the most valuable rather than the least valuable. So -- and as Alex said, you can see artists doing remixes and covers today manually because it is a way for them to get rediscovered and get more stream sure.

And typically, 1 song can become the 3 remixes, 4 mixes and maybe even 5 covers. But with this 1 song becomes 10,000 tons, 100,000 tons, paying [indiscernible] being playful with the original.

I think that's important because if you look, why would people want to do this on Spotify? Well, if it's about getting a share of the revenue pool. You want to have the largest share of the largest revenue pool, and we are by far the largest revenue pool. So we think this is what we should do, and we're going to do better than last.

To answer some of your other questions. Creation will be an add-on, you're able to do some creation in Premium and so forth. As you know, Alex is here for what is it, 17 years on finding the perfect conversion points between free to premium to the next. So we're going to find the right conversion points but creation is a premium add-on. But consumption is not a premium add-on. Anyone's Spotify Premium and Free can consume. I think it's very important that if you take the time to create a cover or remix that you love, you can share it with anyone. And because the free is free, literally, anyone can consume. All you have to do is to install Spotify to hear.

You think about the catalog as that's one that's going to not just expand but multiply and [indiscernible] usage with that comes monetization and further unlocks. Right. Did you get some answers at least to the 20 questions? Okay.

All right. Thanks, Steve. Let's go to the next one right here in the front. Rich?

Since that was 17 parts, I'm going to ask 2. OpenAI believes, in 2 to 3 years, we're going to go to an agentic world. No one's going to use apps. Apps will fade away. I guess it's -- I don't really understand why I would use OpenAI to listen or watch music given everything you just showed on stage here today. They obviously have a biased view. But I'm just curious, not just OpenAI, but just the LLMs and foundational models, in general. What is that tension? And who owns the customer? And how do you think about playing in that world of LLMs over time? Is that a risk or a tailwind? And how do you think about it?

And then just two, because I've really been thinking about it this whole meeting, the ticket thing is a really interesting take on giving fans tickets. Obviously, a small number of tickets, but if I am a free user, I upgrade to Premium and then I find that I don't get my Taylor Swift ticket, how do you not get pissed off Premium subscribers?

I can start with the second one first, actually, if you want to. People, obviously, remember the second one. So the way we think about tickets and Premium is there's never going to be enough tickets for everyone in Premium because the arenas have a finite amount of space. But we are talking about us holding millions of tickets. This is not a small, like, lottery or something, which will make a lot of people very happy.

But there was never enough space. And the problem was there was never enough space, and it was deeply unfair who got that space, right? It was the scalpers. It was the one with the most money. So what we are doing is we're bringing fairness to this, right? We're taking the actual fans to get those tickets. So that's how we're thinking about it. It's also important to remember that you are not paying for this. You just get it in Premium, right? I think if you were paying extra for this and you haven't got it, that's very different. You are not paying extra.

You're paying for the tickets, but you're not paying for the reservation.

So we think people will be very happy about this because it's something they just get, and two, we bring fairness to the system.

And frankly, this is one of the most lovely improvements to Spotify Premium since our founding. It truly is, right? We know this because we've done a research around this and tested it with some people. Because of the scale, we can get very, very precise on what people enjoy or not. And even you asking that question straight out and -- is a reaction to how good this is.

And obviously, it's not just the fans that get happy. The creators, they get very upset when their biggest fans cannot come to their shows. So everyone there gets happy.

Now I was not trying to avoid the other question. So let's go back to the other question, which was the LLMs saying that all apps disappear and so forth. We, obviously, don't believe that all apps disappear. We do think that it's getting very cheap to write software, which is a tailwind for us that we're writing. But the way we think about this, and we always have, is our ubiquity strategy.

So Spotify needs to be where the users are. And if you look at our history, I think one of our biggest success recipes has been that we always partnered. And interestingly, we always partnered with our biggest competitors. So an early landmark partnership was Facebook, now called Meta. But we also partner with Google, who is one of our biggest competitors in YouTube. We partner with Apple. We partner with TikTok. We partner with everyone.

The whole idea is to be where users are, right? Because there's a lot of discovery happening there. And now, to answer your question, there's also a lot of creation where people are saying like, "Couldn't I make a playlist of this?" or OpenAI knows that they're into this, can they get a podcast from Spotify on this. So we just see this as the next Google search. It was very important for us to rank high on Google. It's very important for us to rank highly in these LLMs.

So for us, this is just more ubiquity. And hopefully, after seeing what we did today, you understand that we feel quite comfortable about the unique advantages we have. Yes, we are great at building software and product, but we also have an enormous amount of personalization data where the biggest companies in the world have tried to beat our personalization for [ assume ] 13 years at least and have not. We also have enormous amount of licensed data.

So that is the Spotify value, the personalization. And we're not giving that data away. And last, I would say, Spotify was always in the background, right? We were always soundtracking all the other experiences. So we were never reliant on actually being the foreground app. So to soundtrack your OpenAI or Claude session, we think it's actually fantastic for us. So that's how we think about it.

All right. Thank you. We'll let this mic circulate. Let's go to the back here. Mike Morris.

I'm Michael Morris with Guggenheim. I wanted to ask you about the freemium funnel and the conversion. So a couple of questions there. First, you did enhance the functionality of the free tier last year. I'd love an update on how that's progressing with respect to what you wanted to see in the conversion to Premium.

And then the second. You made a comment earlier that AI is accelerating with faster localization and personalized services. And so my question there is when we think about that conversion from free to Premium, I think generally, we've thought about the economic sensitivity, but apparently, you see something in addition. So I'd love to hear how the investments that you're making and the AI is helping with, and that localization can drive even more conversion, if that's, in fact, what you're expecting?

I'll start with the first one, and then you can jump in on the second. So you heard us talk about growth. And many people have asked me throughout the years, like how do you grow Spotify? How come you guys have hundreds of millions of users and hundreds of millions of subscribers? How do you actually acquire users? What's the secret?

So that's, sort of, second part of the question is a misunderstanding of how growth works, right? So the way superscale growth works is that you actually start with engagement. You start with engagement in the way that we talked about engagement. And we're not in the business of just maximizing number of minutes. We think about days in a month, which is really a proxy for context, right, different context you're in. If we can be in as many context as possible, being as many days as possible in a month, then that's the right engagement. So any product we build or develop starts with us thinking about how can we get you to interact with us more days in a meaningful way.

The new free tier addresses exactly that. So what you're seeing basically is not just, in the years prior where we have consistently increased engagement across these axes of days and devices and verticals, what you're seeing basically is us taking a step change. So that's why you've seen us in some earnings calls, we've been talking about how we've been beating the MAU growth versus even our own expectations really. So that's the result of improving the free tier.

Once we have people on the free tier, you know exactly as I that what we focus on is actually to build out a differentiated proposition of Premium to get them to come on board, right, and come on board the paid experience. And that is also why, I think, you've seen some of the stuff today like reserves, for instance, that someone here asked about and so on. Those are all investments into making Premium even more sticky and the conversion from free happen in a much more sort of scaled way.

Can I ask you on the other question you had about AI and free? Can you repeat that? I'm not sure I understood exactly.

Sure. I'd like to understand the conversion of free to Premium and the potential for that conversion to become stronger as a result of what you described as the faster localization and personalization by AI.

Sure. So as Alex said, Alex comes from the gaming business, and he knows many years ago, that was 20 years ago. So -- and what you know there is you need to start with engagement, as you said. And what we've said for now, at least 17 or maybe 18 years I've been here, is that the only thing that was very predictive of how much you're going to pay is how much you play on the free tier. More engagement drives more conversion, which is a shock to some people because they think you should cap the experience and push people over, but that's the wrong way to think about it. You're not going to start paying for something you don't use. You need to, first, use it all the time, and then you need to find good pay gates, like, for example, you don't want the ads anymore, you want on demand, you want offline and so forth. So we need to get people deeply engaged.

First, you need to get them to care deeply, then you ask them to pay. And so the key driver to that engagement is personalization. Like we see a clear day. I showed you the metrics. We increase personalization, you listen more. Your propensity to say, "This is actually worth $6.99," goes up. So it is a very direct relationship. The more you play, the more you pay. We still need to have good pay gates. And as you know, we pay gate on functionality, not on content. You have the same content in freemium and Premium, and that's so that we can get you as engaged as possible.

So the localization bit is obviously a balance that we strike between a number of different things. One is language, of course, which has never been very costly, but something that just simply is much faster and much better, right? You no longer have like broken sentences in Finnish and in Hindi and so on. So that's immediately addressed and something that is hygiene.

Number two is culture, of course. And there, we have actually great signals from our teams around the world. The editorial teams have also talked about how that sort of feeds back into the model and helps us personalize even better. So to Gustav's point, the -- really, the content signals and the cultural signals that's coming in from the outside feeds our large-case model even further, which then gives you that upside on personalization, which gives you that additional engagement and then gives you the conversion.

There's one more concrete example that, I think, is important. So I just said that we need to get to engage. And to get engaged, we need to personalize, but then we need to understand what you're into. So for a long time, we worked with onboarding. So as you click like, I'm into these artists and so forth, which had some efficiency, but most of you just had to use it. And so you had to use it a lot before we started to understand who you were because we only had a few skips. And in the previous free tier, we didn't even have on demand. So it was a pretty weak signal. We suggested something and maybe you skipped it. It took a long time to understand who you are.

What is interesting with the localization of AI is now we can just ask you in English, just tell us to spend 5 minutes in English writing who you are and what you like, and now we can deeply personalize to you very quickly. So that's another clear example of the fact that we can now act in many languages means that we can personalize much, much faster.

All right. We've got time for 1 or 2 more. Why don't we go here in the middle with Jessica.

Jessica Reif Ehrlich from BofA Securities. I mean, there were so many products introduced today. [ It's a ] surprise.

Sorry.

But obviously all about driving engagement and monetization. So just wondering, like you didn't say anything about pricing, if you could say anything about how you're pricing these tiers. But what's your philosophy? Will you have multiple, like, super Premium tiers at different price points? And how do you think about it globally?

And then on the engagement side, you talked about the days of -- it's basically every day that people are on, I mean, almost every day. What can you say about, like, the daily use, engagement? Is it 2 hours? Because it just drives everything, not just staying on the platform, it just drives advertising as well.

Yes. Okay. Let me see there. I got a couple of different questions in there. So I'll bring you back to something that we've said many times before. The one thing that we track very closely is what we call value to price. And all the way from basically the founding of Spotify until 15, 16 years later, we just focused on the value, not so much the price. So value over price just went up and up and up and up. Spotify became the greatest product -- music product in the world as a result of that.

Now something else actually happened, and that's how we created these plans, these multi-account plans, that actually pushed price down slightly. So what you had was basically a ratio that just skyrocketed. Both the numerator was going up and the denominator was going down. It's a good recipe for increasing the ratio of something.

And so what then happened, if you take -- if we take ourselves back 3 years, we started raising price. So then that value to price came down slightly without really a big loss of subscribers, rather the opposite. Even us, we were surprised that the churn was so minimal. And then we went back and then we invested more into value and then we did another price increase and it dropped again and then we increased more in value. So what used to be just a straight line of value to price increasing has now become a more moderated, sort of, almost like an up and down sine curve that's sort of pointing into the future.

The way we think about it in the end is that the consumer or the subscriber should always win. That is our focus. But we will monetize when we need to so that we can invest back into differentiation for the whole ecosystem, not just Premium, but also free.

Now when it comes to different add-ons, you can actually look at Spotify Premium as almost like a mosaic of different niche audiences. There's 300 million of them, right? We talked about the power law usage curve, demand curve earlier today. So that has opened up our eyes, like, tremendously as we've scaled, right? What used to be a niche audience that we had, which was like thousands of people, we were never interested in building a product to harvest that or to convert that person. Too small, right? But even the smallest niches are now in the millions for us. So for us, it makes a lot of sense to look at this demand, this specific niche demand and then we create specific products for them to engage more and then monetize more. So that really is how we think about it. So this next year is going to be about the segmentation of our 300 million strong and growing subscriber base.

And instead of thinking about it as one add-on here, like the super Premium idea, just think of it as audiobooks is a super Premium for super audiobooks fans. We just presented a personal podcast add-on. We also presented a creator add-on. It's just many of them. And the whole point of super fan engagement is that everyone is not a super fan. So there are going to be multiple add-on products that are priced, as you can see with audiobooks, you, kind of, gave away. There are going to be audiobooks plus, plus, plus because the engagement in there differs, right? So you're going to see multiple of them priced for those segments. Some more expensive because there's more willingness to pay, some slightly less.

Great. Okay. We've got time for one last question. Let's go over here to Justin.

Justin Patterson from KeyBanc. I wanted to go back to just touching on Taste a little bit more. You mentioned Studio by Spotify Labs. That seems like something that really broadens your corpus of information about the user and feeds into the broader AI personalization. So just would love to hear more about how you're really positioning the app going forward to ingest more of this data and take people through what sounds like it's going to be a more complex user experience. So just making sure you're taking that good signal from the user and then surfacing the right information at the right time to keep growing more of those moments each day.

Yes. Let me start with, yes, we are very excited about the fact that it's so easy and cheap for us now to learn much more about the user. This is why I said one way to think about generative era is that computers understand English. I've been doing deep user research interviews with like 10 users for the last 17 years trying to understand them deeply and then saying, "Based on these 10 users, let's guess that the other 599 million are similar," which is not true. Now we can do a deep user research interview with every user every day because they're talking to an LLM. So that makes me very excited. This is truly deep personalization.

What is interesting, though, that we see with the DJ and the [ community ] playlist, people are telling us enormous amounts of things about their lives, right? When they're asking for podcasts, when they're going for a run, when they're asking for books, we learn so much more about them. So all of a sudden, this data that maybe only Google had, we're getting an enormous amount of this. So we're starting to learn a lot more about our users. And now, as you said, with Studio by Spotify and also what Maya showed, personal podcast, people are now starting to upload PDFs and personal content. We only had public content before. So we are very quickly learning much, much, much more about our user base. So that makes us very excited. We think we have a very big potential there.

But I want to touch on the other question you have of complexity. This was a contrarian bet that we made some years ago when went into podcasts where everyone said, clearly, you're going to build a separate podcast app. And then sort of clearly, you should have had a separate audiobooks app maybe. But by then, people had understood the strategy. Our intuition then, which, I feel, has been very vindicated now with the question you had, Rich, about software doing more was that it's just software. Shouldn't the software adapt to the user instead of the user adapting by switching software? Shouldn't the skip button turn into a 15-second scrub button? And shouldn't it turn into a chapter button when you listen to books? So software is getting more malleable, and now we're even entering the era of generative UI, not less malleable.

So my job of keeping the complexity down and serving like many different use cases actually gets easier and easier, not harder. So I think we're on the right strategy. I mean if you think about what these others, Anthropic and so forth, they're also super apps. They're trying to serve many different use cases, right? So this is the opportunity that we have as well to just be able to serve much more. But the whole point is to leverage your existing distribution. You want to bring something to 760 million users day 1, not like 0 users in the App Store. So we still think about that strategy. But we actually think it's more vindicated now and it's easier to do than before.

Great. All right. Thanks, Justin. Thank you, Alex and Gustav. That concludes our Q&A session. So thank you, everyone.

Thanks, everyone. Thanks for being with us.

We appreciate your interest in Spotify. Thank you.

[Operator Instructions]

At this time, I would like to turn the conference over to Bryan Goldberg, Head of Investor Relations. Please go ahead.

Thanks, operator, and welcome to Spotify's First Quarter 2026 Earnings Conference Call. Joining us today will be our co-CEOs, Alex Norstrom and Gustav Soderstrom; and our CFO, Christian Luiga. We'll start with opening comments from the team and, afterwards, we'll be happy to answer your questions.

We will be taking questions today via Slido. Questions can be submitted by going to slido.com, and using the code #SpotifyEarningsQ126. [Operator Instructions]

Before we begin, let me quickly cover the safe harbor. During this call, we'll be making certain forward-looking statements, including projections or estimates about the future performance of the company. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed on today's call in our shareholder deck and in filings with the Securities and Exchange Commission.

During this call, we'll also refer to certain non-IFRS financial measures. Reconciliations between our IFRS and non-IFRS financial measures can be found in our shareholder deck, in the financial section of our Investor Relations website and also furnished today on Form 6-K.

And with that, I'll turn it over to Alex.

Thank you, Bryan. Hey, everyone, and thank you for joining us.

2026 is off to a strong start, with performance reflecting solid execution, healthy growth and the kind of engagement trends that give Gustav, myself and the team confidence in building Spotify for the future.

In Q1, we saw results that were in line or better across the board. We surpassed 760 million MAU, delivered on the subscriber growth we aimed to achieve, and we saw healthy engagement from existing users, reactivations and new users alike.

Since the global rollout of our more personalized free experience, users in key markets like the U.S. are now listening and watching more days per month. Now for a business as established as ours, did I mention, by the way, that we're celebrating 20 years this month, this is an exciting development. And I'll share more about why in just a moment.

And we also netted our second highest gross margin ever. All that reinforces this confidence in sustained user and subscriber growth, low churn and then also continued progress on revenue and margin.

Now for over 2 decades, we have worked hard to forge strong relationships with our industry partners and the artists and the creators that we support. You've watched these relationship evolved in the last 20 years. but we have never been in a better position to innovate and to grow, thanks to the progress we're making together. So the trust that we have built is rooted in our collective desire to deliver results and expand the overall opportunity.

We will have some new things to share on that front soon. We just released our annual report on the health and growth of the industry. It's worth noting that Spotify remains the only platform offering this level of visibility into how the music industry actually works.

Loud and clear show that in 2025, we paid out a record $11 billion plus to rights holders while continuing to outpace the growth of others. And year-over-year, we expect that outperformance to continue.

Now on top of the streaming success, there's no doubt that artists, songwriters, musicians and fans are just always seeking stronger connections. Song DNA and About the Song were introduced this quarter to pull back the curtain on the remarkable talent behind our favorite tracks and offer more insights into a song. But we didn't stop there. Live experiences are one of the most impactful ways for artists and fans to Connect. So this winter, we took Spotify's most streamed global artist, Bad Bunny, to Tokyo to perform in Asia for the first time in front of some of his biggest super fans. And then we turned around and broadcast that iconic moment to the world. This went beyond the concept. It was a real opportunity to amplify culture.

Now all of this drives retention. So let me take a minute to just explain how we think about retention. Importantly, it acts as a proxy for how users value their time on Spotify. And we look at many metrics, but the 3 that drive retention are more days in a month, more [ devices for context ] and more content types or verticals. I've already told you we've been growing today's users' spend with us each month. Engagement really is the lifeblood of Spotify. And I've been super excited to see this expand over the years and now too.

Engaging with us then on more devices and also across our 3 content types just compounds this. This is how we grow the lifetime value of users. Users who engage in this way, they stay longer or perhaps never leave. These 3 levers are rooted in our personalization efforts and act to reinforce one another.

And AI just takes this to a whole new level. Essentially, we are unlocking your Spotify, your way for 0.75 billion users around the world.

Yesterday's announcement around fitness is a natural extension of this strategy. Spotify is already a trusted resource for wellness and fitness. Nearly 70% of premium users work out monthly and our users have created more than 150 million workout standard playlists, with many also turning to prompted playlists for support.

So to meet this need more directly, we are launching a fitness hub on Spotify. And as we just announced, this hub features Peloton's premium subscriber content in an ad-free experience. And of course, this content will be a very strong complement to what has already been working, including content like Yoga with Cassandra, [ Jordan Jo ] and [ Chloe Ting ].

I know we continue to talk about our ads business as a work in progress, but the key point is that 1.5 years of rebuilding, the foundation is now in place. Brands have always valued Spotify for its high user engagement, its beloved brand and its high-quality content. But the market shifted with advertisers now favoring biddable buying. We had to evolve to capture that TAM. So we've rebuilt our stack end to end. Now while this creates some short-term pressure, it unlocks a much larger opportunity.

