Spotify Technology - Q1 2024

Transcript

Operator (participant)

Thank you for standing by. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Spotify First Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw your question, again, press star one. Thank you. I would now like to turn the conference over to Bryan Goldberg, Head of Investor Relations at Spotify. Bryan, you may begin.

Bryan Goldberg (Head of Investor Relations)

Thanks, operator, and welcome to Spotify's First Quarter 2024 Earnings Conference Call. Joining us today will be Daniel Ek, our CEO, and Ben Kung, our interim CFO and VP of Financial Planning and Analysis. We'll start with opening comments from Daniel and Ben, and afterwards we'll be happy to answer your questions. Questions can be submitted by going to slido.com, S-L-I-D-O dot com, and using the code #SpotifyEarningsQ124. 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 email investor relations @irspotify.com, 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 materially differ 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. With that, I'll turn it over to Daniel.

Daniel Ek (Chairman and CEO)

All right. Thanks, Bryan. And hey, everyone, and thanks for joining us. I hope you've had the opportunity to review our shareholder deck. Overall, this was a solid quarter driven by strong revenue growth, expanding gross margin, and the largest operating income we've ever posted. Our performance speaks to what I covered last quarter when I described our outlook for 2024, a year of solid progress with monetization and resourcefulness taking center stage. But let's discuss our MAU growth this quarter. We missed our target due to a bit of a slowdown at the start of the year. So I want to directly address the three main factors contributing to this outcome and how we're adjusting over the next few quarters.

First, the MAU and subscription growth we achieved in 2023 not only surpassed our most ambitious forecast but also set a record for the most significant user growth in Spotify's history. While we anticipate continuous robust growth going forward, 2023 was a truly standout year and should not be a baseline expectation for every subsequent year. Another significant challenge was the impact of our December workforce reduction. Although there's no question that it was the right strategic decision, it did disrupt our day-to-day operations more than we anticipate. It took us some time to find our footing, but more than four months into this transition, I think we're back on track. I expect to continue improving on our execution throughout the year, getting us to an even better place than we've ever been. The third issue is related to marketing spend.

In hindsight, we probably pulled back too significantly throughout 2023, and as such, we're already correcting this as we move into Q2. To be clear, we're not going to go back to what we were doing before. We still continue to expect improving profitability over the course of this year and into the next. Any new funds are being directed towards acquiring and reactivating high-value users who enhance our base with their deeper engagement and loyalty. We expect to see good improvements in the second half of this year, and are confident in our ability to deliver top-of-the-funnel growth at consistently high levels, maintaining our proven track record. So how do we expect this to impact our business in the coming months? Well, at Spotify, we don't rely on a single growth strategy but rather adjust our focus based on what the business demands.

For instance, two years ago, we really concentrated on our user growth. Then last year, we restructured our costs, and now we're focused on accelerating revenue while improving our bottom line. Next year, our focus may return to top-of-the-funnel user growth, but in the near term, monetization remains our top priority. Bottom line, we are really good at pivoting our attention when it makes sense. When I say pivot, I really mean making tweaks that will get us to an even better outcome. Because of our ability to do this, I have no doubt that we will be able to recapture top-of-the-funnel growth over time as it becomes more of a focus area for the team. Before I turn it over to Ben to provide more detail into the numbers, I also want to mention our new CFO, Christian Luiga.

I've worked with Christian directly, and I can tell you firsthand that he's a terrific leader and excels at driving both operational efficiency and growth. He has an impressive track record, and his expertise will be incredibly valuable as we continue on this path. I look forward to you getting to know him when he joins later this year, but I also want to extend a huge thank you to Ben for stepping into the role of Interim CFO and helping to ensure a smooth transition.

