We're gonna get started. Paul, just so you know, everybody can see your face. Oh, we can't hear you, though. We'll get Paul's audio on while I read my disclosure statement. Please note that important disclosures are on the Morgan Stanley research disclosure website. If you have any questions, please reach out to your Morgan Stanley sales rep. Paul, can we hear you? Can you guys hear me? Yes. There we go. Great. Excellent. We're really excited to welcome virtually, which is certainly better than not at all, Paul Vogel, the CFO of Spotify, back to Morgan Stanley TMT. The reason Paul isn't here is they had a pretty major event for the company down in L.A., Stream On, this morning. With that, I'm gonna hand it over to Paul to get us started. Great. Thanks, Ben. As you mentioned, we're hosting our second Stream On event today here in Los Angeles, and as much as I'd like to be there in person with all of you and everyone else, this is a truly unique Spotify event. At Investor Day, we talked about our ambition to be one of the truly unique creative platforms in the world, and today we share a variety of updates that build on our creator tools, features, and programming, all of which will unlock new possibilities for more types of creators than ever before. Spotify is coming to life in an entirely new way with advanced recommendations, new visual canvases, and a completely new and interactive design. Before we get into it, I'd like to roll a short video to set the stage. That's just a sampling of what we announced today. It's pretty cool stuff. It's all about closing the distance between creators and fans and helping creators get discovered by new audiences, build community, connect with fans, and chart new pathways to success. Today, we announced over 20 new features and updates to the Spotify experience, including a new home feed, previews for music, podcasts, and audiobooks, as well as a new discovery feed. We showcase a re-envisioned Spotify for Podcasters, bringing together the best of our podcast creator tools into a one-stop shop to create, manage, grow, and monetize podcast content. For music artists, we announced the evolution of our Marketplace offering, including the addition of concert listings and merch to our Now Playing view. Discovery Mode is now available on self-serve basis through Spotify for Artists. Our investments have made these new updates possible and will fuel the next stage of our growth. As you can tell, we're all pretty excited about what we've announced. Now I'm happy to take your questions then. All right. Thanks, Paul. Appreciate you highlighting some of the stuff from this morning. I think there was a lot that came out, maybe just to help distill it for investors, you know, which is maybe not the exact audience you're targeting with Stream On, but there certainly were some relevant points, including, I think, an MAU update. What are the main things you wanna highlight for this audience from Stream On? Yeah. I think you're 100% right. This really is an event catered towards creators. It's geared towards artists, podcasters, and our users. It's really not a financial event per se. That being said, you're correct. We did mention that we've now already passed 500 million MAU. If you recall, our expectations for Q1 were to hit 500 MAU in our guidance, 500 million. We've already passed that at the beginning of March, which is great, and it shows the momentum that we had kind of coming out of Q4 is maintained into Q1, which is great. If you think about it from a financial perspective, I think it's... this event is really focused on creators. When creators are happy and when creators are engaging, when they're adding more content to Spotify just becomes better and the better it becomes, the more engaged users are. The more engaged users are, the longer they're on the platform. The longer they're on the platform, the more they engage, the more we can monetize them, the higher the LTV is, the lower their churn rate is. It really does actually impact all the business side of Spotify. The real goal is to how do we help creators really reach their fans, really gain new audiences, and really monetize as best they can. While it really is a creator platform, and that's all the tools we show, are ways for creators to really engage with their fans in a more direct and distinct way, the financial benefits will come as we have more creators on the platform, and the users are there longer, and they're happier, and they engage more. Paul, I obviously the new home feeds are pretty big revamp. I mean, this feels like one of the bigger product relaunches, revamps, however you want to describe it, in a long time, which, you know, you guys would only be doing if you thought it was gonna be good for the business. Anything you would want to share for us in terms of what that product looks like? I tried. I haven't been updated yet, so I must be on the lower tier upgrade list. Yeah. I don't know, maybe it's alphabetical, so maybe that's why you got it. I don't know. Yeah, it is, it's probably the largest change we've made to the Home, to the Spotify UI in our history, probably since we went mobile. It is a really big change. It's really exciting stuff. The ability to sort of preview playlists, preview podcasts, scroll to see what's in there to get an update before you commit to listening to something. It's really a brand new, and reimagined Spotify. You can still access things the old way you wanted to if you just wanna go to your playlist, or listen to music or podcasting, but this is a really new way to engage. The beauty about what we're doing is it's not about getting someone to be sucked in to something where we're trying to monetize you because you're on it for a longer period of time. What we're really trying to do is get you to engage, to find the right music and find the right content, so you can engage with it however you want in whatever way. It, it has that component, which is really exciting. We launched a couple of other things. One