And we are making solid progress. Today, Biddable represents more than 1/3 of ad revenue, and it's growing quickly. So with Biddable expanding and also our active advertisers growing, coupled with improvements in our measurement and performance, we can now innovate in the way in new ways the old stack never allowed. This finally lets us better capture the value of our audience.

This is exactly how we wanted to start the year of raising ambition. We're now growing at scale, generating significant cash and reinvesting to capture the opportunities that matter the most. What you're now seeing is the beginning of a much larger next chapter, and we're excited to go deeper on that at our upcoming Investor Day with you all.

With that, I'll hand over to Gustav.

Thanks, Alex. Now I'll pick up a little bit on what comes next, because that's where much of our focus is right now. So if you zoom out, the way we think about Spotify is pretty straightforward. With AI expanding our opportunities, we're building a system that understands our deeply engaged, passionate 0.75 billion users, one that adapts to them and improves the more they use it. It's also increasingly a platform that puts control directly in users' hands, with their ideas, logic and creativity, a platform that's deeply personal, increasingly interactive and evolving from a solo experience into something inherently multiplayer.

As I shared last quarter, and more recently at South by Southwest, AI isn't new for us. Machine learning and personalization have long been core to Spotify, from discovery to recommendations. What's changing is what the technology is now allowing us to better understand, develop and deliver: creating differentiation and unlocking a very different experience and a new level of personalization.

From our earliest days, Spotify has been a technology company, and we've always seen ourselves as the R&D department for the music industry. And that mindset has helped us embrace new technologies to accelerate product development and create unique value. Combined with our ads plus subscription model, deep expertise in personalization and scale operations, we think this positions us very strongly for the AI era.

We're integrating AI across every part of Spotify, accelerating how we build and deliver at a pace we haven't seen before. We're shipping more, faster and with greater efficiency, lowering the cost per feature while increasing the impact. You can see some of the inference costs behind that acceleration in our OpEx. But we have tremendous confidence in what we're building, and I will share more about that soon.

IDJ is now used by 94 million subscribers, closing in on 100 million, driving billions of hours of engagement. In this quarter, we've continued to push the boundaries of the user experience with new AI-powered features. As always, early adoption and deep usage is coming from our power users. But what's changed is how quickly we can learn from that behavior, refine the experience and scale it to a broader audience, delivering improvements faster and at a fraction of the historical cost. And all of this benefits LTV.

We're particularly excited about [ Taste Profile ] now in beta. It gives users a clear view of how Spotify models they are listening across music, podcasts and audiobooks, and puts them in the driver's seat, allowing them to directly edit and refine their profile. So imagine telling Spotify to include more songs by those 2 artists my kids are obsessed with, or maybe the opposite, actually exclude those 2 artists, or add a classical tab to my home page. This level of nuanced control empowers users like never before.

We've also significantly expanded prompted playlist, enabling users to act as their own algorithmic curators. You can write prompts to generate playlist-specific moods activities or cultural trends across music, but now also podcasts.

So together, these features point to something bigger, a transition from a world where Spotify recommends things to you, to a world where you can actively shape, guide and interact with our platform, from passive to interactive, from static to adaptive, and from single player to multiplayer. And we think that's really important, not just for Spotify, but for how people experience media. We're already seeing this more interactive, multiplayer Spotify take off with features like Jam, where usage has doubled year-over-year and now exceeds 100 million monthly listening hours. And there is also Blend, Messaging, Mixing and, of course, Wrapped Party. So we're just getting started here.

We're well positioned because of our large engaged user base, our deep create relationships and years of investment in personalization and infrastructure scale to arrive at this agentic moment. Together, these create a platform that can take advantage of this moment and unlock entirely new growth vectors that will enable us to climb to new mountains previously unimaginable.

This connects to the broad opportunity ahead. We see significant room to grow across users, formats and engagement, and to really expand what Spotify is and come to come over time. We're at a pivotal moment building towards something even bigger. And on May 21, we'll show you why we're so excited about what comes next. So we'll hope that you'll join us there at our Investor Day.

Now I'll turn it over to Christian to take you through the numbers.

Thank you, Gustav, and thanks, everyone, for joining us today. Let me cover the quarter 1 results and then I will provide some perspective on our outlook. Unless otherwise noted, all referenced growth metrics are presented on a year-on-year constant currency basis.

Additionally, this quarter, we have implemented a minor reclassification of non-advertising activities from our Ad-Supported segment to Premium. This is to better reflect the performance of our core advertising business. Just for reference, in quarter 1 last year, we [ shifted ] EUR 12 million in revenue, EUR 7 million in gross profit from our Ad-Supported segment to Premium. Any comments on the segment growth rates are on a like-for-like basis.

So overall, we were very pleased with how the business performed in the quarter. MAU grew by 10 million to 761 million in total, surpassing our guidance by 2 million. Our growth rate accelerated 12% year-over-year, up from 11% in quarter 4. Outperformance was led by rest of the world and North America where we continued to benefit from our enhanced free tier rollout.

We added 3 million net subscribers during the quarter, finishing at 293 million, in line with our guidance. We saw no surprises with respect to price increase related churn following our January U.S. price increase.

Total revenue was EUR 4.5 billion, growing 14% year-over-year, which was an acceleration from 13% we delivered in quarter 4. Premium revenue rose approximately 15% year-over-year versus 14% last quarter. This was driven by subscriber growth and ARPU expansion of 5.7% year-over-year.

Our Ad-Supported revenue grew approximately 3% year-over-year. Our new automated sales channel continued to grow fast and now represents over 30% of our Ad-Supported revenue in quarter 1.

We also saw some continued choppiness in our legacy direct sales channel. While this dynamic will likely continue in the near term, we still expect improved growth in the second half of 2026 as our billable channels continue to scale.

Gross margin came in at 33%, surpassing guidance by approximately 20 basis points, which year-over-year -- with a year-over-year expansion of approximately 133 basis points. Favorability versus guidance was driven by better other cost of revenue and revenue mix.

Other operating income. The operating income of EUR 715 million was EUR 55 million above our guidance of EUR 660 million, delivering an operating margin of 15.8%. Our outperformance was driven primarily by social charges, which had a positive impact approximately of EUR 49 million relative to our forecast due to share price movements in the quarter. Excluding the non-forecasted associated charge favorability, we came in approximately EUR 6 million above guidance, driven by the gross margin outperformance.

Finally, free cash flow was EUR 824 million in the quarter. Performance here was a bit stronger than our typical quarter 1 due to some timing factors, which will likely reverse in quarter 2.

On capital allocation, we repurchased $361 million in shares during quarter 1, continuing our focus on opportunistically offsetting dilution from employee equity programs. We also settled our $1.5 billion in exchangeable note, and that was due in March, with cash on hand, rather than issuing new shares.

As of the close of the quarter, we had EUR 8.8 billion in cash and cash equivalents and no debt other than lease liabilities.

So then if we look ahead into quarter 2, we see continued momentum and healthy global funnel that is -- and are forecasting MAU of 778 million, an increase of 17 million from quarter 1. On subscribers, we are forecasting 299 million for quarter 2 or a net addition of 6 million. This is modestly below the significant outperformance we saw in the prior year quarter, which benefited from items such as favorable adjustment to our iOS app in the U.S. We reiterate our previous statement that we expect another full year of healthy subscriber growth, weighted more towards the back half of the year.

We are also forecasting total revenue of approximately EUR 4.8 billion in quarter 2 or 15% growth. This reflects the ARPU increase of 7% to 7.5% year-on-year as we see additional benefit from the recently announced pricing action, partially offset by the lapping of pricing actions last year in the Benelux region.

We anticipate the quarter 2 gross margin of 33.1%, approximately 160 basis points above the prior year. Our gross margin outlook incorporates continued strengthening in our core business alongside with the reinvestments into new products and initiatives that we believe set us up well for future monetization potential.

Moving to the operating income. We are guiding to EUR 630 million in quarter 2. This reflects the above along with the timing of marketing of our latest features. This also reflects R&D related to strategic AI initiatives that we already drive -- that is already driving engagement. We expect operating expenses to remain at these levels for the next quarter or 2, and we are confident that it will enable healthy LTV returns.

Although we do not provide full year guidance for gross margin and operating margin, we continue to expect both to improve in 2026 on a full year basis, with quarterly progression being variable and dependent on the timing of our investments. We also continue to expect meaningful year-over-year growth in free cash flow in 2026, reflecting our improved profitability and working capital profile, while we're also progressing towards a normalized tax rate in 2027.

In conclusion, quarter 1 was a strong start to 2026. Revenue growth accelerated and profitability improved as we continue to reinvest our future growth potential. We remain really well positioned to continue compounding growth and profitability.

With that, I hand it back to you, Bryan.

Great. Thanks, Christian. And again, if you've got any questions, please go to slido.com, #SpotifyEarningsQ126. [Operator Instructions] And our first question today is going to come from Ben Black -- oops. I apologize, Ben, I just accidentally resolved it. We'll get that question back in the queue.

One sec. We're going to go to Rich Greenfield. I apologize. Slight technical issue here. We're going to start with Jessica Reif Ehrlich's question on operating expenses. Q1 had higher marketing cloud and AI spend. Can you discuss the pace of investment for the balance of the year and how you would define a successful outcome for this investment spend?

Jessica, this is Gustav. Thanks for sneaking an AI question right at the top there. They usually take longer to get to. So I'm going to take the opportunity.

So we did spend a little bit more on OpEx. And the way to think about it is we have not increased our headcount, actually we slightly decreased our headcount, but we are spending more compute per employee. And that is because we're seeing tremendous return in terms of productivity.

We talked about accelerating our ability to ship products already during the late fall; that has only accelerated since then. So we're simply doing much more, and we're getting a very good return on that investment.

But as we ship more features, in order to get the true return on that investment, we also need to tell our users about those features, which is why we're seeing some more sales and marketing spend as we market these features to users.

But the way to think about it is we see tremendous opportunity here. I usually make the analogy to in 2009 when the iPhone came out and the App Store came up, and believe it or not, I was actually here back in 2009, so I lived through that. It was a time of tremendous opportunity. Some people sat around and waited. Spotify did not, we took the opportunity. And we drastically accelerated first our conversion to Premium and then our free user growth. We think this opportunity is as big or possibly bigger. So we're taking that opportunity. But we are very diligent and very disciplined about those investments.

So we are seeing these returns. I talked in my prepared remarks about the DJ closing in on 100 million users. Also something we released only 4 weeks ago, Song DNA, is now up to 52 million users, in just 4 weeks. So we are seeing the kind of growth and return on these future investments that we want to see.

Obviously, we think that usage is a good proxy for retention and retention is a good proxy for revenue long term.

Okay. Our next question is going to come from Rich Greenfield on the state of the ads business. Growth is still slowing after the meaningful investments in ad tech in 2025 and absorbing the impact from changes to podcast advertising for Premium subs. Why is increased engagement not translating to accelerating ad revenue growth?

Rich, my friend. This is Alex. I hope you're doing well. I just wanted, before I expand on the question, I do want to just mention to Jessica. We do -- we -- you should check out Prompted Playlist, global campaign just came online yesterday. It's just a terrific campaign that explains how basically we give you back more control over your Spotify with us using AI. And this is a good point to sort of back up what Gustav just said, it's out there in a while right now and it's performing.

So let's get back to the ad business. The ad business, Rich, has been seeing very steady progress more recently. But if you take it back 1.5 years or 2 years almost, we observed that there was a gap. What was the gap? Well, essentially, we saw us missing out on a TAM where people were putting a lot of money. And this time was programmatic, it was automated sales and it was biddable exchanges. And the decision we made back then was a pretty tough one because we had to essentially rebuild the entire stack. And we did that knowing that we would face a bunch of short-term pressure, but that it would unlock meaningfully a much bigger market for us in the long term.

Now that transition is done. So now it's about execution. It's about patience. And really, what you have to believe for this is to work out for us are a couple of different things. But mainly, it's whenever we have seen increased time spent on Spotify, and quality time to boot, right, then -- and then there's a gap to monetization, typically, that gap will close. It's a question of time, whether it's like you're thinking about it as like advertising as a category, whether it's inside the company, the gap will close. It's just a matter of time.

The other things you need to believe in is that really this rebuilt new stack that we have, it actually gives us more opportunity to do new things that we couldn't do before. And obviously, that our measurement and performance shows that Spotify delivers as a brand.

What hasn't changed, I'll end with that, is that advertisers, they come to Spotify, marketers, they come to Spotify for 3 different reasons. Our beloved brand that they want to associate themselves with, our high user engagement and also, of course, our high-quality content.

Okay. Our next question is going to come from Benjamin Black on gross margin. First quarter Premium gross margin was very strong despite only 1 month of U.S. pricing. Can you highlight some of the key drivers of the outperformance? And also dig a bit deeper into the 2Q gross margin guide. Could you talk about the investments you're making that may be weighing on gross margin upside? .

Benjamin, Alex here. I was looking forward to answering this question, but I don't know what Bryan did there when he sort of hit it. But it's now back up again, I was happy to see that. I mean it's cool that you called it out because both Gustav and Christian are very pleased with the gross margin progression, not just for this quarter but also consistently in the last 2 years.

And really, the underlying reason for this is a very healthy core that actually spans both music and podcast and audio books. Now Christian [indiscernible] as far as going forward, I think the important thing is to understand how we think about gross margin. And like Gustav said, this is a time of tremendous opportunity for us. And the muscle that we've built during the past 3 years -- actually even 4 years, is that we think about reinvestments using cost of revenue, using gross margin in a very disciplined way.

We do that. We try to strike a balance between that and margin progression. And again, I think we have a pretty good track record of striking a good balance between these 2 things.

Should I just give you a little bit more flavor on the second quarter gross margin guide as you asked about that. I mean we do have a very strong growth [indiscernible] and we do invest in the same time on the base -- on the top of our core that is going really well. And that we do in quarter 2 in smaller, minor investments in different things. And some of them you will you will see today and some of them you will see when we get to Investor Day, and some of them you maybe will see later. But it's a good flow we have right now, and we are very disciplined and working very hard in our weekly bets board to actually update ourselves to see what we want to do.

Okay. Our next question is going to come from Doug Anmuth on AI products. Can you update us on your progress towards new AI products that would empower users to create new content and enable derivatives of existing music? What are the hurdles to launching these products? And do you expect that they would impact your cost structure or margin trajectory in any meaningful way?

Doug, this is Gustav. I'll take this. I'll talk about this a little bit before. So for now, I'll mostly reiterate how we actually think about this opportunity. The way to think about it is that the generative market, for example, for music is really 2 things. It's net new music, which is happening at scale and quickly increasing the catalog. And that, we think, is good for a company that aggregates content, because it makes the recommendation prompt even more important.

I think it's worth thinking about, I just mentioned, reveal my age here, saying that I joined Spotify in 2008. When I joined, I think the music catalog was about 2 million tracks, and now something like 250 million tracks. So the growth of the catalog is not new. We think it's going to keep increasing. And that means that the recommendation prompt gets more important for consumers.

But what we think there is a unique opportunity is that, right now, existing creators are largely left out of the AI opportunity altogether. Many creators are using AI to make new music, but existing creators cannot join. That's because the copyright problem is much more complicated to [ solve well ] and the attribution problem of who should get paid what is much harder. But we love hard problems. So that's the problem we want to go after. We want to take this opportunity to existing creators as well, with derivatives of existing IP.

So as I've said before, we have the capabilities and technologies we need. We are the right company to solve this problem. And we think that existing creators should participate in AI just as well as new creators.

Okay. Our next question comes from Justin Patterson on productivity. We're seeing many companies wrestle with headcount investment versus rising AI costs. How is Spotify approaching this problem in gauging employee productivity? .

Yes. So this is Gustav again. Thank you, Justin. I kind of mentioned this, I snuck this point in before, but I'll reiterate that we are seeing tremendous productivity growth. You can translate that into different things. You could translate it straight into cost savings and cut headcount, which some companies out there are doing. The other thing you could do is to say we're going to be roughly the same amount of people. We're just going to do more. The third thing you could do, which you also see many companies doing is saying we should invest like crazy because there's so much opportunity.

Right now, we're going for the middle approach. We're keeping our headcount roughly flat and just doing much more, shipping more value to consumers.

And then on the question on how we measure this. You have many proxies on the way. So one proxy for this would be something very technical, like pull request, what amount of code is getting written, and maybe better proxies, how much we actually ship. We have something called DODs, definitions of done, for any feature that we build. So how many DODs are getting done? How many bets do we have on this bets board that I think Christian mentioned and I talked about before.

And all of these keep increasing. And they're increasing several times. They're not increasing 10%. They're increasing -- they're doubling, that kind of increase. So we're seeing all of these metrics.

Now we are starting to see these things ship. And as I mentioned, with things like Song DNA [indiscernible] starting to see them translate into usage. And usage, as Alex mentioned, is a really good predictor of retention, and retention is a predictor of revenue. And as Alex mentioned as well, we have 3 different modes of monetizing features. There is the free tier, where you can maximize the reach, we are one of the world's largest subscription where you can bundle things. And then as of recently, we've also shown that we can do top-ups like within audiobooks, which we are very excited about the progress on and the numbers that we are seeing.

So we feel very good. What I'm trying to convey is that we are diligent and disciplined, but we are not sitting around waiting for this opportunity to go past us. We are taking the opportunity. So that's where we are right now.

And just to give a little bit of historical flavor on that, I just want to add and remind us that, some years ago, we did a resizing of the organization. And since then, as you've seen, we haven't increased our employees, and we have been very diligent in keeping the overall platform stable. And as of last quarter, we decreased with 65 people. So it's not like we are growing people and doing that, and we haven't done that -- we haven't done that for 3 years. It's been a very disciplined approach to this.

I think, yes, Alex here is probably too humble to state himself, so I'll say it for him, Alex is actually the one who set this plan about 3 years ago to get Spotify to be profitable, and we've been executing on this plan. So we are very diligent with our cost.

Thank you. That wasn't planned, giving me that much praise. It's both of us, of course. It's both of us.

All right. Our next question is going to come from Deepak Mathivanan on our Ubiquity strategy. You have integrated Spotify and leading AI applications already, ChatGPT last year and Claude more recently. Can you talk about what type of traffic you're seeing and how consumers are using Spotify in AI applications at this time? And how are AI applications helping KPIs such as MAUs and time spent?

It's really all about AI today. That's great. So we are -- there are a few ways to think about this. As you know, Spotify has had a few core pillars, one being [ freemium ] and other being personalization and the third being ubiquity. So one way to think about this is [ just ubiquity ]. Spotify was always going to be everywhere, right? This has been a counter strategy to some of our competitors who favor their own ecosystems. So this goes for ChatGPT, Claude, et cetera as well. We just want to be wherever users are. And so that's a simple way to think about it. And I also mentioned that we track usage and engagement and costs very diligently, and we are seeing what we want to see.

In terms of the type of traffic, it depends on the future, but what Alex mentioned upfront is we have, for the first time in the Spotify history, this ability for users to actually tell us in plain English or actually whatever language they want, what they want. We were always guessing. Old-school machine learning was a statistical activity based on clicks and streams. Now people are telling us in English that they're going for a run and they want this BPM and that cadence and so forth.

So we're getting this treasure trove of data that we are capturing, training on it. And this builds a unique advantage for us. I talked last time about the large personalization model, which is a model that we're training from based on open source models. But it's trained on our proprietary data. This is not something that we rent from someone. This is something we're building in-house.