Ben Kung (Interim CFO and VP of Financial Planning and Analysis)

Thanks, Daniel, and thanks, everyone, for joining us. I'd like to add a bit more color on the quarter and then touch upon the broader performance of the business and our outlook. Q1 marked a strong start to the year, led by accelerating revenue growth and record-setting profitability as our focus on monetization and efficiency had begun flowing through our financials. Although MAU variability was greater than expected, our funnel continued to expand at a reasonably healthy rate within the context of the last few years, as total MAU grew 19% year-over-year in Q1, coming off of 2023's record performance, while quarter-on-quarter net additions of 13 million were in line with 2021 and 2022 levels. On the subscription front, the business grew in line with our guidance, adding 3 million net new subscribers.

Total revenue grew 21% year-on-year on a constant currency basis to EUR 3.6 billion, representing 100 basis points of growth improvement relative to Q4. Notably, our recent price increases and improving product mix shift accelerated premium ARPU growth to 7% year-on-year on a currency-neutral basis, while our advertising business saw improved currency-neutral growth of 19% year-on-year versus Q4's 17%. Moving to profitability, we are very encouraged by the business's early-stage inflection towards the targets we laid out for you at our 2022 Investor Day. Gross margin came in at a Q1 record of 27.6%, surpassing guidance by 121 basis points and resulting in our first-ever EUR 1 billion-plus gross profit quarter. As you're well aware, there are many components that can move our gross margin, and Q1's performance was primarily driven by content cost favorability among other smaller movements.

Operating income of EUR 168 million also set a new record, aided by gross profit strength and lower operating expenses. Operating income was impacted by EUR 82 million in social charge accruals, which were EUR 74 million higher than our forecast driven by share price appreciation during the quarter. As a reminder, we don't forecast share price movements in our outlook for the business since they are outside of our control. Finally, free cash flow was a positive EUR 207 million in the quarter. Performance here reflected the expected reversal of some of the timing benefits we saw in Q4. We remain confident that we've entered a new chapter in terms of expanding the business's cash generation potential. Looking ahead to second quarter guidance, we are forecasting 631 million MAU, an increase of 16 million from Q1, and 245 million subscribers, an increase of 6 million over Q1.

We are also forecasting a currency-neutral revenue growth rate of over 22% year-on-year, pointing to EUR 3.8 billion in total revenue. We also anticipate a gross margin of 28.1% and an operating income of EUR 250 million. In terms of our user growth outlook, as Daniel mentioned, we've made some adjustments to further optimize our marketing activity and expect improving MAU net add levels over the course of the year. With respect to price increases and subscriber growth in Q2, our data shows that historical price increases have had minimal impacts on growth. However, much like Q3 of last year, we are baking in some modest levels of churn into our Q2 outlook. Additionally, we anticipate another quarter of sequential improvement in RPU growth on a constant currency basis in Q2, similar to the 200 basis points of improvement we saw from Q4 to Q1.

From a profitability standpoint, we continue to expect a sequential ramp in gross margin through the balance of 2024, as well as improvements in operating income and operating margin. With that, I'll hand things back to Bryan for Q&A.

Bryan Goldberg (Head of Investor Relations)

All right. Thanks, Ben. And again, if you've got any questions, please go to slido.com, #SpotifyEarningsQ124. 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 Agnieszka Pustula on music profitability. Can you please give us some detail on the improved music profitability in the quarter? Which Marketplace product was the key driver behind better margins, and how much of extra cost did audiobooks add?

Daniel Ek (Chairman and CEO)

All right. I'll start, and maybe, Ben, you can add to the answer. So I think maybe to uplevel the answer a little bit and talk about gross margin in general, this was a real off-performance on many levels, and there were many things that contributed to that. So you mentioned Marketplace. Marketplace did really well in the quarter, and it continues to have a great position on really all of our Marketplace products growing nicely. So I feel really good about Marketplace, and that was a big contributor. In addition to that, obviously, on the gross margin side, we saw lower non-music costs. Some of that was aided by both our audiobook side but also on a podcasting side. Last year, if you remember, that was a bit of a drag on our gross margin.