we launched about a week or so ago, but we kind of previewed even in greater detail at this event, was our new DJ, our AI-inspired DJ, which is actually a tremendously cool product. If you haven't tried it yet, you should try it. Go into the music side of Spotify and try it. It's basically a DJ in one. It customizes a DJ, an artificial intelligence DJ, for you with your music. It has lead-ins. It tells you about the artist. It gives you interesting facts. It's a really, really cool evolution of music listening and discovery. Paul, I want to continue our conversation as we move through sort of the business and some of the big investor debates, and I'm sure we'll be able to weave the Stream On news from this morning into that. Maybe to start, I think one of the biggest things that has helped the stock this year has been the, I guess, what I would describe as a shift in tone from Daniel and the team around investment spending. Daniel described, you know, 2023 as the beginning of the next chapter for Spotify. Talk a little bit about the changes you've made at the organization, the reorg, and, you know, how that's gone so far, how the organization has absorbed that. Yeah, let's start with that. Yeah. I think, Well, if you go all the way back to the beginning of 2022, we said it was an investment year. The first off is you're seeing a lot of the benefits of that investment in all the things that we announced at Stream On in 2023. One of the things that we were doing was we were, you know, adding engineers, you know, adding R&D capabilities to be able to launch all these products, right? Whether it was ad products, you know, new things with, you know, Discovery Mode and Marquee, whether it was the new home feed, whether it's, you know, DJ and all the other products. That is all an investment that a lot of it started sometimes even before 2022, but really, you know, kind of took hold there. I recognize at times, particularly for an investor base, it can be frustrating when we talk about investments, and we don't necessarily say what those investments are going to, and you have to wait until it happens. You can see a lot of what we launched we think is innovative, it's new. It's not things that we would have wanted to tip our hand to our competitors before we were ready to launch it. That's that natural tension of 2022 was investing to be able to launch all the products in 2023, but we didn't really wanna share too much, you know, for all those competitive reasons. Let's just kinda take that as sort of one bucket. The second bucket is, yeah, I think we believe and know that we can become a very good business and a great business and not just a great product, and I think we've talked about in the past. I do think the company has a much greater focus on efficiency and how can we do things and be as productive as we possibly can, but do it in a more efficient way, which means not necessarily always having to add the incremental resources that we've added in the past, but do with the existing resources we have and just be more efficient about it. You talked about the reorg. I'm super optimistic about the new structure of the business and how we're running the business for all of those same reasons, right? We're now a more efficient business. The reporting lines are more streamlined. The accountability is there. The ability to get things done with fewer number of people is there. When you become as a business as big as we've become, you sometimes have to make changes. I've been at Spotify for 7 years. This is probably the 3rd big reorg we've done. It's the 1st one that was sort of to the point where it kinda reached the outside world and the press, obviously, it's probably the biggest one we've done since we're a public company. This is what happens. I mean, I started... We were 1,500 employees. We're now, you know, just under 10,000. Orgs need to evolve, and orgs need to change. I think it's actually a real benefit and a real positive that we're willing to always relook at our business and say, "Okay, what worked at 1,500 employees isn't gonna work at 5,000, and now that we're close to 10,000, that's not gonna work either." I think it's actually a testament to Daniel and his leadership to say, "Hey, we're gonna always be looking forward, and we're always looking for ways to be the best business and the most efficient." We're bigger. We're gonna be more efficient. We're gonna get more done, and we'll be able to do it without having to add the same, you know, level of incremental resources we did in the past. You've already sort of touched on my next question, which is around cost and headcount. You grew your headcount, I think, overall by 26% last year. 1,000 engineers were hired. Is this now you think an employee base you can really start to leverage? I hope so. I do. I mean, I think, you know, we spent. That personnel, as you said, went on the R&D side, excuse me, on personalization, all the things you've kind of seen with the personalization side, with platforming and being able to have a platform where advertisers or podcasters and music can all plug into. The other thing is, don't forget, we made a number of acquisitions last year that closed in 2022, which also added to headcount and cost base. You know, one that I'd call out in particular was the acquisition we made of Sonantic, right? Sonantic is the AI business that actually is the voice AI that allows us to do the new DJ, right? We bought that last year. We had to integrate it to people, the process and the structure, and all that cost and all of that integration is what has now allowed us to launch the DJ product in 2023. Again, you've seen a lot of that incremental growth where we're now leveraging it in 2023. We've talked a bunch, I've given you some grief about LTV to SAC trends, which came down last year. Marketing was another huge area of investment last year. Same kind of question. I think you're planning to moderate marketing. You've talked about that. Is that the expectation, and are