And the casual name for the large personalization model is a taste model. Why is that important? It is because it turns out that taste is actually not a fact. It is an opinion, and it differs between people, between markets, between use cases and activities. So that is the kind of usage that we were hoping to see in Prompted Playlist in IDJ, and that's exactly what we are seeing, very advanced usage that is giving us a type of data we never had before. And now we're just heads-down serving those use cases better than anyone else.

Let me jump in on the action here a little bit, Gustav. So you -- I think it's important that you're hearing Gustav say this and I say sometimes about how we think. I think as a general approach, it's good for us to explain to you how we think about things so that you can understand how it applies to other things as well.

I think when Gustav said earlier on -- in response to another question that when the music catalog grows and when our content platform grows in volume, it's always been good. It's good for users, it's good for the industries that we're in and so on.

But then the second thing that happens is something we've also said for a long time, and Daniel broached this many times in these calls, that we optimize for the long term, and we talk about optimizing for lifetime value. So how do you bridge these 2 things, with an ever-increasing catalog of content and lifetime value?

Well, it turns out that the #1 reason for why people actually engage more with Spotify is personalization. And how we track that is if AI increases engagement for us, it generally means that it increases personalization for us, right? And increased personalization engagement, to Gustav's points, are going to lead to -- well, they are going to be the best proxies for the increase in retention that we're going to see over time with these investments. And if that happens, then we know that that will eventually translate to a longer lifetime value, which in turn translates to more enterprise value. So that's how we think about the investments.

Okay. Our next question is going to come from Eric Sheridan on operating expenses. Can you frame the key platform and product initiatives that are driving incremental operating expense trends? How should investors think about the trajectory of operating margins going forward? .

I'll start with them, and then Christian can talk about the trajectory. So I've kind of mentioned it already in terms of the OpEx spend, that it's a mix of increased compute, not increased headcount, and sales and marketing, to make sure that we capture the value of the features that we're now launching.

To give you a bit more detail in what do we mean with compute, well, it's a few different things, actually. One is just using things like code, codecs, et cetera, to accelerate our development pace, and building some proprietary systems around that. I talked a little bit about [ Honk ] last time. I have many more exciting things to talk about if you guys want to go there, that we are doing. But that's just one type, accelerating our productivity of writing code.

But then as I also mentioned briefly, we are training rather large models in-house, because we have lots and lots of unique data that no one else has. For example, the large personalization model, which is not something that you can rent or buy off the Internet. You literally need 700 million plus people every day using the platform to be able to say what is trending in a certain region in India right now.

So a lot of it is training -- or some of it is training cost, and that's upfront. And we'll capture that value when those products roll out. And some of it is this direct productivity in terms of development costs. So think of part of it's strategic investment, part of it as a productivity investment.

Yes. And when we see product market fit with the features that we launch, it just leads to an opportunity for us to talk more about it, meaning we can start telling compelling marketing stories around it to scale it even further, on top of this healthy core that we have. It's all about awareness and [indiscernible] and part market fit.

And what we highlighted, and I did in my script, was that the next 2 quarters will be a little bit elevated from this. And we do have a different pattern on our launches this year of products, and that's what Alex talked about. And the R&D, of course, is extremely important for building the tech stack that we are delivering to our customers. So I just want to say with that also that what we did say and we reiterate is that the operating margin will improve year-over-year.

All right. Our next question comes from Justin Patterson on the new free tier. For Alex and Christian, how are you judging the higher cost of the free tier versus subscriber conversion and your LTV framework? How does this compare to your expectations when rolling this out last September?

All right. Justin, good question. I'll start and then Christian will fill in. So you heard me in the remarks saying that we, in particular, pay a lot of attention to the number of days in a month that users spend on Spotify. So I'd much rather someone spent many days in a month rather than many hours per day. Of course, you would want both, but if you have to prioritize, it's the many days in a month.

And really, we -- internally, we talk about it as the lifeblood of our system. And if you look back on the development of the free tier, the new more enhanced free tier that we launched, I can't remember, is it a little bit more than a year ago now, we have seen consistently that the free tier users have increased in the active days in a month.

Now what does that mean? Well, we've had this consistent increase for many years, basically from like '21, '22, '23 and so on. But when we launched new improved free tier globally, we saw this just step change, which essentially means that people are liking the free tier much more, right? It's satisfaction and more usage and more days in a month. So that is always going to downstream lead to more subscriber conversion and eventually lifetime value. I mean it's just blown up my expectations fully since we launched this last summer.

So just chiming in. I guess you also have then read the numbers and maybe a little bit surprised that, in the quarter, was one of the few times we've had a negative development on the year-over-year gross margin on the ads business. But that is really coming back to the great engagement we have, and the engagement is driving more content cost right now than the income on top line. But the beauty in that and the healthy thing with that is that, of course, that means that we will be able to monetize that as we go into the future quarters and that will be then a positive push going forward. So that is really a short-term issue.

Okay. Our next question is from Rich Greenfield on fitness. Fitness will undoubtedly drive increased video engagement on Spotify, particularly on TV screens. How does this impact your video ad business? And how should we think about the cost impact you will bear within the Premium business from adding this content?

I know you love your TV and Apple TV, Rich, so hopefully, we'll see you using Spotify pumping iron in front of the TV or maybe doing some stretching. You should think about this launch as a launch in fitness that basically is something that's happening organically already on Spotify.

This is something we're doubling down on. And much like we did when we launched podcast at first and also audio books, we saw the behavior organically happening on the platform. And if you think about the TAM here, the demand here, in our research, we have this staggering number that says that 70% of our premium users actually train or work out or go to the gym or do yoga every month. And you can also see it in the numbers, hundreds of millions of playlists are being created to do yoga, to go to the gym and so on and so forth, right?

So this is us doubling down on that trend. And little did we know when about 1.5 years ago when we launched [ SBP ], the ad-free video experience for Spotify Premium users, we saw a lot of fitness in structures and fitness creators just, unprompted, upload a lot of videos to Spotify. And if you think about it, this is really what we do, right? This is -- we use our platform to bridge the demand between creatives, like a fitness instructor, and users. We connect them using our trimodal economic engines like ads, subscriptions and top-ups. And we do that between creatives. And this is what we're seeing with fitness right now for us. So we do look forward to this expanding even more.

And I'll just give you the highlight of how I'm using it. We're seeing some tennis content come online. I play tennis, not that I'm very good at all, but I still play a lot. So when I'm sort of gearing up for a bit of a tournament, then, it's an amateur tournament, then I'll see recommendations in the future coming up with podcast videos telling me how to stretch and relax before I go into that week. Maybe there's some instructional videos that tell me how to improve my [indiscernible] backhand. Maybe I'll get an audio book recommendation on how to think about tennis playing. So this is really something that we're happy to invest in. This is a demand trend that's happening right now in Spotify.

All right. Our next question comes from Jessica Reif Ehrlich on ARPU. Have you seen anything unusual in subscriber reaction to your recent price increase? And could you talk about tools for further ARPU expansion from here?

You saw us increase price around the world at -- in the last quarter of last year. And then you saw us increase in the U.S. in this most recent quarter. No surprises at all for us.

[indiscernible] tools, I mean how do we feel about increasing ARPU over time? I mean I think one of the things we have talked about is when you bring engagement and more verticals, you can actually monetize on that. But on top of that, I think we've proven with the model with audio books and top-ups, that that is a way to bring more monetization on our platform from our subscribers. And we continue to look at those kind of elements.

I'll just jump in here. Alex talked a little bit about us explaining how we think. And I think one useful model to think about, not just Spotify, actually all consumer products, is that people talk about averages, your average usage and so forth, but almost nothing is an average. It's almost always a [ power law ]. You have a long tail of users who use something a little and then you have a head of people who use it a lot.

And so Spotify always had the business model to capture the long tail, which requires a free tier, and to capture a bunch of the averagely engaged users in premium. But until we launched audio books add-on, we didn't really have a tool to capture the head, the people who want to read for hundreds of hours a month. We had a clear theory that we could capture the entire [ power law ], but we haven't proven it to ourselves until recently. Now we have those 3 tools. So we feel very good about just getting more usage on the platform and use these 3 tools to monetize it.

Okay. Next question from Steven Cahall on AI music. Does Spotify believe in an AI music creation tier? And if so, what are the sticking points with content partners and how might it be priced to Premium users?

Yes. So this is Gustav. I've touched on this a little bit. What we do believe in is that there is there is a lot of opportunity out there for creators who want to use AI tools, but there is an opportunity that no one is addressing right now for existing artists. And we really want to address that part. We don't think existing artists should be left out of AI. We think that may actually be the most interesting part of music.

If you look at other industries, existing IP is actually the most valuable IP, not the least valuable. But because of our AI music works right now, that is not addressable. That's the problem we want to solve. We think there's a big opportunity for creators and for Spotify and for investors there. And so we think that there's a big opportunity to expand the music catalog, and that is obviously good for us, but we think there is also a big opportunity for existing artists that isn't addressed yet.

Okay. Back to Benjamin Black with another question on fitness. Yesterday, you announced a partnership with Peloton. Could you highlight the strategic rationale? And also, could you talk about the cost structure or this deal? And how does this compare to audio books or the Spotify partner program spending? And is it reasonable to think that monetization will follow a similar strategy to audio books back in 2024/2025?

Benjamin, good question. I like our partnership with Peloton. Although we don't talk about the specific deals, you know that, I can let you know that this is content that's ad-free. It's high-quality content that normally resides within subscriptions, that retail at a much higher price. So we're putting that on Premium inside the fitness category. And so your question is like how does this compare to audio books? Well, in that sense, it actually is similar to audio books and [ SBP ].

Okay. A question from Maria Ripps on advertising. Higher engagement among ad-supported users is clearly a positive. What needs to happen for that engagement to start translating into gross margin tailwinds?

I think just to continue the work on the study progress that we've had so far with the new ad stack, getting not just more programmatic ad sales on top, which is growing very, very fast right now, but also sort of looking holistically at the whole system, including direct sales.

I just want to reiterate that the quarter 1 gross margin that we had was a very small one in that was a short-term issue. And we reiterate which we have said now for 6 months that we see that the second half of 2026 is where we see the growth picking up.

And I think -- I just want to say that again, and again, as it was some kind of a lot of questions around it today that we have said that quite for a long time now that is the second half where you see the progress coming through.

Okay. We've got another question from Doug Anmuth on tiering. You've recently shifted tiers to feature and product sets in a handful of markets, essentially enabling good, better and best versions of Spotify. What have been the early learnings with this move? And how could they apply to more mature or established markets?

I love that you paid attention to this, Doug. This is one of my personal favorites. It's, like you said, it's very, very early and I can't say much about it. But the early indications is that when we deploy these types of value proposition frameworks, we do see a structural increase in ARPU. But it may be too early to sort of talk about specifics just now.

We're positive about it.

Okay. Our next question comes from Sean Diffley on conversion. How should we think about the conversion of free-to-paid sub in 2026 relative to prior years given the enhancements to the mobile free tier? And how much of the increase in marketing spend is related to this versus other features that are on the [ app ] now or coming later this year?

Maybe Gustav can comment on other features on the app and so on, but I'll start by responding to your first question there. I've said it many times before, engagement and really the free tier is the best leading indicator to how our system spins. And by that, I mean, if you have more engagement and if you have a free tier that's thriving, that's growing fast, then that will eventually translate to more retention, to someone converting over to subscriptions, and thereby also generating lifetime value for the company.

And in terms of the spend, it's spread among many features. We are trying to market the features that are differentiated. A lot of them are focused on the Premium tier, maybe more so than on the free tier. The free tier is sort of selling itself because it's free.

All right. And our last question today is going to come from William Packer on AI. Investor concerns over AI disruption have increased. Could you outline the key moats for Spotify that limit the risk from, one, stand-alone low-cost, free AI music alternatives; two, large platform peers that offer free AI music services; and three, competition from AI-first alternatives, which integrate label content?

Yes. This is Gustav. Thanks, William. So there's a bunch of questions in here. I don't really like the word moats. I think there are fair advantages possibly that you've earned because you worked really hard. So some of our fair advantages are that we have about almost 20 years of listening history. And so I touched on this before, some of the things in the world are facts that can be easily commoditized by LLMs, such as the capital of Texas or something. Other things are not so easily commoditized. And it turns out luckily for us, taste is not easily commoditized because it's not a fact, it's an opinion. It differs between people, it differs between regions, it differs between people in those regions and use cases. And on top of that, it changes weekly, what is called right now and what is culture.

So for this reason, we do invest quite a lot in something like our large personalization model, basically our own taste model. We use a bunch of third-party services, but not with our core data. We're turning proprietary models for that.

So I think that will give us a lot of well-earned advantage in terms of serving our users better. And I think it's a very durable one. Because if you theoretically said that someone could somehow snapshot all our user data, all 700 million-plus users, that -- they could train a model on that and then that model is pretty useless after about maybe 2, 3 weeks as culture moved on. So we actually think it's very sustainable, and you need to be at scale to keep these models valuable. So I feel pretty good about that.

Then to get to your second and maybe third question, stand-alone low-cost, free AI music alternatives. I think you may be thinking about what's happening in China with services like soda. And I think it's important to remember that it's a different market in a fundamental sense. The Chinese market basically gated on content between free and paid. And what happened was because of AI, that paid gate got challenged.

Spotify has never gated on content. And in most of the Western markets, the services are not gated on content. So we just don't have that same risk. That doesn't mean that we don't think we could actually benefit from AI, as I've said during this call, both in terms of size of the catalog, but also in terms of serving existing creators.

All right. Great. Thanks, everyone, for the questions. I'd like to turn the call back over to Gustav for some closing remarks.

All right. Thanks, Bryan. So this month marked our 20th anniversary actually, 20 years of building what once seemed impossible, innovating for the greatest artists, creators and authors, and shipping the best and most valuable experience for the world's most passionate and engaged fans. And there is still a lot more to come from us.

So we hope that you'll join us for upcoming Investor Day on May 21 in New York. We can wait to show you what it all means for the next chapter of Spotify's growth. So we hope to see you there. Thank you, everyone, for joining.

Okay. And that concludes today's call. A replay will be available on our website and also on the Spotify app under Spotify Earnings Call Replays. Thanks, everyone, for joining.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Good day, and welcome to Spotify's Fourth Quarter 2025 Earnings Call and Webcast. [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.

Thanks, operator, and welcome to Spotify's Fourth Quarter 2025 Earnings Conference Call. Joining us today will be our Founder and Executive Chairman, Daniel Ek, our Co-CEOs, Alex Norstrom and Gustav Soderstrom; and our CFO, Christian Luiga. We'll start with opening comments from the team. And afterwards, we'll be happy to answer your questions. Questions can be submitted by going to slido.com and using the code Spotify Earnings Q4 '25.

Analysts can ask questions directly into Slido, and all participants can then vote on the questions they find the most relevant. If for some reason, you don't have access to Slido, you can e-mail Investor Relations at [email protected], and we'll add in your question.

Before we begin, let me quickly cover the safe harbor. During this call, we'll be making certain forward-looking statements, including projections or estimates about the future performance of the company. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed in today's call in our shareholder deck and in filings with the Securities and Exchange Commission.

During this call, we'll also refer to certain non-IFRS financial measures. Reconciliations between our IFRS and non-IFRS financial measures can be found in our shareholder deck, in the financial section of our Investor Relations website and also furnished today on Form 6-K. And with that, I'll turn it over to Daniel.

All right. Hey, everyone, and thanks for joining. As a short accounting exercise has just shown me, this is my 32nd earnings call. And as you know, this was the last one that I did in the role as CEO. Alex Gustav and Christian will give you an overview of the business and cover the quarter, but before I hand it over, I wanted to share a few thoughts. First, I want to say gratitude to the incredible teams at Spotify to the artists, creators and authors we build for, the more than 0.75 billion people listen with us daily. Thank you, and thank you to all of you as well. I can say that I've generally valued these conversations with our investors, with analysts and even the tough questions, getting to build a company like this and to share that journey with people who care about where it's going, it's been a real privilege.

From day 1, our focus has been simple: build the best experience for listeners, be the best partner for artists and creators and do it in a way that scales globally. And that remains true almost 20 years in and for those participating on the call, I know a huge portion of your role is scoring the companies you cover. So if you want a framework for evaluating Spotify going forward and what to hold us accountable to, I'd point to three key things. And then you must also layer on the culture that makes them possible.

First, we saw problems at the intersection of consumers and creators. This is where we focus. If something is good for the consumer and also good for the creator, that's where you'll find us every time. Discovery weekly, wrapped Spotify for artists, our new mobile free tier. These aren't just features, their proof points. We built tools that help artists reach listeners they never find otherwise and in turn, help listeners discover music, they didn't know they'd love. And we built an ecosystem where artists, listeners, creators, authors and advertisers reinforce each other. That intersection is where we've always won and it's where the next decade gets built.

Second, we are, first and foremost, a technology company. We've said for years that we aim to be the R&D arm for the music industry. And if I may say so, nearly 20 years in, I think we've earned that. We drove the shift from downloads to streaming and subscription, and we prove the model could work at scale. But here's what excites me the most. Our capabilities now extend far beyond music. Today, what we built is a technology platform for audio and increasingly for all ways craters connect with audiences. And this identity will matter even more going forward.

The next wave of technology shifts, AI, new interfaces, wearables, new ways of interacting with content, these will reshape how people discover and experience audio and media. The hard problems I had in music, in podcasts and books and video in live and in things we haven't even built yet. We're going to keep building the technology to solve them.

Third, we play the long game. When we went public in 2018, I talked about long-term value creation. While I know many of you focus quarter-to-quarter, that's not how we grade ourselves, and it's never have been. We choose growth over profitability for many years. And I know that was painful for some of you, but in order to scale, it was the right thing for consumers and creators. And ultimately, for the business we're running today.

We acquired Econet back in 2014 when most people didn't understand why a streaming company needed a machine learning AI company. And that bet gave us personalization, something that's now core to everything we do. We built our Ubiquity Play, that's called Spotify Connect starting in 2011, right as we launched in the U.S. At the time, every major tech platform was building their own walled garden for audio. The conventional wisdom was pick an ecosystem and live inside it. We bet the other way. We decided Spotify should work everywhere, in your car, your speaker, your TV, your gaming console regardless of whose ecosystem you're in, Apples, Googles, Amazon, Samsung, Sonos, all of them seamlessly.

And today, Spotify works across more than 2,000 devices from over 200 brands and you can start a song on your phone and you can finish it on your TV. That doesn't happen by accident. It happens because we choose ubiquity over control, openness over lock-in, and we stuck with it for over a decade. These weren't obvious calls at the time, but they compound. And that long-term orientation will continue to guide Spotify, which brings me to talent because we take a long-term view there too.

At Spotify, we built a culture that tries to build and reward trust. Trust to take risks, trust to fail and learn, trust to challenge each other and share the thinking behind our decisions. And here's why that matters. Moving fast isn't just about how much you ship. It's about shipping the right things. A culture of trust gives you both. People dare to try, but they also dare to debate to push back to find a better path together. That's how you iterate quickly without losing direction. If there's trust, most processes are easy, allowing you to move very fast.

A culture of trust is hard to replicate and is why we develop leaders from within. And I think Alex and Gustav are great proof of this. They've been at the center of nearly every major shift in this company, mobile, subscription, machine learning, podcast, audio books, marketplace, et cetera, et cetera, they didn't inherit Spotify, they really helped building it. And of course, I'm not going anywhere. I'll be here as Executive Chairman focus on the long term, but this is their moment to lead. And I have deep confidence in them, not because everything will go perfectly. Of course, it won't, but because I've watched them solve problems that looked impossible and then do it again and again.

And they're not here to protect what I built, they're here to build what we haven't imagined yet. And their success is our success, and I'm rooting very hard for them. And with that, I'm going to hand it over to Alex, Gustav and Christian.