This year, we expect profitability for the podcast segment, so that's adding to that. Also, you saw lower streaming delivery costs and overall costs, sort of other costs of revenues, due to some of that sort of resourcefulness and that culture. I think, from my side, it is really a new Spotify you're seeing where we are being relentlessly resourceful in all of our costs and in driving improvement in efficiency on all our different drivers that are adding up to this gross margin number.

Ben Kung (Interim CFO and VP of Financial Planning and Analysis)

Yeah. I think you covered it well, Daniel. I think I would just add that resourcefulness that you highlight is spanning a diversified set of levers that are all adding up to this narrative. So I think it's really sort of firing across many cylinders for our business.

Bryan Goldberg (Head of Investor Relations)

All right. Our second question is also going to come from Agnieszka, this time on royalties. For the bundled music and audiobook plans, are royalty payments for each category based on a fixed allocation of relative value of music versus audiobook plans, or is it based on the actual share of consumption, i.e., would increased audiobook consumption reduce music royalty?

Ben Kung (Interim CFO and VP of Financial Planning and Analysis)

Thanks. I'll take this one. I think this is a great question. We won't be able to get into the specifics here, but I think you are touching upon a very important point that I'll try to uplevel towards. It's a fairly complex machine across our content types, and we do have a concept that I'll refer to as shifting profit pools now. So across our content types, we have all types of cost models. We've got variable ones, so that could be anything from revenue shares per user models, per hour models. We also have fixed cost models. It's a fairly complex machine, and the concept of bundling things together allows us to tap into a strength of ours, which is leaning into this complexity across profit pools and managing it efficiently as we look to meet and serve customer demands where we see it.

I think it's as simple as that.

Bryan Goldberg (Head of Investor Relations)

All right. Our next question is going to come from Justin Patterson on capital allocation. Daniel, the balance sheet's in a solid position, and you could be approaching over EUR 2 billion in free cash flow in 2025. Given this, how will you and incoming CFO Christian Luiga look to reevaluate your capital allocation policy?

Daniel Ek (Chairman and CEO)

Yeah. I do appreciate the question, Justin. And it's certainly a new type of problem for Spotify to be dealing with. I think it's a little bit too early to draw any sort of real decisions yet on our side. And obviously, Christian hasn't started yet, but this will be on his table to look at and to work with myself and the board around what we do. I do want to note to investors, though, that we do have the upcoming convertible. So that's certainly one use of capital we could use into the future. But we have many, many tools at our disposal, so we look forward to discussing those as the year progresses.

Bryan Goldberg (Head of Investor Relations)

All right. And a follow-up question from Justin, this time on product. Daniel, you appear to be shipping product at a faster rate. How do you view this as sustaining the 20%-plus revenue growth rate over time? And do you believe the improved product capabilities can make you less reliant on marketing over time?

Daniel Ek (Chairman and CEO)

Yeah. I mean, you're exactly right, Justin. We are focused on shipping more product and better product for consumers. The way you should think about this as investors is the better we can improve the product, the more people engage with our product, and the more value we ultimately create. The more value we create, the more ability we will have to then capture some of that value by price increases. I've mentioned this concept before, but we're really, really focused as a company on this value-to-price ratio. The way we're thinking about it is we're constantly trying to improve the value we offer to consumers. Every now and then, we look at that sort of value-to-price ratio and try to capture some of that value through price increases. When we do, not only Spotify benefits, but the entire creative ecosystem benefits too.

That's obviously everything from artists and songwriters to authors and podcasters now that are part of this strength or this bundle, so to speak, where everyone sort of all the rising tide helps all boats, so to speak. Long term, you should definitely say that the better the product is, of course, the less reliant we will be on marketing because the more viral the product will be, and of course, the less we have to reactivate consumers to come back to the service as well.

Bryan Goldberg (Head of Investor Relations)

All right. Our next question is going to come from Rich Greenfield on audiobooks. There's been speculation that you will launch a premium tier that excludes audiobooks for $10.99 while the audiobooks goes to $11.99. I'm curious if that's needed to improve the cost structure of your audiobook offering. Could you help us understand the margin profile of the audiobooks business?