there implications for MAU growth, which I say knowing that you've already exceeded your Q1 guidance? Yeah. well, when you said you normally give me grief, I thought it was gonna be about the Eagles losing the Super Bowl. I appreciate you not doing that. thanks for that. That's too personal. Yeah, I do think we'll see LTV to SAC, you know, improve. It did come down over the last year a bit as we really stepped up marketing. Again, if you take a step back, I think, you know, again, one of the things we wanted to do last year, and we sort of tried to signal this at the start of the year, maybe we didn't do it as well as we should have, was that it was really gonna be an investment year. We were in so many new markets. We wanted to get a foothold in a lot of those markets. That comes with marketing, it comes with branding, it comes with sometimes having to figure out what works in certain markets. What we found as we've kind of done that and moved forward, we're starting to see some of the leverage of the marketing. That flywheel, that word of mouth, where you start to grow incrementally without as much incremental marketing has been helpful. We've seen that on the one side. The second time is you get more efficient with how to spend your marketing when you've been in markets for a few years. It was actually the last Stream On that we announced that we were launching the entire world, right? It's between then and now, it's, you know, a couple of years of really growing those markets. We've seen the efficiency and I think you mentioned, right, we haven't seen. We've seen a, you know, the momentum at, in the MAU side continue to be strong. As you said, and I mentioned earlier, we've already passed 500 million users, which was our target for all of Q1. Yeah, we're seeing the benefits all around, which has been great. Great. I want to give you a chance to talk a little bit about the guidance you laid out last June, I think it was, at your Investor Day, where you really committed to gross margin and EBIT margin expansion, which is, you know, probably more important to the stock today than it's been. What are the things that need to happen in the business from a revenue and cost point of view to deliver on the 30% gross margin, 10% EBIT margins over the medium term, which we think of as sort of 3 to 5 years? Yeah. nothing's really changed in terms of our expectations, right? When we give out those expectations when we gave them out at the Investor Day, they're always sort of longer term targets for us, right? We get the question a lot, which I'm sure you'll probably get there too, is like, what has to happen for an advertising perspective from the podcasting business, right? We've talked about podcasting being a big drag on our business, but that'll, you know, I said in, you know, 1 to 2 years it'll become breakeven and then be profitable and eventually hopefully additive to gross margins overall. Yes, a healthier ad market would always be easier to get there, but there's nothing that has changed in terms of our expectations, in terms of getting the path to podcast profitability from where we were 6 or 7 months ago. Nothing has changed there. Nothing has changed on the music side, our ability there, and nothing's changed on some of our optimism about audiobooks and some of the new verticals. You know, we feel really good about the numbers we laid out. I think that, you know, hopefully people are starting to see that, you know, we deliver on what we say we're gonna deliver. I know sometimes, again, and I know this and I admit this, that we try and be as transparent as we can. There's certain things where maybe we're not as transparent about spending because of, as I said, some of the competitive reasons we're doing. Hopefully, over time, we'll be able to show and investors will end up, you know, believing in us that there is a process that we've thought this out. That because we think longer term, you know, sometimes we may have a year where we're in an investment year, and then we reap the benefits the following year. That the path to getting to those long-term targets are kind of laid out, and we still have all the optimism that we'll get there. Great. Last year was a record MAU year for the company, which is obviously a huge positive. It did skew a lot towards emerging markets, which we've noted. Investors are obviously focused on that mix and what that means for Premium conversion and sort of the LTVs. What's your perspective on the value of growing the business in the emerging markets over the long term? Yeah. I think we have a really good balance right now. I think you're right, Will, that, you know, A, we are growing faster in some of those kind of developing markets, and that will continue to be the larger percentage of our growth moving forward. It's just kind of obvious when you sort of look at the numbers and TAMS and those types of things. We still think there's a tremendous opportunity to monetize in our developed markets and improve the monetization over time. We have this balance where I think the monetization abilities are really there, particularly in our developed markets, while our developing markets are growing. That will give us the time to sort of grow into actually monetizing those even more over time. There's this nice balance where we have great penetration in developed markets, and I think there's plenty of room to grow in those markets. Don't get me wrong, those are not fully saturated by any stretch. They're not gonna grow as fast as our developing markets. They can grow very fast in terms of monetization opportunities. That will help us continue to grow in the developing markets and give us the time to, you know, to come up with more creative ways of monetizing in some of those areas. Okay. I want to shift to podcasting and the advertising market generally. This is another area where you guys committed to running podcasting, getting it to break even within one to two years, which would suggest, you know, it's coming up