Thank you, Daniel. And congratulations on a legendary run. Well, both Gustav and I thank you for the encouraging words and your trust. Now we closed out what we dubbed as the year of accelerated execution with another solid quarter, delivering a strong finish to 2025. In Q4, we met or exceeded guidance across all the key metrics. We marked our highest quarter ever for MAU net additions. It's just incredible to think that we now serve over 0.75 billion people around the world. Since going public, I have been touring the importance of our flywheel, and it all starts with MAU growth, which, in turn, fuels the growth of our overall business.

A driver of MEU outperformance is wrapped, which was also a record-breaking this year. While we saw impressive engagement back in 2024, we also got feedback on the user experience. So this year, we turned up the dial and the response was redeeming. At the end of the campaign, more than 300 million users engaged, which was up 20% and we saw more than 630 million shares across social media, which is up 42%. Even more, day 1 of wrap marked the highest single day of subscriber intake in Spotify history. Lots of learnings, and we take our responsibility seriously to deliver on this much anticipated moment every year for our users. We're also driving significant business growth for creative industries.

And in '25, we paid out more than $11 billion to music rights holders, once again setting a global record for the highest annual payment from a single source. This takes us to nearly $70 billion since our founding. In podcasting, video podcast consumption on Spotify has increased by more than 90% of since the launch of the Spotify partner program or what we call SPP. There are now more than 530,000 video podcast shows on our platform. And I hope you all caught the watershed moment at the Golden Globes where Spotify and the ringers good hang with Amy Polar, won the first ever best podcast award. This milestone underscores podcastings impact on culture, and we're proud to have been a key part of it.

Now rounding things out with audio books, we expanded our books in premium to more markets where we're already finding some of the world's most passionate listeners. As we continue to scale this leading global publishers have credited us with bringing in listeners -- new listeners and driving double-digit growth in audio books. And you should expect Gustav and I to continue to optimize for and be relentless about creating value for users because when people spend more days in a month with us across more moments, more devices and more verticals, it proves our product is working. It means our investments into personalization and AI are paying off. It means we're doing a great job sharing the art made by our artists, podcasters and authors. What this ultimately translates into is greater engagement and retention, which unlocks more revenue growth.

And as our revenue grows, we bring back more value back to our partners, artists and creators and with scale comes more opportunity for innovation and margin expansion. Disciplined reinvestment of this pushes growth even further. This is our formula, rinse and repeat. And as we've mentioned before, we have one of the greatest TAMs in the world. That's because everyone has a relationship with music and podcast and audio books, it deepens that connection even further. We proudly count 3.5% of the world as subscribers, and there's still lots of room to grow. It's not impossible to imagine us converting 10% or even 15% of the world's population to subscribers.

With strong performance across all metrics, including user growth, revenue, gross margin, operating income and cash flow, I'm confident about our position. And I'm optimistic about 2026 and beyond. We expect continued healthy MAU and subs growth throughout the year while maintaining our consistently low churn. We will also make further progress on driving top line growth and expanding gross margin. In closing, you might be wondering about our focus for 2026. We are framing it as the year of raising ambition. We were founded to solve what we felt like the impossible and ambition has been the driving force behind our success from our earliest days.

An ambition will be a guiding principle of our next chapter. We are looking forward to telling you more about more about it at our Investor Day in May of this year. Though what I'm certain about is that Gustav will take the opportunity to tease some of that, hopefully, not giving away all of it. And with that, I will pass it over to Gustav.

Thank you, Alex. I will try to contain myself. In 2025, we launched more than 50 new features and innovations, stated prompt the playlist, page match, about the song that all launched very recently actually in the last few weeks. So I think it's fair to say that we more than delivered on our bold ambitions of last year, pushing every boundary and driving engagement even higher. Now I think it's important to zoom out, as I know there's been a lot of commentary around AI over the last few weeks and actually last several months.

Like any significant global shift, we know that there will be winners and losers. But there is no question in my mind that we will continue to be one of the big beneficiaries of AI. I'm expecting a lot of questions on AI in the Q&A. So let me share a bit more upfront. My view is that new technology is seldom disruptive on its own. Significant disruption happens when new technologies enable new asymmetric business models. For example, this is what Spotify did to music downloads, this is what Uber did to Taxi service. So the question everyone should be asking is, does this evolution create new business models? Or are we mostly just seeing new technologies.

For example, in SaaS, there is currently a lot of fear that the preset business model will be challenged by more outcome-based models, which is reasonable. However, in the consumer space that we are in, we believe the dominant business model will continue to be ads plus subscription. Both places were Spotify excels. This puts Spotify in an outstanding position because we already have the right business model. Our job then just becomes leveraging these new technologies to our benefit, which is something that we've done consistently for the last 18 years.

Another reason that we are in a strong position is that we have been building for this moment for some time. Back in 2021, we saw the potential of AI that would be able to think and speak at the level of human. So we acquired AI voice platform, Symantec in 2022. And this put us on an early path to introduce Agentic experiences to Spotify users. One example of this is the widely popular interactive DJ, which we introduced in 2023 and have continued to enhance since then. About 90 million subscribers have used IDJ so far, driving over 4 billion hours of time spent on Spotify, and this keeps growing.

More recently, we also launched prompted playlist, a new tool that has instantly taken off with power users. So if interactive DJ is the chat interface to Spotify, where you can talk casually prompted playlist is the deep research mode of Spotify. It lets you describe and set rules for your own personalized playlists, literally writing your own algorithm. It taps into your entire Spotify listening history, reflecting not just current obsessions, but the full arc of your music taste and integrates up to the minute culture pulled from the Internet. There is nothing else like it.

So all of this teases the next evolution of Spotify, delivering the world's most intelligent agentic media platform, one that you can literally talk that fully understands each individual listener and puts them in the driver's seat. It's about moving from a passive experience to an interactive one. This is a stark contrast to most media services today. Innovation like this drives retention and time spent on Spotify, enhancing customer LTVs and monetization potential. And the momentum is undeniable.

Looking at the U.S. alone, monthly streaming hours per user have grown more than 20% in the last 5 years, and we feel well positioned to make continued gains here. Another example of interactivity is this matching success of our new mixing tools. We recently hit a milestone of 50 million mixed playlists, and listeners are now making more than 1 million transitions per day, building yet another unique data set that improves our experience.

People don't just want to listen. They want to actively participate in the music. They want to shape it. This is now becoming possible in ways that were previously unimaginable. So on that note, there is obviously a lot of conversation around AI and music right now. So let me just share how we think about it. We see two distinct categories emerging. One, artists making original music from scratch; and two, new versions of existing music like covers or remixes.

The first category means a lot of net new music and more content than ever being delivered to Spotify. Importantly, a growing catalog has always been very good for us because it attracts new users, drives engagement and build fandoms. As more artists and corporate AI tools, the lines around making music are blurring. But while the music may be generated on various AI platforms, the point is that regardless of what the music is made, the cultural moment always happens on Spotify. That is where all music charts and finds an audience.

This is because Spotify has long been in the place that delivers both the largest reach and monetization opportunities. The second category is derivatives, new takes on existing music. Everything we see tells us listeners want to interact with their favorite music and many artists want to let them, creating new revenue from their existing catalog. In other media, like movies and TV, existing IP is incredibly valuable. But in music, artists haven't had a real way to monetize existing catalog through AI because the absence of a rights framework has kept AI mostly focused on the first category, net new creation.

We want to work with the industry to fix that. If you're an artist, looking to unlock this potential upside, you'd want to do it on the world's leading music platform. Your fans and the largest royalty pool are already there. We have the technology and capabilities ready to unlock this in a way that is additive for both IP rights holders and Spotify. And as we've said before, we intend to do this in the right way with our support, not around them. In fact, many artists and industry partners see this opportunity, and we are already working with them on realizing it.

With so much out there, you may be wondering if we can keep up this pace in shipping. In fact, we think we not only can, but we think we can increase it. We've been embracing and investing in this technology evolution for some time. and it's allowing us to move with much higher speed. As a concrete example, an engineered Spotify on their morning commute from Slack on their cell phone, can tell Claude to fix a bug or add a new feature to the iOS app. And once Claude finishes that work, the engineer then gets a new version of the app pushed to them on Slack on their phone, so that he can then merge it to production or before they even arrived at the office. We call this system internally Honk, and we've been told by key AI partners that our work here is industry-leading.

As Daniel said in his remarks, we are a tech company and we consider ourselves the R&D department for the music industry. Our job is to understand new technologies quickly and capture their potential, which we've done time and again. The entire industry stands to benefit from this paradigm shift but we believe that those who embrace this change and move fast will benefit the most.

And now I'll pass it over to Christian to take you through the numbers.

Thanks, Gustav, and thanks, everyone, for joining us. I'll cover the quarter 4 results and provide some perspective on our outlook. Unless otherwise noted, all reference growth metrics are presented on a year-on-year constant currency basis. Overall, we're pleased with our strong quarter 4 finish. Total revenue grew at an accelerated 13% to EUR 4.5 billion. Premium revenue rose 14% versus 13% last quarter and was primarily driven by subscriber growth. Our advertising business grew 4%, flat versus flat last quarter. On a like-for-like basis, excluding the effects of our podcast optimization strategies, we had roughly 7% advertising growth. We are encouraged by the progress we're seeing in terms of market adoption of our new advertising tools and continue to expect improved growth in the second half of 2026.

Moving to profitability, gross margin came in at 33.1%, expanding just over 80 basis points year-on-year. Our outperformance here was primarily driven by content cost favorability. Operating income of EUR 701 million was EUR 81 million above forecast, of which social charges had a positive impact of EUR 67 million due to share price movements. The remaining variance to guidance was driven by the gross margin performance.

Finally, free cash flow was EUR 834 million in quarter 4, and we ended the quarter with EUR 9.5 billion in cash and short-term investments. We repurchased EUR 433 million worth of shares in quarter 4 and we'll continue to opportunistically return capital via share buybacks. In summary, quarter 4 capped off another year of healthy growth with profitability and cash flow improvement for us. On a full year basis, 2025, revenue grew 13%. Gross profit grew 20% and operating income grew in excess of 50% to deliver a full year margin of 13%, and our free cash flow generation improved by approximately EUR 600 million to a record EUR 2.9 billion.

Looking ahead to quarter 1, we are forecasting EUR 759 million MAU, an increase of EUR 8 million from quarter 4 and 293 million subscribers. In quarter 1, which is seasonally our smallest quarter, our subscriber outlook implies net additional 3 million. This is within our historical range for quarter 1. Effects of new pricing implementation in quarter 1 are considered in our forecast. And as Alex mentioned, the churn with respect to these price increases is in line with our expectations.

In addition, we remain very encouraged by the early benefits we're seeing to our funnel, thanks to the enhanced 3 tier that we rolled out in late quarter 3. We are well positioned for conversion and continued healthy subscriber growth in 2026. We're also forecasting EUR 4.5 billion in total quarter 1 revenue, representing an improved growth rate of approximately 15% versus 13% we just delivered in quarter 4. We're forecasting ARPU growth in the 5% to 6% range. Our revenue outlook also incorporates effects of unfavorable currency movements, which results in an incremental EUR 35 million headwind when compared to prior quarter exchange rates.

We expect a quarter 1 gross margin of 32.8% and operating income of EUR 660 million. While we do not give full year guidance for gross margin and operating margin, we are expecting both to improve in 2026. For gross margin, we expect our recent pricing adjustments to help drive revenue growth that outpaces the net content cost growth in 2026. That said, the quarterly progression of our margins could again be variable depending on the timing of disciplined investments in our core and monetization activities.

Finally, we expect our free cash flow generation to meaningfully exceed what we generated in 2025 and while reflecting progression towards a normalized long-term tax rate. In conclusion, we are confident in half into 2026 and will make further progress on driving top line growth, disciplined reinvestments and expect improved margin and cash flow.

With that, I hand it back to you, Bryan.

All right. Thanks, Christian. Again, if you've got any questions, please go to slido.com #Spotify Earnings Q4 '25. We'll be reading the questions in the order they appear in the queue with respect to how people vote up their preferences.

And our first question today is going to come from Jessica Reif Ehrlich on AI opportunities. Across all sectors, the market is acutely focused on AI and its impact on current business models. How is Spotify planning to use AI tools and applications for new and evolving product offers? And will this eventually lead to new tiers of service.

This is Gustav. I'll take this. And this is a big question. I'll try to keep the answer to under 30 minutes, just kidding. I try to answer some of this upfront in my prepared remarks, but I want to say one additional thing. If we just zoom out and look at what is happening right now is the typical example of what is called the macro change, right? Spotify has lived through many macro changes. And I think it's important to know that while many people are scared in times of change, this is when there is the most opportunity. If you look at Spotify, it was borne out of a macro change, which was ubiquitous cheap broadband. That's how we got the scale.

And then this next huge wave came across as called the smartphone. What happened? Spotify accelerated and started growing faster. And the next microwave came, which was called personalization, what happened? Spotify embraced it and grew even faster. Then the next thing came, which was the connected home. We all forgot about it now, but it was a big deal. What happened? Spotify started growing faster, over 2,000 integrations with hardware partners. The thing about macro change is that if you capture it, it's an opportunity, not wind. This is what we're focused on. And we feel very well positioned for this opportunity. As I shared in my initial remarks, the first thing to look at is do you even have the right business model. Well, if you look at the AI companies, the business model is subscription and increasing the ads. That's what we excel at.

So we have the right business model. And I don't see that changing for the consumer space. So we feel very positioned from a structural point of view. On top of that, as I shared, we've been investing towards this opportunity for many years now because while it's happened faster than many people think, it was not impossible to foresee that this would happen. If you just believed in the exponential we would get here. This is why we are leading in the market with these interactive natural language-based services in terms of media platforms.

So to be specific about what I'm excited about, I am excited about us being the first truly intelligent agentic media service that you can literally talk to. And this is not just a pipe dream. You can already talk to Spotify through the AID J casualty, but also to prompted playlist in sort of a deep research way. We're going to keep investing in that. What that means structurally for Spotify is that we are building a data set that never existed, which is the data set of language to music, language to podcast and language to books.

We've had the song to song data set, but no one had the language to song data set. And I want to drive on the point here, which is this is a specific data set. You may think it is a canonical data set, meaning there is a factual answer. -- to, for example, what is workup Music. There is no factual answer to what it work as music. In fact, it turns out that taste is not a fact. It's an opinion. So if you look at something like work at music, on average, for an American, it's usually hip-pop, European, it's usually EDM, for many Scandinavians, it's something like heavy metal or even death metal. But then again, for a lot of Americans, millions at least, it's also death metal. So there's no canonical answer to what does work at Music mean. You can't just have an LLM commoditize it as a fact, the way you can commoditize wikipedia.

You actually need to have many, many hundreds of millions of listeners across the world's market, constantly telling you what it means for that specific person. This is the data set that we are building right now that no 1 else is really building. It doesn't exist at this scale. -- and we see it improving every time we retrain our models. This is what I'm excited about. I think I'll stop there or I'll take the whole Q&A.

All right. Our next question is going to come from Doug Anmuth on gross margin. What are the drivers of gross margin expansion in 2026? And do they shift at all from recent years?

Hi, Doug, I'll take that. Alex here, and then Christian, you may jump in. I'm confident in our gross margin trajectory in terms of making progress towards our long-term goals that we've talked about before. We intend to do it in a steady and sustainable manner. And the way we're really managing our gross margin is a balance between a couple of different things. One is thoughtful monetization; two, we want to be disciplined with reinvestment and our cost of revenue -- and of course, we're going to innovate to create even more differentiation for our platform.

And if you think a bit about the last few years and look at our trajectory, I think we've got a pretty good track record in striking this very balanced.

Okay. Christian here. I just want to fill in. I mean, to start with, just going back a bit to my own script, we do want to invest and we will invest in future value when we see we have that opportunity. And that is what we're doing and creating long-term value is what we're looking for every day. But looking at the gross margin base here in quarter 4 going into quarter 1 and also for next year. And the things that drives that I mean what I said was that the price increases that we have done here is going to outpace the net content cost in 2026.

Remembering also that we are improving our ads business slowly as we go forward, and we feel that, that will pick up in the second half of 2026. We have a marketplace that added both to gross income and margin in 2025. That is also a good tool for us. And finally, as we expand new verticals within the countries that we are in and also to new countries, that is also a good support for our margin development.

All right. Our next question is going to come from Jessica Reif Ehrlich again this time on advertising. You've spent the last 2 years building out your ad tech platform. Can you provide a progress report where are you seeing the most progress? And where do you have more work to do? And will there be a step change in advertising growth later this year?

Thanks, Jessica. It's now 1.5 years since we decided to reengineer Spotify's ad stack and really move off of a rented stack. And we did this primarily to better match what our clients ask of us. the way they would like to buy on Spotify. And frankly, we did is also to meet and exceed the standards of really what is a high-performance self-serve and biddable stack. It was a tough call back in the -- in that moment since it meant that I knew it meant that we had to take some pain as this was going to be deep surgery for us. We now have -- I'm happy to say we now have record levels of advertisers on the platform. and that increased density means much better yield and as a result, more revenue growth for us. We are positive on ads. We still have work to do, but we're definitely making good progress and seeing very positive signs.

Okay. And it looks like one more question from Jessica. This time on capital allocation. Christian, can you provide an update on your views on capital returns given your extremely strong balance sheet?

Thank you, Jessica. Yes. Well, it is a relevant question when we have now a good cash flow, and we also have a strong balance sheet mean. We have said that before. Our primary goal is to reinvest in the business. And as we do that, we actually can increase our growth levels. And when we increase our growth levels, we can get more money to invest back and do that flywheel that Alex talked about in the script. And that is the -- that you have to always remember that is our first thought every day in this company to grow the company.

And as we've said, if we're going to have room for also returning something to the shareholders, we can do that. And in the 2025 duration, we did EUR 510 million in buybacks in the market. And that is still an option for us also going forward, especially to cover up for dilution. In addition to that, as you know, we have EUR 1.5 billion fallen due or plus in a convertible note now in March, which we will settle in cash.

Okay. Our next question comes from Eric Sheridan on AI opportunity. Can you discuss your latest thoughts with respect to AI on one, its role in product and platform evolution for the company; two, its effect to transform your internal processes; and three, the broader audio content creation and distribution landscape.

Thank you, Eric. This is Gustav. I think I touched on a lot of this in my opening remarks, but I'll summarize it briefly. In terms of its role in product development, as I said, you can actually already see that we spent a lot of last year rebuilding the company for an identic age so that you can launch these services where a user can now ask Spotify a question in English that would have required you to be a senior developer at Spotify to be able to answer before. a year ago, only a very senior developer, a Spotify could answer the question of what would the first rather listen to on Spotify? Please take the ones they listen to more than 3 times and match them against what was popular at the time. Now anyone can do that, just using English.

So we've been spending time rebuilding the company for this age before. It's a little bit late to start now. You should have started about 2 years ago, which we did. And now you're starting to see the products on top of this rollout. And as I teased, we really want to be the world's first truly intelligent media platform. You will hear us talk more about this at the Investor Day. So I won't share many more details now, but stay tuned for that.

In terms of transformation of internal processes, I did briefly share in my prepared remarks, this tool called Honk, where you using ColdCode literally on the bus or the train, just ask Claude to add a feature or a bug to, for example, the iOS code base, it will push the QR code back to you so that you can actually try the app with that feature. If you like it, you can merge it to production without even getting off the bus. This is speeding us up tremendously.

Now we foresee this not being the end of the line in terms of AI development, just the beginning. I'm not going to give away more secrets about how we're going to capture it. But you can be sure that we are capturing this. We're retooling the entire company for this age and it's going to be a lot of change. But as I said before, change if you capture is opportunity.

Okay. Our next question is going to come from Rich Greenfield on AI music. What percentage of music on Spotify today is AI generated. How much AI-generated content is being uploaded daily? And what is your policy on the uploading of AI music?