Daniel Ek (Chairman and CEO)

Yeah. I'll start here, and maybe, Ben, can add. So Rich, I think my sort of last answer kind of captures this. What we're focused on at Spotify is really we're trying to improve as much value as we can. And over the course now of the last two years, we've added a tremendous amount of value. We've added, of course, more and more podcasts than ever before, millions of podcasts now. We have a library of over 100 million music tracks now onto the service. We've added audiobooks in many markets. More than 25% of our base are now using that. And too, I think I saw something online where you were talking about whether or not people were engaging of that 25% of users.

Well, in the first 14 days of new users using audiobooks, we see over 2.5 hours of incremental usage on the audiobook side. So we're seeing some great results. And of course, we've added video too, both on the music side but also on the podcasting side. So we're adding a tremendous amount of value over the course, really, of this last two years on the service and more and more product features like AI DJ, Daylist, and so on. So we're adding more value across the base, and we're focused on capturing some of that value we've been adding over the past two years by increasing the price. And obviously, you're mentioning the U.S. numbers, but in many territories, we have been doing even more price increases. Sometimes that's due to local dynamics. Sometimes that's also due to inflation and other things that are contributing too.

So it's really a mix of many different things that we're considering as we're raising prices. But the main one, if I want to focus you on one, it's really around value-to-price ratio and keeping that very healthy where we're obviously offering a lot more value to consumers than what we're capturing through the price increases. But I feel really good about us doing that. And that's also why you saw us having a healthy guidance on the subs number too, because we think consumers like what they're seeing from Spotify. They love the offering, and they feel that the value that they're getting is more than fair.

Bryan Goldberg (Head of Investor Relations)

All right. Our next question is going to come from Doug Anmuth on MAU. Can you talk more about the greater MAU variability you saw in the first quarter? Was moderated marketing activity as expected, or were campaigns less effective at the top of the funnel? And does organizational change just reflect increased discipline and higher LTV to CAC thresholds? Where is that ratio versus historical levels?

Ben Kung (Interim CFO and VP of Financial Planning and Analysis)

Absolutely. I'll take that, and I'll start with it. Maybe, Daniel, you can add if you have any other thoughts. I think it's important to first start my answer here with just a bit of look-back context. We started honing in on marketing efficiency as we entered 2023, so more than a year ago. When we began pulling back on spend last year, we had other tailwinds working for us that more than counteracted this and drove the record year for us. These included product changes and innovations that we made, as well as benefits on the competition side with certain competitors sort of exiting different markets. We also had a super strong end-of-year effort with activities such as Wrapped and our campaigns around the holiday and the new period.

All these things sort of contributed to what otherwise was observed as the variability on Q1. That said, we've had some great learnings and insights from this performance, notably, as we've talked about, sort of, as Daniel mentioned, thinking about sort of our marketing spend and how we calibrate that. I think you're right to call out that we are very focused on sort of a high LTV to CAC threshold. But we also want to make sure that we're sort of capturing all of the opportunity under sort of the investment curve that we have in different markets. And I think it's important to sort of strike that balance in making sure we capture the opportunity while staying disciplined and making sure that we're focused in the way we target high-value users across the board.

Bryan Goldberg (Head of Investor Relations)

All right. Next question from Justin Patterson on education. Daniel, could you please frame the opportunity you see in education? How would you characterize the investment to succeed here versus what you had to invest in podcasts and audiobooks? What would cause you to expand beyond the U.K.?

Daniel Ek (Chairman and CEO)

Yeah. I mean, this is very, very early days. For those of you that may not know, we've rolled out an early test in the U.K. where we have an educational offering for consumers. Long-term education remains, obviously, a huge potential opportunity for Spotify, but it's too early to say what the results are of the specific test that we have. But as many things with Spotify, maybe to uplevel a little bit, is that oftentimes, we either see consumers or creators tapping into a need. And quite often, what ends up happening is that creators are using our platforms for things that we may not have initially intended it. So a long while ago, we added the ability to have certain podcasts behind a paywall.