probably in 2024. Can you achieve that if the ad market remains at kind of current levels? Do you need a lot of top-line re-acceleration? What's your general optimism around podcasting today? Yeah, I mean, nothing's changed in terms of our optimism. I think everything I'll reiterate what I said, everything we said at the Investor Day still holds true. Yeah, obviously in a very buoyant ad market always makes things easier. We think we have a path to hit the targets that we laid out at Investor Day with respect to break-even and then profitability on the podcasting side. We're still super optimistic about the business and where it can go over time. Again, you know, four years ago, we were nowhere in podcasting. Now we're the, you know, global leader, you know, in podcasting. We've had a tremendous amount of growth in that business. Tremendous amount of innovation in that business. I think a lot of what we're doing now that we announced today at Stream On for creators and their ability to really innovate, you know, have chapters on podcasting now and different types of things to really highlight and monetize what they do. The previews we think will be really helpful on podcasting as well, so you can go and look and see what a podcast is going to be before you click and say, 'I want to listen to it,' so it'll help you figure out what you want to listen to. We're adding Autoplay into podcasting as well. Let's just say you're in the car or you're on a run and you're podcasting, just like music will now Autoplay with something that we think you're going to want to listen to, if your music playlist ends, we're now going to Autoplay your podcasting as well. You got a mile left on your run, I think this is the example that Gustav used today at Stream On. We'll start another podcast for you that hopefully is something similar to what you've listened to that you'll enjoy as an Autoplay. We're adding new features and functionality into podcasting, which I think will help the creators want to really participate. We're, you know, still super optimistic on podcasting. We've heard a lot at this conference about the ad market right now. The macro has been called out as certainly an area of pressure for a lot of businesses. Any update you could provide us, Paul, on sort of how things are trending relative to the earnings call a month ago? I would say the same. I mean, nothing really to update. We're not gonna change anything I said. It was choppy coming out of Q4. It's still been choppy into Q1. That's pretty much in line with what I think what we said on the Q4 call heading to Q1. No real change. Okay. Marketplace was a nice story last year in terms of driving some gross profit $. It grew faster than I think your 30%+ growth expectations from Investor Day. I think you actually announced some stuff today on Marketplace. Can you tell us a little bit about the opportunity you see there, whether you can sustain those kind of growth rates, and are you getting more, you know, sort of engagement from the record label, you know, touring side of the equation? Yeah. To your point, Marketplace grew really nicely. I think, as you mentioned, we said, I think at the Investor Day, we expected to grow 30% last year, and it did grow faster than that, which is great. We launched some new things today. One is, for instance, you know, we've talked about Marquee, and we've talked about Discovery Mode. You know, Discovery Mode is now available to all podcasters as part of Spotify for Podcasters, which is great. You know, on a self-serve type of a mechanism. We see a lot of opportunity for Discovery Mode and Marquee. We talked today about giving creators ability for merch and having their tickets listed and having their concert venues listed, so they can holistically manage their entire experience on Spotify in their music, on their merch, on their concerts and all of those things. We're just gonna continue to add more and more value into the ecosystem for our Marketplace users, and we think we're really excited about it. Great. Let's shift to Premium. We obviously talked a lot about the expense side of the equation this afternoon. The other clear opportunity for the company to drive profits is pricing. I guess the question, Paul, is what are you waiting for to raise prices on Spotify? Yeah, look, I think we've talked about this. I think Daniel has said repeatedly, we believe we have an opportunity to raise pricing, we expect to raise pricing over time. You know, I think for us there's always the natural tension of, you know, what's the best thing for us and our partners in terms of raising pricing, I think that's how we're gonna continue to think about it. Look, we obviously know our competitors have raised prices. We think we have a better product than most of our competitors. If our competitors are able to raise prices we think we have the best product in the business, it obviously bodes well for our ability over time for pricing. Nothing new to announce here, but, you know, we think it's an opportunity. We've added a tremendous amount of value into Spotify over the last 5, 10 years without really materially changing pricing all that much. We have raised prices in a number of markets over the last, you know, 12-24 months, and we have raised prices on Family Plan and Student Plan and in some areas, even the Basic Plan. We'll see where it goes over time. Okay, I tried. All right. Let's shift gears to AI, which has been another big theme at this conference. What's been the feedback on your AI DJ so far? Yeah, the feedback's been great. You know, to your point, it's actually, when you think about AI, there's a number of components that are going into the DJ, right? On the one hand, you've got the AI that goes into the playlisting and making sure you have the best playlist as part of the DJ. The AI component with respect to Sonantic and the acquisition we made there and the voice on the AI, and then obviously the stuff on the OpenAI side that's helping source some of the other parts of