Thanks, Rich. This is Gustav again. We don't share a percentage of music uploaded on Spotify that is generated, but I'll talk to you about how we think about it. The way we think about it is from a creative point of view, Spotify should not decide what kind of tools you're allowed to use? Are you allowed to use an electric guitar, synthesize or digital audio workstation or AI or a more complicated question, a bit of AI, like 1% AI, 15%, 20%, 100%. We don't think it's our decision to make. What we do think, though, is that consumers would like to know and understand what tools were used in the creation of the music.

So we've been working with the industry to allow them creators and labels uploading music to put in the metadata how it was created, so that we can service this to users. And you just recently saw a feature call About The Song that we launched that literally tells you about the song, what the Internet is saying. But as creators start adding this data, we can also tell the consumers how this song was made because we think people want to know.

So that's how we think about it. I also want to mention that one thing that AI can do is to accelerate the amount of spammy tracks. I want to be clear that there's always been people trying to abuse Spotify because it's a big economy using spammy tracks. AI is a tool that could help accelerate that -- but because it's been a problem for a long time, we've been investing more than anyone else in the industry to curb this problem. So for us, spammy AI music is not a new problem. It's just more scale on an existing problem that we actually feel we are leading.

In general, as more content gets created with ever more advanced tools, this is a good thing for Spotify. As more content gets created and uploaded, the personalization problem becomes more important because now there's a bigger catalog. You need to understand individual users taste even better. So we see this development and this is nothing new. When Spotify started, I think there were at most tens of millions of tracks, now there are hundreds of millions. So the 10x explosion has already happened over the last. Yes, so this is something that we're used to. That's how we're thinking about it.

Well, we've got a follow-up and a related question from Rich. Is Spotify playing to win in AI. The bare thesis on Spotify is that Yudio, Suni Clay and stability not only enable consumers to create AI music, but also become DSPs that take share from Spotify with Spotify taking a more cautious approach. Any comments on that?

Hey, Rich, Alex here. It's good to hear from you. So I spend a lot of time with the industry, the music industry and with artists. And there isn't any doubt that everyone is optimistic about the future and that AI is an important moment for all of us. And as Spotify, we provide service to rights holders and artists and songwriters a service to distribute and monetize their art. And the key point here is this is a scaled service with a working business model. This is where you go to put your new songs, whichever technology or instrument or tool you use to create it. And I've done the rounds and no rights holders against our vision.

We pretty much have the whole industry lie behind us. And like Gustav mentioned before, we want to do it in a controlled way, respecting artists and the community, and we will not do deals that isn't -- that aren't good for artists and ultimately is Spotify.

All right. Question from Justin Patterson also related to AI music. If you could expand a bit more on Spotify's role in AI music, do you need to invest in content creation tools and how are you helping human creators build audiences and income streams in this environment?

Justin, my friend. You've heard Gustav talk about how more catalog and interactivity is good for users and also good for the industry. So we sort of partially answered your question already, but I'll talk to you about how AI really enhances the value of our platform. So we have in the past, including Daniel, has talked about optimizing the lifetime value for our subscribers. And that is ultimately when you accumulate all of that, what builds enterprise value for Spotify. And so the question is how does AI do that? Well, one powerful way to drive lifetime values to increase retention. And the best way to increase retention is to increase engagement.

And the #1 reason to engage more with Spotify and it happens also to be something that drives willingness to pay is personalization. And AI, whether it's general recommendations or reinforcement learning system, it just takes personalization to a whole new level. And thus, you have a domino sequence of how really we enhance the value of our platform as we continue to invest in AI. AI leads to better personalization, better personalization leads to more engagement, more engagement leads to more retention, more retention lease to lifetime value and on more lifetime value leads to more enterprise value.

And I would just add to this. To your question of do we need to invest in content creation tools. We have all the technology and capabilities that we need since a long time. This is a tech company. So we are working with the industry to enable these opportunities.

All right. Our next question is going to come from Batya Levi on premium pricing. Following the recent U.S. price increases, how do you see the price to value relationship of the service relative to your competitors? And how do you expect churn to play out versus prior rounds of price increases?

Thank you, Batya. One of my favorite topics. I'm really happy with the price increases we implemented back in January of this year. There have been really no surprises at all. Churn is low and came in according to our expectations. And just as a reminder, this $1 increase is the same magnitude as the U.S. price increase that we implemented back in I think it was June of 2024.

The one important thing to point out, though, is that price increases, as you know, is 1 of several levers we pull for growth. And when we adjust price, we do it from a position of strength. And you know this already, but I'll say it anyway, we evaluate pricing on a market-by-market basis, and we optimize for the long-term value of our platform. And you've seen it in the last few years, we do not apply a one-size-fits-all approach to this.

And to your question, ultimately, what we strive to do is to always create more value than price. And that happens while we're adjusting the price points as we go. This is the kind of value to price ratio we believe in.

We've got another question from Rich Greenfield this time on Spotify culture. Curious, what's changed at Spotify in the early days following Daniel stepping back from the CEO role?

Well, this is Gustav. I'll take a stab at this. From one point of view, not that much has changed because we've kept growing market share and leading. But structurally, some things have changed because first and foremost, Alex and I are two people. So we had two direct reporting teams, and we thought long and hard about how we're going to do that. We were going to sort of split the thing down the middle, mention our own teams, have our own meetings. We decided not to. We decided to run this as a single direct reporting group, something that we run weekly for 3 hours called e-team. So that changed. We focused even more on synchronization than I think Daniel did and so we have the entire decision layer of Spotify, sort of the VPS VP layer in this room 3 hours every week deciding and running and unblocking the entire company.

So there has been a shift in how we operate, and we focus even more on synchronization and planning. And I want to touch on this because in this age of AI think many companies are making a mistake. Maybe I shouldn't reveal this, but I will anyway. People feel like when you have AI, you don't need to plan anymore. I think it's actually going to be the opposite. When you have productivity on tap, what you need to have are very good plans so that these agents are highly utilized and stay busy. So being a company that can plan well and know what you want to do is actually going to become more important, not less important.

So I think I'll lay into that a little bit. I think this shift really began more than 2 years ago. It was carefully planned and to Gustav's point, we now not only synchronize across the company with all of the different teams and their leaders, but we also set targets and we land planes that are important. We are very deliberate about how we target and manage the outcome that we want for the company and our P&L and balance sheet.

And if you look at the past 3 years, you've seen us compound revenue growth at 17% FX-neutral. We have grown gross profit by 20% on a compounded basis for 3 years. And what's more is that we have added 18 percentage points of operating margin and we're now generating almost EUR 3 billion for 2025 in free cash flow, which is a 17% cash margin. So all of us are super happy about this run, and we are definitely in a very strong position as a team to continue to invest and grow the future for Spotify.

All right. And another one on Rich Greenfield this time about books. Can you help us understand why you want to be in the physical book selling market?

Thanks, Rich. This is Gustav. The reason that we are in the -- first of all, I want to say that we're not holding inventory or anything like that in this business. The reason we want to be in the physical book market is because we think that is not a separate market. It is the same book market. So 1 of the most common feedbacks we heard when we talk about audio books, was people saying that Yes, I like it, but it's not enough. I really like reading at night or in the morning. I don't want to lie and listen to my order book in bed because if I follow sleep, I miss it, et cetera.

So we realize that while it technically and financially looks like a different market, we tend to focus on the consumer. And from the consumer, it's the same book, whether it's a physical book, it's on their Kindle or their audio book. So this is what drove us to -- it was really the consumer that drove us to enabling this as well. So that's how we think about it. We want to do books and that requires being in physical books as well. It doesn't really matter if the consumer bought the book themselves and then sink to the order book. But we want to make it super easy. If you find the book on Spotify to not say that, well, I'm not going to listen to this book because I also want to read it. If that's the case, we're right there. You just click buy, it arises in your home and then you can sink it back and forth. So this is really a consumer-led innovation.

We're so bullish on audio books. There's so much upside there. You saw us launch audio books in premium in -- recently in Sweden, Denmark, Finland, Iceland and Monaco. And it's still very early days, but the publishers' reactions to our entrance into the market in the audience, we attract and engage have been just super positive. You heard Gustav talk about audiobook recaps, Page match just now and the partnership with Book shop. In just 2 years, which is a very short order, we've more than tripled our catalog to over 0.5 million titles and expanded into 14 global markets, and there are so many more markets to go from here.

And I just want to say that we talked about raising our ambition. Now Alex and I want to do something different. We want to build something that never existed before rather than trying to copy something that exist. And I think books is a good example of this. We're looking at a consumer problem that no one else really looked at and said this needs solving. We really want Spotify to be your media partner, if that requires us sinking to your physical book or your Kindle e-book, then let's just solve that.

All right. Our next question is going to come from Steven Cahall on AI opportunity and priorities. With the stock down approximately 1/3 over the last 3 months, the market appears to be implying Spotify will be negatively impacted from AI. What do you think the market is missing from how Spotify can benefit from AI? And what are your top priorities so you don't fall behind within this new industry landscape?

Hi, Steven, Christian here. Let me start and then hand over to Gustav, but I think it's been notable listening to today's discussion and also seeing the last quarter. Of course, that AI has been something that has been hard to grasp for many people. We don't comment on our share price when it changes like in this short term and so on, and we will not do that going forward. But it's obvious from the recent months, but also from the discussion today, I would say, in all the questions we get, that AI is something that is interesting and will have an impact.

And I think, hopefully, we have discussed and explain why this is a great opportunity for us. And as Gustav said before, we didn't start now. We started many years ago. And if you haven't, you probably will have a tougher time, and that's why we think this is a great opportunity. I hand it over to you, Gustav.

I won't say that much more, but Alex here told me that the Chinese sign for Macro Wind is opportunity. So we're going to try to capture that opportunity. I want to be clear -- so we're going to invest, but we're going to invest with discipline when we see clear opportunities and returns.

All right. We've got a question now from Doug Anmuth on our new free tier. When should Spotify see easing headwinds to subscriber conversions from the recent free tier announcements with a shift towards increasing conversions and subscribers. How does this impact the trajectory of both 2026 MAU and premium subs?

Doug, we just came off of a really good quarter when it comes to both MAU and premium subs. So I'm very, very encouraged about the 2026 growth of these 2 metrics. We are seeing strong engagement uplift, not just in our new enhanced retail around the world, but also generally for Spotify. And this was one of the major contributors to us adding 38 million users in Q4. When you fix the -- it's sort of like a leaky bucket when you start plugging the holes the level of the water will rise faster. And this is perhaps the most important leading indicator to growth that Spotify it's been so in the past 15, 16 years that I've been here. If engagement goes up, it means user growth will increase and ultimately, this has downstream impact on the overall sport business, including subscribers and other monetization.

Right. Thanks, Doug. Another question from Justin Patterson for Gustav on AI. How is agentic coding changing product velocity. What do you believe Gen AI could mean for engineered productivity and R&D investment needs?

Thanks for the question, Justin. Well, I would say that -- I think it's obvious to everyone, but over Christmas, Christmas this year was an event, a singular event in terms of air productivity. Certainly, I spent my entire vacation coding rather than being on holiday. And I think most people in tech did. A lot of things happened in December, including OPUS 4.5 coming out to Cloud code. And we crossed the threshold with things just started working. So a lot has actually changed very recently.

And when I speak to my most senior engineers the best developers we had, they actually say that they haven't written a single line of code since December. They actually only generate code and supervise it. So it is a big change. It is real, and it's happening fast. Now as I said, we've discussed for the last at least 1.5 years, not if this should happen, but when it should happen. And we've started building systems like Honk that I explained for this type of world. So I feel very well positioned to capture this.

But I want to be clear, this is the beginning of the change. There's going to have to be a lot of change in these tech companies, if you want to stay competitive. And we are absolutely help band on leading that change. But it will be painful for many companies because I think engineering practices, product practices and design practices will change. And the tricky thing right now is that if this was the end of the change, you could say this is what happened. Now let's retool for this. The tricky thing is that we're in the middle of the change.

So you also have to be very agile. The things you build now may be used less in a month because it may be provided by 1 of the big engines, et cetera. On the other hand, it's getting so cheap the right code, so you should probably do it anyway. So I think what it's going to mean at the end of the day is that Software companies will start producing enormously more amount of software, right? If you go back to, there is this fear that software companies are not going to exist anymore, everyone rolls their own product. I certainly don't think that's going to be true for consumer products. I think what will happen is something more like what happened with the Internet.

When the Internet came along, everyone thought that we would all have our own web pages. What actually happened was that ended up being very few web pages. In times of lower friction, things actually tend to aggregate, not disaggregate. That's the opportunity we see in front of us. I think companies such as us are simply going to produce massively more software up until our limiting factor is actually the amount of change that consumers are comfortable with.

All right. We've got time for just a few more questions. We're going to go now to Steven Cahall on gross margin with premium ARPU set to accelerate for much of 2026, how should we think about premium and total margin expansion? Your Q1 margin guide already implies improvement versus the typical seasonality. So can we expect a stronger year for margin expansion than we saw in 2025?

So thank you, Stephen. As you know, which I've said already, we don't give full year guidance on our gross margin. But you're right. I mean we move into quarter 1 with an ARPU growth of 5%, 6%. That's a bit faster than we have reported in quarter 4. And it incorporates recently announced price increases in the market like U.S. And that will flow through our P&L for a portion of the quarter and will improve a bit.

But that said also, we have said it repeatedly, and I will say it again, which is very important, except for that we're not guiding on full year gross margin is that we actually do invest when we see an opportunity long-term value. And that said, then the quarterly progression of our margins could again be variable depending on the timing of disciplined investments in our core and the monetization activities that I just mentioned. So keep that in mind. And as we say, we do believe that gross margin and operating margin will improve in 2026.

All right. Our last question is going to come from Batya Levi, also related to AI opportunity. Back in October, you had announced partnership with the major labels to develop artist-first AI products. with all the hype about competition and disruption, can you talk about how you plan to differentiate with these products? And is there an urgency to launch them?

This is Gustav. I'll start and maybe Alex wants to jump in. No, we're not going to ship ideas. We're not going to ship what we're going to do in the future. That wouldn't be very good for all of you shareholders. But what I will tell you is that, as I said in my prepared remarks, we think of it in 2 ways, net new music and derivatives. In terms of net new music, there are tons of companies that allow you to create music using AI. But that's not where the music breaks. That music if it breaks, breaks on Spotify. That's where we charge that's where the culture moment is.

So we feel very comfortable about that position. A growing catalog has always been good for Spotify. Now in terms of the derivatives, as I said, we think this is an untapped opportunity for artists to make money off of their existing IP. We have the technology and capabilities that we need, and we're very excited about it. And we are ready for the for the partners that are hungry to see this opportunity. We think the ones that move first will benefit the most. So we're hungry and excited. We're not particularly stressed about it, but we're there for people who want to make money.

All right. Thanks, Gustav, and thanks, Batya. That concludes our Q&A session. I'm going to turn the call over now to Alex for some concluding remarks.

Thank you, Bryan. So from any vantage point at Spotify, there is a lot to look forward to. In March, we'll kick off our 20th anniversary at South by Southwest, and we are excited to share more about our year of raising ambition and a longer-term vision at our Investor Day on May 21 of this year in New York. So please hold the date. Gustav, Christian and I are looking forward to seeing you there.

Right. And that concludes today's call. A replay will be available on our website and also on the Spotify app under Spotify earnings call replays. Thanks, everyone, for joining.

Okay. Good morning, everybody. For important disclosures, please see the Morgan Stanley research disclosure website at morganstanley.com/research disclosures. I'm Ben Swinburne, Morgan Stanley's domestic U.S., I guess, in this case, media and communications analyst.

And I'm extremely excited to welcome to the conference for the first time in this role as CFO of Spotify, Christian Luiga. Christian, thanks for being here.

Thank you very much.

How does being here with Spotify compared to your prior roles?

I just realized this morning, I haven't been here since I -- 5 years ago, what I was here with Telia.

We renovated the hotel for you.

It's fantastic. It's a beautiful hotel. It's a beautiful city and actually, I think this -- I don't say it because I'm sitting here. It's one of the better conferences in the year.

I'll take that. I would love to hear why you decided to join Spotify after such a long and successful career in telecom and defense.

Well, I got an opportunity that I had to think about for a while. But it's really a couple of things that attracted me to Spotify. One of them is, I wanted to work for a true tech company. And we talk about content and the music and podcast, and audio books on Spotify, but it's really a tech company, and it's true heart. And secondly, it's a global company. And I wanted to work with something to see how and work with the scale of a global company.

Thirdly, the culture and leadership, and I have some experience from Daniel and Martin since before, but I wanted to work with them also. And I'm getting a little bit old. You need to figure out what you want to do before you become pensioner.

And then finally, I wanted to get closer to the U.S. It sounds strange. I've done now over 80 reports to the market. And before this company hasn't done anyone on the New York Stock Exchange. So that was something also for me to tick the box and get close to the U.S., so much happens in the U.S. definitely now also to be close to that country and what happens coming out of the tech side in the U.S. as well. That was 4 reasons that was very strong for me.

That all makes sense. So before you joined the firm back in 2022, Spotify had an Investor Day, which we still talk about 3 years later, and at that event, the company laid out some long-term ambitions, including reaching 1 billion plus MAU, which I think people were skeptical of at the time, gross margins in the 35% to 40% range, EBIT margins in the 10% to 20% range.

As the CFO coming in over the last year and sort of looking at setting up the business, what are your kind of main priorities to make sure the company is able to deliver on those ambitions.

Yes, I think it's not that far away, but still some years ago. And I get that question a lot going back to 2022, how do you look at those goals? And just starting from that day to today, like you say, it's quite amazing. We have increased our users with close to 300 million. And we have 100 million more subs, just in that period. So that goal that feels very hard to achieve, we are really running at that goal. So that the proof point is really in that we are delivering and we're delivering then also through 2024 and into 2025 and with the profit -- profitability coming in and the growth continue to be there with over 20% growth than last year and pacing somewhat below that this year, but we also know that the monetization is coming in into next year.

So I think I feel very strong about our position in that sense that we also have a year now when we have sort of reestablished ourselves a bit and [ I'm not ] really making ourselves prepared for going forward on many things that I know we're going to talk about today. That makes me very confident that we can continue to drive towards these goals and beyond those goals.

There was some pretty big news at the top of Spotify. And I know your relationship, you mentioned before, you've known Daniel and Martin for a long time. But folks were a bit surprised when the company announced that Daniel is going to be moving from CEO to Executive Chairman; Alex and Gustav, stepping into those co-CEO roles, the stock sold off, as you know that day.

What should investors take from that announcement? What changes in Spotify should we be thinking about as a result?

Let me bring that because now you brought it up twice. But I actually met -- when I worked at Telia, which I know is here in this conference as well, back in 2008, Daniel and the team then being more in a basement in Spotify dealing with a super cool product called Spotify, they realize that they -- and they've been very open about it. They missed the mobile journey.

And I was at working at telco realizing also how fantastic the mobile journey was because mobile subscriptions and mobile phones, which is going crazy. And no one can really imagine how fast that mobile conversion would happen, [ and not in ] Spotify. So they came to us at Telia, and we had a dialogue and we started a partnership where we actually preloaded the Spotify partly exclusivity wise in beginning and then we invested actually in Spotify. So I did a capital allocation that was a little bit criticized for into Spotify at that time.

You're an early investor.

Early investor in Spotify and then we stepped out there. But that was when I met actually Daniel and Martin for the first time.

But now if you look at your question here on what happens really, when Daniel says I'm going to leave the CEO role and become an Executive Chairman, I think a couple of things here to remember is that the current setup and that has been for the last years is really that Alex and Gustav has been co-presidents, and so Gustav has been running the tech side and Alex, the business side. And there's been no other business people reporting to Daniel over these last years. So on top of that, has been functions like finance, legal and so on reporting to Daniel. So really, from a business point of view, not much change is happening with this step up.

Daniel will continue as an Executive Chairman as well, which means more from a European point of view, he will spend time as needed and as he feels appropriate, which is maybe more often than we think, when he gets involved in the strategic and long arc thinking in the company, the capital allocation and also other long-term decisions that need to be made. So he will be in the office. Actually, he will have an office in our office, if we're [ good and bad ], but I think it's really good and be part of the company.

So I think there is a change, but that is also very natural because Alex and Gustav have proven over these 15 years, they work with Daniel that they can be part of big transformations and they know each other very well and they know how to develop the culture, Spotify together. So I think that is a very strong element in this change.

Okay. Got it. So there's a lot of continuity still even with the changes in the titles.

Plenty.

Great. Okay. Why don't we shift a bit to sort of the business and talk about some of the big growth drivers. There's a lot of focus among investors on engagement, not just the Spotify but kind of across streaming. And you guys were pretty vocal on the earnings call about the engagement just being at least qualitatively strong.

What trends can you share with us in terms of listening behavior, time spent, that gives you confidence that the business is healthy?

Well, first of all, engagement is a very important part for, sort of, our measurement. We could say sometimes, it could be even more important than the number of users. So engagement actually is giving a feedback to us that we are creating value to our customers and value is what we want to drive every day. We have this value to price metrics that we work with.

And so value is extremely important, and engagement is one of those things that we measure it with, and we can see every quarter this year that the engagement is going up, both in hours and also in days. And days and hours are important when we talk about. So how many days in a month are you engaged in our platform and how many hours are you engaged?

We also see very, very positively because we are moving into these new verticals. There's a lot of talk about music with Spotify, but we have audio books and we have podcast, and we may have more verticals over time. And when someone engaged with one more vertical on top of music, engagement increases. It doesn't cannibalize. So you don't use less or the same number of hours and you just shifted from music to podcast, you actually add hours.

And if you don't go for books, you also actually add your engagement. And the loyalty and the churn goes down dramatically. So we see that combination of verticals as a very strong driver for our growth, but also then for keeping customers happy.

You talk a lot about value to price and want to maintain a gap so the customer is getting value above and beyond what they pay. It's easy to measure what the price of Spotify. But how do you measure -- how does the company think about and measure value, especially for a business that's operating in so many countries around the world?

Well, we do measure value actually internally. And you have to do it sometime a little bit as an estimate. And sometimes, you could do it with external data. If you have a comparison product to someone else, of course, you can measure that value. I give you 15 hours of books, then I can measure that from a pricing point of view, if I give you mixing tools, it's harder to measure that value, but you can measure that value then in engagement and engagement increase, and then you can see what does that mean in monetization for us over time. So you can measure that. And we want to keep that gap because the TAM is still out there to be taken. I mean there's -- we still have -- the positive thing in this and one of the reasons actually I joined is this is a fantastic growth company also.

And we have such a potential for future growth. And it's not just taking market share is actually growing the market per se. And doing that is one part of this thing that we create value we can get more users and that can become subscribers, and then we can monetize on that. And that flow continues to be a very strong driver strategically internally. So every time we have a management meeting, we actually go through this flow pretty much in some way, talking about what we're going to do in the next month.

You guys have had a number of price increases over the last 1.5 years. So you're able to test certainly that value to price and you've rolled out some price increases quite recently, including some markets, I think, for the first time. How has churn generally progressed versus your expectations? And what is that feedback loop telling you about your sort of ability to get that value to price ratio, right?

We haven't done that many price increases that we have also been told by many people. And some people forget about it, but we haven't done that many. And so you can say we don't have a long experience of churn and price increases we have an experience.

And so far, and what we've seen is that we have a, to start with a quite low churn relative to other industries. And secondly, from our price increases, we haven't seen any changes in churn not even this time on the -- more than 150 countries that we increase in.

So there's no material change in churn from this, and we'll see them as we go forward. But I think keeping a value to price gap also helps that philosophy of keeping churn out. I mean as you -- I think you spot on, on something that churn cost quite a lot of money. So if you can keep that churn low, that will be a good business logic also going forward because retention is clearly something that is usually worth it if you find a good model for it instead of trying to just chase new customers all the time.

Sure. I know you said you haven't taken that many price increases and certainly, investors have a strong view on what you should do. But if you look at the last 18 months, I think you've raised prices across pretty much the whole user base at least once.

Is that a way -- is that kind of time line sort of every 1.5 years roughly the whole customer base? Is that a cadence that investors should be thinking about as what could be going forward?

No, I don't think that is something we actually want to establish as something that people should think about. We have a very strong position, pricing power position. And I think that is starting point. And that gives us flexibility, and it gives us an opportunity to actually decide how we want to work with our value to price metric to each individual market.

And that is the second part of this. It's actually very individual. And I think you as an investor should see more and more. Now there was many countries coming at the same time. But the more we mature and become market leaders in different markets, you will see that the individual markets will be more assessed individually and not as a collective.

And that goes naturally that each market has their own situation and dynamics, both from a competitive, but also for how culture and is actually used in different markets, and that will give us a different driver. We may also have different verticals in different markets like we don't have audio books in all markets, and that gives us also a different sort of view how we should approach that market.

So I think it's going to be more individual and we're going to try to keep that pricing strength that we have today and make that possible then for us to have more individual decisions.

Okay. So the signals you look at increasingly vary. It sounds like across the countries, depending on what the offering is competitive environment, all those variables.

Yes. And I think it's going to be much more so also going forward. Maybe naturally, it will be happening in the same time anyway, but it's going to be more individual decisions that we do, and we have then the opportunity to do that because we keep the pricing power. And we have a scalable product that makes it easy to do pricing moves.

How do you guys think about customer segmentation, product differentiation? There's obviously a lot of focus on a premium tier or super VIP tier. What's Spotify's perspective on further tiering and segmenting the customers across all these countries?

I think the whole thing of verticals and tiering is important. We have many metrics for how to drive growth. One is to have more verticals, of course. One is to bring value to our platform in different ways with features and so on. And the tiering is an important part of that. I think -- the way to think about it is how we utilize the portfolio and how we balance that. Also back to that -- we talked about just in the previous question on different markets also in different times, how to actually scale out and differentiate.

I think we have a great first signal from now the audio book side, for example, where we drive an audio book inclusion in the premium portfolio, then you have audiobooks plus where you can actually take up your subscription to a higher level. And then you have a la carte where you can buy a book only additional and you want to buy just that book and not buy more hours.

So we're starting to -- not experimenting with working with different ways of driving that tiering and with more work verticals and more ways of doing this, I think you will see more of that coming actually in the next 11 months tiering from our side.

Great. Yes, it sounded on the earnings call, like the Audiobooks Plus rollout has been a success. I''m not sure what your internal expectations were, but it seems like that kind of premium within that vertical is working so far.

Yes. We did a -- I mean, in the U.S., we did a quite cool campaign. I don't know if you saw anything of that in August. But of course, like everything you have, usually compare it a little bit with your benefit you have to work. Do you know all the benefits you can actually get at Morgan Stanley? And it's a little bit like does our customers know exactly what they get out of our products. So you need to do some marketing sometimes also to just educate and get them to feel what they have in this fantastic platform.

And we did a campaign in the U.S. that I think was very successful. We added a little bit of advertising to it. And we could see a pickup rate on just not only actually Audiobooks in general, but also the additional products, as you say, and so on. And I think that was a fantastic test for us to see that if we reach our customers in a good way, they are attracted and they like what we are delivering to them. So we have 14 countries today, and I'm quite sure we will have more countries when we end next year, and we're looking forward to sort of collaborate with different publishers around the world and get more books out to our customers.

You have 14 Audiobook countries or 14...

Yes.

Okay.

And more will come, hopefully. You have to work it every day. It's not that we're sitting still, I mean, hard work.

Yes. I'm not -- I listen to so many podcasts, but the only way I can start listening to Audiobooks is to scale the podcasting back. I haven't figure out how to make all that work. So that campaign probably didn't reach me.

You may be super used to them.

If there's a podcast plus, I'm in trouble.

I'm very curious to see your wrapped in the month.

Yes.

You should compare notes there.

Yes. Unfortunately, my kids use my profile. That's my disclaimer for everybody [indiscernible] .

Anyway, why don't we talk -- there was one thing that I wanted to come back and ask you about from the earnings call specifically because I've gotten a lot of questions about it from investors, which is about margins, gross margins in the near term. So you proactively mentioned on your prepared remarks, that the first quarter gross margins you reminding the market are typically down quarter-on-quarter from the fourth quarter seasonally. Can you just talk a little bit about what drives that and how we should think about kind of margin variability as you invest in growth ahead of next year?

Yes. I think the thing is that we are comfortably growing our margin. And we also state that we will continue to grow our margin. It's not something that just because of that statement you should be worried about. We feel very strong about the progress we have and going forward, also how it looks like that we can deliver on that. The typical thing between quarter 4 and quarter 1 specifically is that quarter 4 is our strongest advertising quarter. And quarter 1 is really our weakest advertising quarter. And I don't see any reason why we should see it differently this year in quarter 4 of '25 and quarter 1 of '26.

So we will have that gap again. So no matter it's slowly increasing, it is actually going to be a gap between quarter 4 and quarter 1. And that's what we're trying to just make sure that we are clear on given what we can give to the market and just expectation management.

Then the main drivers really, I mean, we have our marketplace position that we work with that continues to help us. But even more, I would say, the verticals and how we just talked about Audiobooks and other ways of doing new pricing methods is on the Audiobook plus and top-ups and other things, it is going to be also a very good driver for growth and margin expansion over time.

And then we actually want the advertising business per se, and we believe the advertising business per se will be a margin expansion lever also. So those 3 are mainly -- probably the main reasons why you should feel comfortable that we can grow margin over the coming years.

Great. That's helpful. You had a very busy 2025 with your label relationships signing new deals with a number of -- certainly, all the majors have been announced. And I know a lot of work goes into that, and these are important partners.

Can you just talk about where Spotify stands in its label relationships? And what did you accomplish through all the hard work of getting these deals done in the past year?

Yes, it is hard work. It's one of those things that you really don't understand when you come from the outside coming into the company, if you would ask me, what are you sort of not surprised about, what did you learn new in this company? You learn a lot of new stuff, but one thing is how much work it goes in to actually establishing the relationship having the dialogue and getting to a win-win position in the end with these different labels and publishers, it's really hard work. And it is a good cooperation also. And I actually think that one of the things we try to convey and is actually very true also this year is that there's a win-win approach to all this. I know many people wonder what that means.

But in reality, I mean, we negotiate we get a possibility to innovate and bring things to the market. And last year, we paid out $10 billion to the market, which has then increased over the years -- many, many years and doing that and still becoming profitable and increasing our profitability. And that is really how we see this going forward. We do negotations that we have a better position to innovate and deliver things. And this fall, we delivered 30 more features to the market. And of course, that is based on our technology leadership and where we have, as I said, a great tech company, but that is also then a precondition for that is that we have the licensing and the rights. And that's how it goes together.

So with this, you can see that this gives us a platform for the coming years, to continue to innovate and deliver even more features over the next years, bringing more value, more subscribers and having higher pricing power. So sort of that is the cycle we do this for. And that should drive grow for us. So that is really what we're looking for.

Yes. It seems like the enhanced free tier is an example of more rights, more -- and then you're seeing MAU growth least pick up in the third quarter, which was nice.

Yes, the free side is extremely important for us. I think we forget to talk about that sometimes, but 60% of our subscribers come from our free tier. So it's really a funnel, a sales funnel for us. How do you reach customers out there? We go out with something that is free and you can use and you can get a acquaintant, you can start to build some playlist and stuff for yourself. And when you really like it, you want it all. And maybe you suddenly also have some more money as an individual and then you pay up and become a premium.

So that is a very important sales funnel, but it will also wait for us then to, of course, scale our advertising business.

Sure. I want to ask you about Spotify's competitive position. And I think generally, people feel like you're winning in the market. But ever since it became a public company, we worked on the direct listing, 7 years ago or so. There's always the question, well, everyone has the same music. So how do you differentiate? And I think as a user, you kind of intuitively sense the differentiation, but I'd love to hear from you, someone inside the company how you think about the product and how it's positioned versus the other platforms as you continue to try to grow market share, which you guys said you expect to do on your earnings call.

Well, we -- this with competition. I mean, competition is good to start with in everywhere. I mean it helps you to develop and innovate in any industry. And then, of course, you want to be #1, and we want to be #1. And we feel that we have that market leadership today. We definitely have most subscribers, and we also have most listening.

So the streaming share in the world, we are around 60% or plus, and we have more of the subscribers also than anyone else. And that is ways of sort of measuring our competitiveness. But in reality, it comes back to the question you had before on engagement.

I mean, we try to not think so much about the competition per se in the [ premium ] market leader, you need to think about how do you continue to innovate, how do you continue to bring engagement to the product and platform. And with that, you will probably win the hearts of all these consumers, and you will be a very relevant and loved platform for the creators.

And that is the other thing here. We need to be attractive for our creators. That's something that we have -- I think we've been very successful in the podcast side. So how -- why do a creator want to come and put their stuff on our platform compared to another one. That's another way to become very competitive is to make sure that you have that access to the creators and they want to put their stuff on your platform.

So this is really how we work with this. And I think that we feel comfortable in that sense that we know how to innovate, and we feel that our stats are showing that we are a good leader. And then in each individual market, of course, where we're not, we will continue to strive to be 1 or 2 in the market. That's how it is.

Yes. That's great. Speaking of innovation, I wanted to ask you about AIs, generative AI. Gustav has talked a lot about it on podcast with a lot of enthusiasm. How -- I know Daniel is focused on it. So maybe just starting high level, how is Spotify and the management team is thinking about taking advantage of this incredible technology?

Well, it is an incredible technology, and it will, of course, help us -- it has helped us a lot in our cost structure to start with. If we just already take that away, yes, already, both in -- especially in Gustav's area, where we have over half of our employees are R&D people. And there, we see a big achievement. We also openly spoke about that in the last quarter report that many people have asked us why have you had sh**** experience on the Apple TV set up when you have it on Samsung and all the other platforms.

And we didn't find a return on investment for it. We didn't feel that it was worth to put all that money to actually develop the Spotify product on to the Apple TV. Then actually Gustav's team figured out how to use AI to take the iOS mobile phone set up and figure out how the Apple TV was built in the same way and how to convert our product there. And we did it at, I would say, less than 1/10 of the cost that we had from the beginning. So suddenly, we did it actually this year because we had the use of AI to make a return on investment. It shows that we are disciplined in what we want to do, but also that we want to do things to actually drive our ubiquity story. And that is really what this is about a lot, ubiquity story.

We want our users to be able to be everywhere and use it on everything. And that goes back to OpenAI. So now OpenAI comes in here and did a partnership with us during this year and also in just a month ago and also the AI in general. If that's going to be in everyone's life, how do we relate to that and how we make sure that the ubiquity story is also relevant here that you can actually on OpenAI then search and do something with your Spotify data and get a better experience from that.

So we need to be part of everyday life wherever you are with the Spotify platform, and that is one of those journeys. But AI is going to be very interesting and give us new ideas of how to innovate and bring things out. And I'm sure we're going to see much more of that as well coming.

You guys have rolled out stuff like AI DJ, playlist, personalization and music discovery, such a huge part of the Spotify.

Do you use it?

I do. And I even met the guy, the voice behind the AI. It's a real person. It's not a robot, like the person walking in.

He's a super nice guy.

But are you guys excited about using Gen AI to take personalization sort of to new levels. Is that an opportunity that you see?

Absolutely. I mean this is part partnership with OpenAI is one way of actually bringing personalization to another level. Our AI DJ and these things are also a way to personalize better. It is really important to understand that in the past, it was very simplified. We worked with LLM since -- I mean, we started. Gustav started in 2014, actually working with this. So we have a long experience. I think this is back that this is really a tech company.

Again, I emphasize it again, 2014, we already started working on these things and try to figure out how we could use machine learning and other things to develop the product for personalization for you. And that means that we have practiced quite a long time. So we are good on the path to become really excellent also in the next wave of doing things here.

I feel confident that we will continue to see that. What I wanted to say is that when you just work with the traditional measures, you missed something still. So you need -- you can be even more personalized. If you can start to speak to us, if you can start to write to us, and we will have more data about you, that is even higher quality that we can use in figuring out which podcast did you listen to and why? Because we don't know if you end that podcast halfway through because you would just have to go and see your mother.

Or interview a CFO.

Interview a CFO or just late to a breakfast or if you didn't like it. But if you start to talk to us or if you start to write with us, or if you share something with someone, if you send it to Brian and said like, okay, I love this podcast. And we have a new data point that we can use in personalization on you. So that is also something that is cool with AI that we can actually figure out more how to give you a very good experience.

Yes. That's a great point. Investors are so focused right now on companies that will either be disrupted by or embrace AI, often looking at putting companies in particular bucket. I know it was really interesting that you guys had this integration with OpenAI. I mean most people are viewing that as a competitive threat to a lot of companies, but it's interesting that relationship has turned into an integration product.

Yes. I mean we -- it was a way for us to, as I said, drive the ubiquity journey where you can actually -- more people are going to be on OpenAI and how can they take use of that. Still, we keep our interface with you and our data with you. But you can actually work with OpenAI to get a better experience.

So the playlist. I'm done. Okay. Now we only have about a few minutes left. I wanted to come back to the advertising business. It is a smaller part of the revenue stream today, but I think you guys have a lot of ambition to accelerate the growth there? I know you've put a lot of change into the organization in 2025.

What's working and what's not working? And what do you need to get right to get this business growing at the levels you'd like it to?

I would say that most things are working, actually, but we are a little bit behind. So we decided that 2025 would be and we started already in '24 to say we need to change the strategy and work forward. And this year is a transition year. And it's been clear to us that this is a transition year, we need this year to come through.

We also made a statement that second half of '26, we see the inflection point where we are moving a lot of our advertising from direct brand advertising into programmatic, automatic advertising. So that journey is ongoing. What we -- what you say, what didn't work maybe or what has been sort of more struggle has been the timing of it, sort of how fast we move. But it takes time. It takes time to move from new customers from 1 platform to another. It takes time to set up the new DSPs that we have done lately, Amazon and Yahoo.

So -- and then you put them on there and then it takes a couple of months before they get going. And we have changed leadership, and we have worked with our R&D also internally to improve the interface to our customers. So they can -- they can go in today and really create something, they can buy something and they can measure something on their platform. And now they're getting used to that.

And we see that growth being very healthy in the programmatic side, more than very healthy, I would say, even, but of course, we have a decline when we move over to customers from the traditional side. And that inflection point will be then in the next year where we see that, that will compensate enough. That said, I have to say, on a like-for-like basis, we're still growing. It's not like we're not growing. We're growing low single-digit growth in the advertising business still. So it's not like a negative drag on the group on the top line.

Got it. Okay. Maybe just lastly, I wanted to ask you, you guys started buying back stock recently. You've got a lot of cash on the balance sheet. You were talking earlier about your Spotify investment at Telia all those years ago as capital allocation decision. How does the company think about your strategic priorities and sort of capital allocation now that you've set this company up for free cash flow generation from looking forward?

Yes. We had EUR 9.1 billion in gross liquidity at the quarter end. We have a convertible debt that is due quarter 1 and so we have a good position. I think the first thing is that we want to have a strong balance sheet position, going into the next years because we want to -- we just want to have that to make sure we can deliver on our strategy, and that strategy is to continue to grow. So we have a growth strategy.

So what do we do with the capital allocation? Well, first and foremost, back into the business to grow the business. And if that needs also to be things outside the business, nonorganic that we will be open to that, but it is a foremost a growth and organic growth journey we want to do because we have such a strong platform to build from.