it. There's a lot of AI even within that and, you know, that went into the DJ product. We feel great about it. I mean, it's too early to sort of give out any metrics, but I think so far we're pretty pleased with how it's rolled out and I just think it's a very cool product if you haven't used it. I can't really see the audience, but hopefully folks are there and go into your Music tab and you'll see the DJ right there. It's super cool and Honestly, you forget that it's not a real person. The, you know, Xavier, as we call him, X, who's been a Spotify employee for many, many years, he's the voice of the DJ. And he's just like the best guy in the world and you forget, like I feel like X is actually narrating my DJ. I forget it's just an AI-generated his voice. I saw him today at the Stream On event, and I'm like, "I feel like you're in my life every day." "Like, every day I'm listening to you." It's very cool and, I think it's wildly successful. We hope it'll be wildly successful, but I think it's been a really good start. Is AI an area where you guys need to invest a lot of capital over time to continue to benefit from that technology? Yeah, I don't know. I think like everybody else we'll try and figure it out. We already have made some investments. Yeah ... we've been investing in AI with our own employees for years, kind of on the music side. We made the acquisition of Sonantic, which was an investment, right? It's a, it was, you know, a pretty big investment for us, an acquisition that is now paying off. If we see the need, you know, we'll continue to invest. Like everybody else, there's just so much innovation going on and so much changing even in just in terms of cost structures and how you access data that I think it's, like, the... Trying to predict beyond the next, you know, couple of quarters or years is pretty tough. The other area of AI debate on music, of course, is what generative AI may mean to, you know, music creation. Obviously there's a lot of focus from the labels, especially Universal, on sort of what's happening algorithmically on Spotify and other places. How do you think about the opportunity with AI-generated music in terms of creating content and driving engagement and making consumers happy with what they're hearing on Spotify, but also obviously addressing the artist's concern around generative AI? Yeah. Look, I think there are real concerns. I think we all see how it plays out. I think at the end of the day, like, our number 1 focus is how do we maximize creators and how do we maximize users, right? We will, you know, we wanna create a product where creators are able to create and users get the best experience for them. How that evolves, you know, we'll see. I mean, you know, music has evolved, you know, for years. I mean, at the end of the day, the initial publishing rates were basically set on player pianos, which ironically were pianos played by not a human being, right? They're actually maybe the first, you know, non-human played music, and that's where some of the mechanical, you know, the publishing rates come from. Yeah. You've seen that evolution from hundreds of years ago to where we are now, from different types of music to electronic music and everything else. I think it'll just evolve and we'll have to evolve along with it. Okay. Makes sense. Maybe last question just on the competitive environment. Obviously, there's always been this debate about Spotify's ability to compete with these much larger tech players. Increasingly vertically integrated Apple has their Apple One. YouTube's, you know, seemingly had some success with their music and Premium product. You know, how would you compare your position, your strategy? What is allowing you to succeed from an MAU and Premium point of view against those companies, which are obviously pretty significant in size and expertise? I think for starters, there's a couple things. One is this is all we do, right? Our singular focus on streaming audio and giving the best possible experience to users, I think separates us. That's number one. I think number two is, we have more engaged users, and so like, you know, the average user spends two times on Spotify than a user on another streaming platform. We're seeing that, like, our product and our innovation, it's just a better product, therefore people spend more time, you know, on Spotify and they're more engaged with Spotify. I think you saw today from Stream On that we're gonna continue to innovate. We're gonna continue to drive innovation for everything that's best for creators and best for users, in ways that nobody else is doing. Ubiquity. I think this goes all the way back to one of the themes we talked about at our first Investor Day in 2018. We have over 2,000 partners, and we're ubiquitous on every product and every device. Yes, while some of those players definitely have an advantage in terms of controlling hardware and operating systems, we have a huge advantage in terms of being ubiquitous across every product. You can go from your phone to your smart speaker to your car to anywhere else, and it just picks up where you left off because of what we've been able to do in terms of building out ubiquity. You know, we feel really good about it. As, you know, just going back to what we've talked about a couple times, that we're seeing it in continued growth in our business. We've now passed a half a billion users. Competition's tough. The good thing for us is we've been competing with these guys when we were much smaller and in, had much fewer resources. It's never gonna go away. It's never gonna be any easier. I feel like we're in a really good position to continue to innovate and just have the best product out there in the market. Okay. Well, Paul, we really appreciate you spending time with us. I know you had a busy day today, and onto the next 500 million MAUs. Awesome. Thank you for accommodating the virtual. I really appreciate it. All right, Paul. Take care. All right. Thanks, everybody. Thank you. Thank you.