Then as we said, if we have excess cash and the question is, what is excess cash, and I haven't answered that question. I will not do that today either, but we will actually go back to the shareholders a bit what we said right now, I think it's actually a very fair way to use your balance sheet if you have enough liquidity to actually make sure that the dilution from our stock option programs are repurchased. So each shareholder feels that we -- they own the same amount, no matter what. We don't have, I would say, comparison wise, we have a quite a fair number of sort of not too high number of shares that need to be bought back. So it's not going to be a big money to handle that repurchase.

So -- but we started to do that now this half year which was -- and we do it opportunistically, which means that we're not going to have a program in place either for that. But I would say there's a lot of interesting opportunities back to what you talked about earlier on new verticals in general when it comes to the music platform per se and when it comes to growing from a competitive point of view, on how we could use that money and AI is also coming into the picture over time, as you said.

Sure. Well, anything you want to leave us with as we wrap up in terms of your outlook for the company and what most excites you about the years ahead now that I think you're about a little over a year into your tenure as CFO at Spotify?

I was on stage just before Christmas last year, and I got the same question. What was exciting? My excitement was as I said, growth. And to be a little bit fair, I was not really 100% sure about that statement at that time because what I was so new into the company and I hadn't sort of done the first planning cycles for the company, look through and work with all the managers, good enough.

But I can just reinforce that. I feel that this company has such a great opportunity to have -- take care of this platform and this customer base. We get about like the $700 million we touch every month out there, and assume $300 million, $289 million guidance for year-end in paying customers, that platform and with all the technology coming and being a tech company, I think with the opportunity -- that actually is overwhelming sometimes how much we can do, but it's fantastic to see that, that is the opportunity that I'm most excited about.

Then I think that when it comes to sort of continuous profitability and improving margins, we have shown and we have -- and I have seen that we have a very strong culture internally of one team. And that means that if we decide to be disciplined like with the Apple thing or something else, we are disciplined, and we can then decide how we want to drive that margin and cost structure based on what we think we can deliver on growth. I'm looking at the top line here. The top line growth...

I think I got the numbers...

So the growth number is -- so I think that excites me a lot. And there is still so many -- there's still so many markets and so many people...

And so many verticals.

Yes, we -- today, we have 3% the population paying for Spotify. So why not think that maybe 10% can do that or 15%. We now have to have crazy numbers. that is actually -- that is an opportunity in itself, just to put that number in front of you and like 3% of the whole world is there? And why not 10%? 10% is not a sort of crazy number. So that is really how we look at it internally. And as I said, and go back to where we started, since 2022, we already achieved quite a lot there with $300 million and 100 million subs in those years. So why not continue.

Yes. So you're excited about growth, but now you mean it. And margin expansion, which is great.

Anything else?

That's all we got. Thank you, everybody.

Okay. Thank you.

Thank you.

Good morning, and welcome, everyone, to the Spotify Third Quarter 2025 Earnings Call. Today's conference is being recorded. [Operator Instructions].

At this time, I would like to turn the conference over to Bryan Goldberg, Head of Investor Relations. Please go ahead.

Thanks, operator, and welcome to Spotify's Third Quarter 2025 Earnings Conference Call. Joining us today will be Daniel Ek, our CEO; Alex Norström, our Co-President and Chief Business Officer; Gustav Söderström, our Co-President and Chief Product and Technology Officer; and Christian Luiga, our CFO. We'll start with opening comments from the team and afterwards, we'll be happy to answer your questions. Questions can be submitted by going to slido.com, and using the code #SpotifyEarningsQ325. Analysts can ask questions directly into Slido, and all participants can then vote on the questions they find the most relevant. If for some reason, you don't have access to Slido, you can e-mail Investor Relations at [email protected], and we'll add in your question.

Before we begin, let me quickly cover the safe harbor. During this call, we'll be making certain forward-looking statements, including projections or estimates about the future performance of the company. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed on today's call, in our shareholder deck and in filings with the Securities and Exchange Commission. During this call, we'll also refer to certain non-IFRS financial measures. Reconciliations between our IFRS and non-IFRS financial measures can be found in our shareholder deck in the financial section of our Investor Relations website and also furnished today on Form 6-K.

And with that, I'll turn it over to Daniel.

All right. Thanks, Bryan, and hey, everyone, and thanks for joining us. Overall, it was a very strong quarter, especially on the user side. We reached a significant milestone surpassing 700 million monthly active users beating our guidance, and we were right in line with subscribers, and we also beat on revenue, gross margin and operating income.

Given that this is a year of transition for me, I've been reflecting on what has proven time and again to drive the company forward. And when I strip everything else away, it really comes back to the same thing, our user fundamentals. It's where everything starts and everything stops. And as this quarter shows, the user side of the business is really strong. Engagement continues to strengthen across music, podcasts, video and audio books. And people come to Spotify and they stay on Spotify. And this is across all markets and formats. Gustav will give you more color on the pace of shipping during this year of accelerated execution and the impact it's having, but the data is clear. Our multi-format strategy is working exactly as we hoped.

And with that foundation in mind, let me talk about how we think about building the business. I've said this before, but it's worth repeating. We don't optimize for quarterly results. We optimize for lifetime value because at our scale, very few metrics shift quickly. The decisions we're executing on today were set in motion well before they show up in the numbers. In some cases, this means we made these calls many quarters ago or in some cases, even years. But that doesn't mean we get a free pass on our performance. Our job is to make smart investments to create more value over time, and we fully expect you to hold us accountable for that. Our goal is to deliver extraordinary results, and that means having both a great product and a great business. And those things aren't in conflict, they compound each other.

So take our partner dynamics as one example. I get asked about these relationships all the time. When we signed new multiyear licensing deals with our partners, the market mostly assumes it's a zero-sum game. There's a winner and there's a loser, and everyone tries to figure out who fell into what camp. Our view is different. We don't think it's a zero-sum game at all. Quarter-to-quarter, the math may not immediately be obvious, but here's what actually happens. Those deals give us the flexibility to innovate and move us closer to our long-term financial goals. We can build new products. We can launch new features, experiment faster, and that drives better user outcomes, more growth, higher engagement, stronger retention, which then drives a better business. It's a flywheel and a playbook we've run many, many times. Our partners also do better, so both sides win. And that's what good long-term investments look like.

Before I hand it over to Alex, one note. So following today, I have on earnings call left as CEO. As you know, I'll be transitioning to Executive Chairman on January 1 with Alex and Gustav stepping into their roles as co-CEOs. You'll hear more from them today than you typically would and on our Q4 call in February, they'll run points. And with that, I'll turn it over to Alex.

Thanks, Daniel. No pressure. Our Q3 results once again highlight just how well positioned Spotify is as we keep pushing boundaries through innovation and bringing even more value to artists, podcasters, authors and users around the world. A few weeks ago, we had our leadership team come together in New York for strategy sessions. Gustav and I shared our thoughts about Spotify's future and how it will evolve over the next few years. I can't remember a time when the company was more aligned, and this is just having an outsized impact on our performance.

To build on what Daniel said, the real magic is in our ability to ship faster and smarter, and you'll hear more from Gustav about this in a minute. And these efforts there driving user growth across the top of the funnel, which then propels the flywheel and fuels the strength of our overall business.

Now when you look at MAU in isolation, the global rollout of our enhanced free experience was a key contributor, bringing millions of new listeners into the Spotify ecosystem. It's having a huge impact on engagement and retention, which we know is the key leading indicator of even more growth and even more conversion. On the subscriber side, we saw continued growth across all regions, and users are spending more days and more hours on Spotify than ever before. Notably, we continue to take market share, even in our most competitive markets.

We also saw steady retention rates following the rollout of our recent price increases across more than 150 markets. These results show the power of the product and the loyalty of our subscribers.

And as we look at the growth across these 3 content verticals at Spotify, I want to share just a few highlights. In music, we continue to help artists reach massive global audiences. This past quarter, we saw artists break multiple streaming records across genres, and we've seen a number of new artists emerge as global fan favorites climbing our streaming charts at record pace. We also hosted several immersive fan activations and intimate performances. We launched in-app experiences that celebrate some of the most iconic discographies. And we continue our partnership with FC Barcelona, which just unites fan communities around the world, proving to be a strong user recruitment tool for us for Spotify.

Daniel also mentioned the relationship with our music label partners and publishing partners. Over the quarter, we finalized groundbreaking direct license deals, bringing value to artists, song writers, rights holders and Spotify. What's good for Spotify is also good for the industry we support, which, of course, include music, podcast and audio books. I was just excited to now capture the opportunities that these deals unlock.

In podcasts, more than 390 million users have streamed the video podcast on Spotify. That's a 54% increase year-over-year. We now have almost 500,000 video podcast shows on our platform. Time spent with video content has more than doubled year-over-year, driven mostly by video podcast. And this consumption has increased by more than 80% since the launch of the Spotify Partner Program or SPP.

We also recently announced that we're bringing some of our top video podcast from Spotify Studios and the ringer to Netflix starting in early 2026 in the U.S. with more markets to follow. We want our creators to grow and scale their audiences around the world, and in turn, this also puts up an interesting monetization opportunity for Spotify. This partnership extends our ecosystem building new fans and serving up this wider distribution channels.

And in audio books, we are continuing to reshape the category, fueling growth and discovery across the publishing world. In just 2 years, Spotify has now introduced tens of millions of new younger listeners to audiobooks. We've brought audio books to 14 global markets and have more than tripled our catalog in English language markets to over 500,000 titles. More than half of our eligible premium users have played an audio book and the number of people listening to an audio book rose 36% year-over-year with listening hours up even more. We also recently launched add-on subscriptions for premium users, giving listeners more choice, opening up the format to new potential fans worldwide and enhancing the experience itself. It is still work to be done to continue to grow the entire book industry, but it is incredible progress. And it's so great to see so much enthusiasm for these offerings.

I also want to quickly speak to our ads business. Last quarter, we talked about the need to recalibrate and to improve our execution. We remain confident in our long-term strategy and the dynamics are improving. We're really pushing hard to build for the long term. And while these changes will take some time, we believe that will yield significant results in the years ahead.

So overall, our strong performance this quarter is proof that our work isn't just adding up. It's compounding. We're seeing faster growth, higher efficiencies and a product that's getting better and better as we continue to add value and solve problems for users, artists, creators and authors. Now I'll pass it over to Gustav. Gustav?

Thanks, Alex. So this quarter really brought the year of accelerated execution to life. There's incredible momentum and the things we've been investing in for years such as personalization, interactivity and ubiquity are really paying off. We've been doubling down on what's working as we relentlessly try to build the most valuable experience in the world. And while we spent much of last year and part of this laying and building foundations, the pace of shipping and the speed of iteration are now at record levels. We both strengthened the core experience and added new value with a variety of first-to-market features and improvements in almost every facet of the product.

That's the balance we're constantly trying to drive towards, enhancing what millions already love about Spotify while also expanding into new areas, make the platform even more attractive for users and creators alike. And the results clearly show that this is growing both MAU and subscribers. Over just the last few months, we've shipped more than 30 new core features. That's more than all of last year, actually, and we're not even done with the year yet. We have a comprehensive list of these in our Q4 infographic that's on our newsroom, but I wanted to share a few that really stand out as we focus on giving listeners more control, more ways to discover and more ways to connect.

First, as Alex just mentioned, we roll out big enhancements to our free tier, the first real update to it since 2018, with the majority of users starting their Spotify journey on free and our bold ambitions to continue to attract new users of streaming, it was critically important to make this experience even better. And building on what Alex said, it's now a much more competitive offering. Improvements are really resonating globally, and we're already outpacing our planned growth in MAU. For the 2 audio fans, we also finally launched [indiscernible] audio for Spotify Premium users, along with mixing tools and support for third-party DJ decks. We know that these were some of the most anticipated features and users around the world have responded really enthusiastically to it's rival.

Now on social, you've heard me talk a lot about, you know that users are constantly trading content and recommendations back and forth between each other. With our new in-app messaging feature, we made it even easier to share and discuss music, podcasts and audio books with friends. And since our launch in the initial markets just a few months ago, almost 25 million users have sent nearly 200 million messages already. We feel that we're unlocking a new powerful way for users to connect on Spotify.

Something many of you on this call have long been asking for is an Apple TV version of Spotify, which now has a dramatically improved user experience as it's built natively for the platform. What I really love about this specifically is that while the reason we had previously held off on a dedicated or native Apple TV app, was that the extra development cost just wasn't worth it for us. But we were able to drastically reduce this cost by leveraging AI, where we could actually translate our general iOS application to TVOS. I think this is interesting because this speaks to the ways that we are not truly able to use AI to quite drastically accelerate our productivity and development.

In last quarter's Q&A, I talked a lot about how excited we are about AI in general and specifically the potential arrival of new form factors. While there are lots of bold predictions out there, we think Spotify would benefit as products become even more media focused as they extend to new hardware experiences that are always in your ears and on your face. So perhaps you caught the live demo on Spotify on Meta AI's latest Meta [indiscernible] at the recent developer event. This integration allows users to connect, stream and fully control Spotify. And we're excited to be featured as an example of one of the new and one of the most requested innovations in this space.

Then there is, of course, our new partnership with ChatGPT, which is another example of the ways we're expanding our ubiquire strategy, helping users discover and engage with Spotify in new ways wherever you are. Once you've connected your Spotify account with ChatGPT, you can ask ChatGPT to create things like the perfect playlist for the countdown to your 2025 rap experience, maybe a playlist with the Zen-like vibe for when your in-laws come to visit for the holidays, whatever you think of.

Now I also want to highlight features that we previously announced that continue to gain popularity. The first is Jam, which lets friends listen together in real time. We recently hit 100 million monthly listening hours on Jam this quarter with over 200 million users sharing content monthly. It's proven to be a big driver of both top line growth and retention.

Listening to Spotify in cars is also outperforming every expectation that we had, and it's become a huge part of users' daily engagement. In fact, there are 245 million people now listening in cars, which is 34% of MAU and 15% all consumption hours. And zeroing in, just on the U.S., this puts us well ahead of all other subscription-based audio services. All of these features and enhancements, they lead to richer experiences that in turn leads to deeper engagement and that deeper engagement drives value for everyone in the ecosystem. So with that, I'll pass it over to Christian to share more details about the numbers.

Thanks, Gustav, and thanks, everyone, for joining us today. Let me cover the quarter results and then give some perspectives on our outlook. In quarter 3, MAU grew by [ 17 ] million to 713 million in total, exceeding our guidance by 3 million. We added 5 million net subscribers finishing at 281 million, up 12% and in line with guidance.

Total revenue was EUR 4.3 billion and grew 12% year-on-year on a constant currency basis. Premium revenue rose 13% year-on-year on a constant currency basis, driven primarily by subscriber growth. Our advertising business was consistent with prior year results on a currency-neutral basis. And as expected, our automated ad sales channels saw strong growth in the quarter. On a like-for-like basis, excluding the near-term impacts from the optimization of our licensed podcast and the rollout of the Spotify Partner Program, we had a mid-single-digit constant currency advertising growth. We continue to see 2025 as a transition year for ads business and expect growth to improve in the back half of 2026.

Moving to profitability. Gross margin came in at 31.6%, 50 basis points ahead of guidance and expanding roughly 50 basis points year-on-year. Our outperformance here was primarily driven by changes in prior period estimates for rights holder liabilities, nearly all related to the first half of 2025. Excluding these amounts, our gross margin would have been modestly ahead of guidance due to content cost favorability.

Operating income of EUR 582 million was EUR 97 million above forecast, of which social charges had a positive impact of EUR 41 million, and that was due to the share price movements. As a reminder, we don't forecast share price movements in our outlook for the business since they're outside of our control. The remaining variance to guidance was driven by favorability in marketing timing, and personnel and related expenses as well as the gross margin outperformance.

Finally, free cash flow was EUR 806 million in the quarter. We ended the quarter with EUR 9.1 billion in cash and short-term investments and we repurchased $77 million in shares in quarter 3. Year-to-date and through November 3, we have repurchased $410 million in shares. As we announced last quarter, our focus is to opportunistically buy back shares, primarily to offset the dilution arising from our employee equity programs.

If we then look ahead to guidance. In quarter 4, we are forecasting 745 million MAU, an increase of 32 million from quarter 3 and 289 million subscribers. Our subscriber outlook implies net additions of 8 million, which is slightly below prior year net adds due to the expected small amount of churn we see when we raise prices. This year, we have new pricing in more than 150 markets versus 6 in the prior year. In addition, we recently rolled out the enhanced free tier globally, and we are encouraged by the early benefits we're seeing to our funnel. We view this business as set up well for conversion and continued healthy subscriber growth in 2026.

We're also forecasting EUR 4.5 billion in total quarter 4 revenue, representing an improved constant currency year-on-year growth rate of around 13% versus the 12% we just delivered in quarter 3. We're also forecasting a year-on-year ARPU growth of around 2% on a constant currency basis. We expect a quarter 4 gross margin of 32.9% and operating income of EUR 620 million.

In summary, we are pleased with how the business is tracking into year-end. As Daniel mentioned, we will continue to make investments to generate long-term growth and returns for the company. While this can lead to quarter-to-quarter variability in terms of margin progression, we believe this is the right approach that sets us up well to advance towards our long-term goals.

Turning to 2026. While it's too early to provide guidance, I do want to point out that our first quarter gross margin typically sees a sequential step down from the fourth quarter from advertising seasonality, and we expect the same for quarter 1, '26. Beyond this, we are confident in our path and expect '26 to be another year of healthy revenue growth, disciplined reinvestments and margin and cash flow improvement.

With that, I'll hand it back to you, Bryan.

Great. Thanks, Christian. Again, if you've got any questions, please go to slido.com, #SpotifyEarningsQ325. We'll be reading the questions in the order they appear in the queue with respect to how people vote up their preference for questions.

And our first question today is going to come from Jason Helfstein on profitability. Can you talk through the puts and takes around gross margins across your premium and advertising segments in the third quarter? And how should we think about gross margins in the fourth quarter and 2026?

Thank you, Jason. Yes, we are happy. Gross margin expansion is happening for the company this year. And as you are pointing out, there is a pressure more on the premium side than on the advertising side. That is really nothing really to worry about. We started this year by letting you know that we are moving -- starting up the SPP program and moving over some of our podcast videos and podcast to utilize that content to give higher quality into the premium side. And when we do that, we recognize that cost now and premium instead of in advertising. That shift doesn't mean anything on the total company level, but it actually then dampens a bit the margin on the premium side, and improves it on the advertising side. As we started this in quarter 1 this year, it will come through all through the year and therefore also impact quarter 4 in the same way.

Our next question is going to come from Jessica Reif Ehrlich on superfan potential. The major record labels have hinted at what's to come for a premium superfan tier. Will this product be created by the major labels for all DSPs? Or will there be a Spotify specific product?

Jessica, like I mentioned, in calls -- in previous earnings calls, we keep a very high bar for our products. We simply ship products when they're ready. But what I can tell you really is that we are in deep collaboration with most of the relevant rights holders out there. Let me also just give you an example of why this is a good strategy, putting add-ons on Spotify on top of our premium subscription. A few months ago, we launched what we call Audiobooks+, which is a recurring option for people to use when they hit the wall of 15 hours in the markets where we have audio books. The uptake on that specific add-on subscription has been really, really good.

What's more is that on top of that, users are also buying top-ups. So really, what we're seeing is our ARPU levels that we've never seen before. So we're really encouraged by this as we keep adding -- as we keep launching add-on on other further verticals and as part of [ EcoSys ].

Okay. Our next question or a few questions here from Justin Patterson on AI. What impact do you believe AI will have on the music ecosystem and how does the ChatGPT integration fit into that? And in your collaboration with the labels, you also alluded to building products that create new revenue streams for the industry. Could you expand on what that means for royalties?

This is Gustav. Thanks, Justin. I'll take that question. There are a couple of questions in here. I'll start sort of at a very high level of what it means. One way to think about -- it means that different things for us. For a consumer, it means a couple of things. First of all, you should expect, in general, recommendations to just get a lot better as the industry, including us, switches to what is called generative recommender systems. These will -- these are using generative AI to understand much more of what the consumer is doing.

One way to think about this is that recommendations are moving from just looking at passive clicks and saves and so forth. We're actually understanding content and understanding you and specifically and very exciting for us, even understanding English. This is why you can talk to the Spotify DJ in English, and it actually understands what you mean and can give you personalized recommendations. And I think if you play that out, what you should expect at a higher level is just much more use of control, what we internally call personalization 2.0, where you can literally talk to Spotify as if it was a person, and it understands your specific base.

So you can tell Spotify that you're actually tired of this specific genre now, and you want to listen to something new that we have never seen in your listening data, so we can never predict it, but you can tell us, this is what you should expect, different level of personalization, different level of user control.

On ChatGPT specifically, this is part of our ubiquity strategy. One way to think about Spotify is that we've always tried to be where the users are. If the users are on [indiscernible], if they're in the car, we're in the car. They're on Google searching for music on Google, and a lot of people are in ChatGPT. So of course, we're going to be in ChatGPT.

What's exciting about this is that you can do more than on many of the other platforms that we integrated in. The beautiful thing about ChatGPT is that you can combine the power of ChatGPT to understand the world and use cases with Spotify understanding you. So now you can ask for a playlist related to something that happened in the world. But instead of that playlist just being the same for everyone on ChatGPT, it's also going to understand your Spotify user taste and make it personal to you. This combination has never been possible before.

And on your last question of products that we build with the industry, the way we think about this and generative AI for music, is that just as with piracy, we think someone needs to work with the industry and with the artist to make this technology available for them in a legal way where we don't ask for forgiveness, and where artists can actually participate and make money. That's why we're doing this.

Our next question is from Eric Sheridan on video strategy. Can you discuss the potential implications of your partnership with Netflix for video podcast of the ringer. How does this impact your overall strategy with respect to driving more video consumption on the platform?

Good questions, Eric. So at the heart of it is that we believe in being creative first. So what we think is that when the creator wins, we win. And as creators optimized to create their best shows and interviews, which is really what they're focused on, they wanted to syndicate everywhere. And we believe, of course, in helping them to reach audiences in as many places as possible, which is consistent with our core philosophy on being created first and also, of course, to help them monetize as much as possible. But the partnership with Netflix that you're asking about is really a meaningful opportunity for both of these beliefs and just a natural extension of our ecosystem. And what's more is that we're already seeing some strong interest from creators who want to use Spotify as sort of their distribution hub, if you will.

And to your second question, more specifically. Typically, when we have shows that originate on Spotify, we put them on YouTube, historically, that's just been driving even more awareness about the show and were originated. And typically, what we see is just net incremental usage on Spotify coming from that. So very encouraged and very exciting to have this new Netflix partnership being rolled out as we speak.

Next question from Rich Greenfield on premium conversion. In your Instagram post, Gustav mentioned that free users liked the recent upgrades to their free functionality, have you seen any changes to the rate of upgrade from free to premium as a result?

Thank you, Rich. Yes, we are excited by all the features we launched, and we hope several of you are excited about specifically the Apple TV features as well. What we see is indeed more usage. And the way to think about Spotify is that you have a few proxies for what is ultimately retention and subscription value. And it is more usage and specifically, more usage, more days of the month, which we call active days. And so what we try to optimize for is more engagement per day, but specifically also more days per month. And we know over time that this simply leads to more conversion.

In fact, we called the phrase many years ago that is -- that says the more you play, the more you pay eventually, which is why we always try to maximize engagement, both in the free tier and in the pay tier. So we are very certain that this will go the way it's always gone. People are using the service more, which is going to create more good news for us, both free and paid in the future.

We got another question from Jessica Reif Ehrlic this time on the leadership transition. Gustav and Alex, as you prepare to take over as co-CEOs in January, what are you most excited about in your respective areas?

Thanks for that, Jessica. I'll start, Gustav then you can turn in. I'm honestly really excited because I know that the ambition level is going up. And this has been the case. We've always had an increasing ambition level at Spotify. And we have this just amazing platform. The user fundamentals are really firing on all cylinders. Daniel spoke to this in his remarks. With that, we sort of have -- and we have the 3 verticals that we have out there right now, all of which are producing results.

And so we really have a platform to stand on that we can leverage to fulfill these new ambitions. And as you heard us talk about before, we now hit roughly 3% of the world's population, 3% of the world's population is subscribing to Spotify on a recurring basis. Every month they come back. And with these 3 verticals, really have like a very expansive TAM. We believe that PAUSE most of the people in the world are interested in music, most of the people in the world are interested in even the more expansive stuff like books and podcasts and video on top of that. So this just puts us in a very good position to fulfill this new ambition of getting to 1 billion subscribers.

So I'll fill in. And in a way, nothing has changed in terms of why I'm excited. But in a way, some things are actually new. So I've managed to be excited about Spotify for over 17 years. And the reason I've been excited about Spotify 17 years, it's still the same, which is what Daniel mentioned initially that if you just look at the opportunity, music, specifically, but also podcast and books and music specifically, is probably the single biggest TAM you can find. I think it's even bigger than social networking or anything. There's no one in the world that really doesn't like music at all. So it is the sort of the biggest TAM you can participate in. And that's been the case for a long time.

But what is specifically exciting for me right now is that we are in one of these big macro shifts, the AR macro shift. That is -- I've said this before, but it's for me, certainly the most exciting since the smartphone came along. And so if you look at those 2 together, when you enter 1 of these macro shifts, what you know from a product point of view, and I'm a product guy, you're going to get to reinnovate things and things are going to change. You kind of want to be in a position where the TAM is really big, you have a strong healthy company with a lot of talented people behind you. So that's exactly where I find myself right now. That's why I'm excited.

We've got a related question from Justin Patterson on time spent. You've often talked about a TAM in the billions of users. How do you think about the time spent opportunity for music and non-music content given new categories like audio books that have been additive to listening hours?

Yes, Justin. So I think much of it has been said already by both Gustav and Alex around the TAM and the opportunity. But I guess maybe to take a step back in what I think is more important, like what is the superpower of this company? I think the super power of this company is really into mix between building great product experiences and figuring out how to monetize those product experiences at a level which is different from almost any other platform because the reality is we deal with a lot of professional content where there's an expectancy for us to figure out monetization from the start. It's not something we can wait for to figure out in a few years.

So that's really the super power of this company. And when you then look at that from a TAM, not necessarily in numbers of users, but in time spent, it turns out that there's all of this amazing content that's out there. All of these amazing experiences that are out there that for whatever reason may not yet be at a user experience that is attractive to people or at a price point that makes it accessible to people. And when you think about Spotify, that's really been at the intersection where we've been innovating. I think not only did we do that for music, not only did we do that for podcasting, but I think with audio books, that's certainly been our bet too, which is we just think that there is a lot more people that cares about audio books than what the market was showing at the time. And that's part user experience and it's part business model.

Now it turns out that there's plenty of other things out there that has considerable time spent that also doesn't necessarily have the right user experience nor the right business model. And when you add AI to the mix of that, -- there's -- that's a foundational technology that's going to be enable totally new user experiences and business models, too. And we're really excited about it. And I think when you look at sort of the AI world at the moment, of course, it's the foundational models and you have the sort of core assistant models that are doing incredibly well. But we aren't yet seeing a lot of these entirely new consumer experiences in AI having massive traction. But we think that there will be over the coming years, and we think we have the opportunity of being a net beneficiary of that.

Our next question is from Rich Greenfield on advertising. Looking at a 2-year stack of advertising revenue growth, FX-neutral, you've decelerated from 31% in the third quarter of 2024 to 7% in the third quarter of 2025. And you've repeatedly talked to softness in pricing over the past several quarters. How do you return to robust ad growth?

Thank you, Rich, for the question. And let me start, Christian here, and then I hand over to you, Alex, if you want to pitch in something. I -- you are completely right. I mean, we have a like-for-like single-digit growth now a mid-single-digit growth now in the quarter 3. And we came from a much better position before when it came to growth levels. We did set a new long-term strategy that we believe in, and we are very confident that we will succeed with. It's not if, it's when.

We came out in quarter 2 and expressed the progress and said that we were a little bit behind, and we need a little bit more time, but we do see really good progress on the programmatic side. And the question is when that programmatic side is then growing so much in amount that it compensates for the direct sales. And that needs then a little bit more of the DSPs. Now we have Amazon and Yahoo coming on board in quarter 3 and to be on board and add value. And then also the customers to shift more into the programmatic sales. And that is progressing well, but the inflection point is a little bit further out than we expected before quarter 2. But as I said in my remarks also, we see that we are expecting to be back on the growth that we want in the second half of 2026. I don't know if you want to add something there, Alex.

Rich, my friend, I'll add something to this. So when it comes to ad sales, it's a question of when, not if it's going to happen, right? We remain confident in the long-term strategy that we put in place, and I'm seeing that the dynamics really are improving to Christian's earlier points. So it's not -- while it's not just showing up in the top line, we are making progress. As you can see in the deck that we sent out -- the transformation of the ads business is really growing, in particular, in the new auction channels or biddable channels. And in Q3, we signed new DSP partnerships with Amazon and Yahoo!. We also gave advertisers programmatic access to not just our audio inventory, but also our growing video inventory. So we are pushing hard to build for the long term. While these changes will take some time, I do believe they will yield significant results in the years ahead.

All right. Our next question comes from Deepak Mathivanan on price increases. Can you talk about the elasticity and consumer behavior you're seeing after recent price increases in markets like Australia, where the magnitude was slightly higher? And what does it inform about potential in markets such as the U.S.?

Deepak, as you know, we don't discuss elasticity and specifics when it comes to pricing. What I can tell you, and I want to reiterate is that price increases are part of our strategy. You've seen this over the last couple of years. And of course, we will continue to do so, but in a thoughtful way. And this is always based on a number of different factors. The important thing is that we're committed to pricing that reflects the value that we provide. And as we've talked about many times, Daniel mentioned it earlier, we've mentioned the B2P ratio that we want to balance over time and we will act on the time is right for each specific market, and we'll do it at the appropriate price based on those market dynamics.

Our next question comes from Benjamin Black on our label relationships. You've now struck deals with all major labels from a high level, what do you think you've achieved? What added rights or added flexibility do you have? Do you still have the flexibility to pursue your nonmusic bundling strategy?

Benjamin, typically, we don't discuss the specifics of these partners, but I want at this time, actually give you a little bit more color. As you may have heard, we're about to conclude another renewal round with all of our partners. And this is a very significant moment for us. For the first time in our history, we've got new modernized deals in place with all of the top 5 U.S. publishers. Now these are new structures, they're true win-win deals that we built to address the core objective for both sides. And for our publishing partners, these agreements better recognize the value that songwriters create across our different offerings.

For Spotify to your specific question here, is deals secure broader video rights that we've long needed. This was a critical strategic objective for us, because it unlocks our ability to innovate and launch more products and features that you've seen us rolling out, which in turn grows the entire pie for everyone. And it just positions us to make continued progress towards our longer-term business goals. I'm super excited to just expand these partnerships with the wider industry as well as we focus on building a great future for music.

All right. Our next question is going to come from Eric Sheridan on a follow-up on the advertising. Can you discuss the forward path, the revenue growth and gross margin trajectory for your ad-supported efforts? How much is the current advertising environment weighing on your third quarter reported revenue growth? And how do your new partnerships on the DSP side set the operation up for growth in 2026?

Just let me go back a little bit to the answer we just gave, Eric. First of all, on the margin side, as I elaborated in our first question today, the advertising business is actually benefiting from the move of SPP into the premium side, and that will continue through quarter 4. So starting quarter 1, we won't have that year-on-year benefit on the advertising margin.

And when it goes to the revenue side, I mean, and getting all these things in place, one of many things that we do this year to improve and drive the advertising revenue is to bring up the auction-based revenue. And you see that, and Alex alluded to that, you can see that in our slides that it is actually growing healthy. And it's more when that inflection point comes when that growth actually surpasses the flatness or a slight decline we have in the direct sales. We are not so much focused on the current ad environment because we have so much momentum in this transformation. So we feel very positive about with current situation that we will get into a healthy growth then in the second half of 2026.

Our next question comes from Michael Morris video strategy. You've described video as a very exciting opportunity. In October, you agreed to license 16 of your own video podcast to Netflix. How will this partnership enhance your video growth ambitions? And is there risk that Spotify engagement declines or that Netflix builds its own competitor over time?

Thanks, Michael. This is Gustav. I'll start here. As you said, we are indeed very excited about video podcast and SPP has driven significant interest from the credit community, and we now have as 500,000 video podcast and those on our platform and as you heard Alex mention, we're seeing meaningful uptake more than -- almost 400 million, 390 million users stream the video podcast on Spotify, which is a 54% increase year-over-year. So this is really working for us.

The way to think about this is that we are building our experience better all the time on mobile, but also as we talked about on TV sets. But if you think of this from a creative point of view, this gives us the ability to give creators a tremendous opportunity. This is a choice for creators. We don't decide for them where they want to be. They can be on Spotify and any other platform. But now we can offer the creators the opportunity to be on Spotify, but also get distribution on Netflix, which is ultimately very good for podcasters, and it also gives us revenue opportunities.

This is the way to think about it. It's part of our ubiquity strategy, and it's really important that while we build a good user experience, we also need to have a very strong creative offer. So this is -- as civilly strengthened our creative offering, which is why we're seeing this growth while more and more creators want to be on Spotify with their video.

Got a related question from Rich Greenfield on the TV opportunity. We recently saw you updated your Apple TV app to make it far more video focused. How significant is TV-based usage to Spotify today as a percentage of overall usage? And how does it play into your video advertising aspirations?

Thanks, Richard. So back out, the reason we are building our TV experience is that it's part of a ubiquity strategy. What we've seen at time and time again, and Alex has talked about this as well is, as soon as you start using Spotify in more situations, whether that's in the car, on desktop on the TV, your usage goes up, your time spent, your active days per month goes up and your retention goes up. So at the core of it, this is part of our retention and ubiquity strategy.

Now in terms of the opportunity, we think that we see really exciting engagement metrics. We're very happy with the usage, and we think we have plenty of room to grow in terms of users. So we're very excited about the usage, and we think we have a lot of room to grow on the amount of users. Now this obviously also helps advertising, but it's not the core reason we're doing it. The core reason is because ubiquity drives engagement that drives retention for us.

And on a specific note, [indiscernible] on the Apple TV app. So we hope you're happy, Rich. You can now use the new app.

Okay. We've got another question from Michael Morris on pricing. You recently raised prices in bundled service markets such as Australia and the U.K. The increases in Australia were larger on a percentage basis than those in the U.K. Why were the U.K. changes smaller? And do you expect future price increases to more closely look like those in Australia or those in the U.K.?

Thanks, Michael. So we -- when we adjust prices in markets, we take into consideration a number of different factors. We look at things like household income. We look at things like maturity of the market. We look at things like specific value to price ratio, if there is a specific different offering in that market. And all of this we take into account and when the timing is right, we do it and we do it in a magnitude that's right for that market.

All right. We've got time for a few more questions. I got a follow-up one from Deepak Mathivanan. Gustav, AI models are getting much better in formats like video and audio. As a platform, do you see opportunity for Spotify to help artists with AI tools for their music creation process? Can you talk about Spotify's strategy to enable AI tools for creators?

Thanks, Deepak. So certainly we do, and this is what I mentioned previously, when we talked about the industry initiatives. What we think is important is that someone does this in a way where [indiscernible] the music industry can get to participate and to choose if they want to use these tools. There's obviously a lot of excitement, but also a lot of fear around these tools. So we are trying to be the ones who do this responsibly. And we're very excited about that. I don't want to talk more about the specific at this time, but that's what we're trying to do. But it's also important to remember that it's not only for music. We think AI tools are also very helpful for podcasters and for authors. So we want to help all creators with these kinds of tools.

Our next question is from Batya Levi on engagement. Can you talk about the impact on engagement and conversion to paid from the enhancements added to the free tier? How should we think about impact on margins and monetization opportunities down the road?

Thanks, Batya. First of all, the process is working. We're taking share even in the most competitive markets. And as you kind of asked, he becomes a [indiscernible] on subscriptions growth for me to you. So the key to subscriptions growth is really a strong funnel. And to build a strong funnel, they need really 3 things. One is, of course, engagement, and we've talked about that earlier in the call. And our engagement, the listening hours in Spotify and also the active days that Gustav spoke to, they're growing. And they're growing, thanks to the numerous product launches that we have. This means that we keep people on the platform, which is, again, very important for a strong funnel.

And the second thing that's important is that when we adjust prices, when you raise prices, you need minimal churn, and that's also what we're seeing. Third of all, and then to your point, as is question is about intake or healthy subscriptions growth, you need a good replenishment of [indiscernible] and as you can hear us talk about this quarter, that really is the standout number. Our MAU is increasing to higher levels than we expected. And as MAUs grow, we also see engagement grow. And as the engagement of the MAUs grow, we typically see much higher levels of conversion. Every time that we have made a change to the free product, and it's generated more MAU in the history of Spotify, it's led to more business growth down the line. So we just have to trust the funnel.

Our last question today is going to come from Jason Bazinet. You've taken some price increases in a few markets, but the price gap between Spotify and rivals varies by market, and you talk about your philosophy regarding price increases and specifically, what metrics give you more confidence to price the service well above versus just above your competitors?

Thanks, Jason. Well, the answer is sort of embedded in a part of your question here. We pay attention to competition. But while we pay attention, the most attention to is obviously our own offering. And we care a lot about the value to price ratio. You've heard Gustav talk about how we've shipped much faster in this last quarter. There's more than 30 product -- 30 features that's been shipped in the product, and users are loving it, right? So the important thing for us is just keep continuing to improve the value to price ratio, meaning raising value and relentlessly just build the best product out there. The best product will always win. And then when we look at our product and the value that it reflects, we will then take steps to understand if we need to adjust the price or not. And again, like I said many times before, it's based on specific market dynamics.

And some of the things that give us confidence is, as we've said many times, engagement they spend per month where we know that we are well ahead of our competitors.

Maybe just an addition from my side, too, right? I think implied in the question is that perhaps there's a comparison of music to music competitors. But in many markets where we act now, Spotify is not just a music service anymore. It is a music podcast and audio books service. In some markets, we haven't yet gotten to with our audio books offering. So as you look at our pricing, we are factoring in the value, not just in music, but in all of the verticals that we act as well. And I think this is an important addition to add because in a lot of the markets, their perception of what Spotify is, it's just very different than what it is in other markets as well.

All right. Great. Thanks, everyone, for the questions. That concludes the Q&A session today. I want to hand the floor back over to Daniel for some closing remarks.

All right. Thanks, Bryan. Well, I think the headline here is quite simple. The business is healthy. We're shipping faster than ever, and we have all the tools we need. We have pricing, product innovation, operational leverage and eventually the ads turnaround to deliver both revenue growth and profit expansion.

I said earlier, it all comes back to user fundamentals, and that's where we are. 700 million users who keep coming back, engagement at all-time highs, we're building Spotify for the long term. And as I transition to Executive Chairman, I couldn't be more confident in what's ahead. Alex and Gustav have been instrumental in getting us here, and I'm excited to watch them take Spotify to the next level. Thank you, everyone, for joining today.

Okay. And that concludes today's call. A replay will be available on our website and also on the Spotify app under Spotify earnings call replays. Thanks, everyone, for joining.

And this concludes today's conference. Thank you for your participation. You may now disconnect.