And what we were seeing was that some of these podcasts were actually having courses available for them so that you could consume that and unlock them via Spotify, which is a great use case. Now, the problem of that, obviously, is that this has been far from really a great user experience for consumers. So people are hacking our system in a positive way to do more things on it. And this is exactly how audiobooks started for us too. So audiobooks started in Germany for us where the music labels had a bunch of audiobook rights and were uploading these audiobooks to our platform, and they started seeing great consumer success. And similarly, on education, we've started seeing how people are using Spotify for educational purposes. And what we're trying to do now is, obviously, create a much more compelling consumer experience for said education.

We're adding more tools that allow these educators to communicate not just via audio but also via video and adding more and more ways for them to engage in that way. I think long term, if you squint and see that, education remains a massive opportunity. The internet should be poised to create an unparalleled user experience where some of the world's best educators and creators and storytellers should be able to help lots of consumers. So what you can see, if you're a consumer in the U.K. at the moment on Spotify, is you're going to see lots of really cool ways where, for instance, you can learn how to become a better DJ using Spotify or learn how to play the guitar. It's some really amazing content that's on there by creators.

A lot of these creators were already doing podcasts, and they're now adding ways to monetize their fans by creating amazing content that allows them to get better at their craft. I think that is the trend in education. You guys know this, but more and more, consumers are relating to other people. They're not necessarily related to faceless brands. So this is a huge trend in education that we're very excited about.

Bryan Goldberg (Head of Investor Relations)

All right. Our next question is going to come from Mike Morris on pricing. Recent press indicates that you've raised price in the U.K. and Australia and are planning to do so in the U.S later this year. Can you provide an update on pricing changes for this year? How will you approach pricing increases by plan and unique pricing for audiobooks or other premium features?

Daniel Ek (Chairman and CEO)

Yeah. I'll start, and maybe Ben can add. We don't pre-announce anything we're doing on any particular type of price increases. But as I said, the general thinking, if you want to understand how we're thinking, is it is really about value-to-price ratio. So we're constantly looking at how much value we're adding, how are consumers in that market responding to that value that we're adding, and then what is the fair price to have a good value-to-price ratio. And we're doing this in multiple ways, of course. One is adding value into this base tier, but the other way is increasing the choice for consumers. So I do want to point to that a little bit more here. So you've seen us over the years to add more ways for consumers to choose different plans on Spotify.

It originally started off by being sort of just a single-person plan, and it then went to a family plan, and then we added Duo, and then we added various ways of paying for these family plans in, for instance, Southeast Asian markets where you can have a day pass, a week pass, and so on. Just a lot more flexibility. You should think about that we want to offer as much flexibility as possible in this next stage of Spotify to now because we're at the size where we want to appeal to an even larger base of consumers to turn to one of our subscription offerings. That obviously means that you'll see things like, for instance, the audiobook-only tier that was referenced earlier here. You should also expect to see a music-only tier as well.

All of this is in line to just offer as much flexibility to consumers as possible for them to pick whatever plan they feel offers the best value-to-price ratio for them.

Bryan Goldberg (Head of Investor Relations)

Okay. Next question will be from Benjamin Black on gross margins. There was a big step up in gross margin in the quarter and for the second quarter outlook. Were there any one-timers, or is this a new trend? How should we think about the cadence of gross margin expansion for the balance of the year?

Ben Kung (Interim CFO and VP of Financial Planning and Analysis)

Thanks, Ben. This is a great question. I'll start just by re-emphasizing what we've been saying a few quarters in a row now. We feel really confident about the gross margin trajectory and the sequential momentum we have. So consider this a real trend and not just a function of one-offs. As I said in my prepared remarks, we have a lot of moving parts, as is the case every quarter: non-music, music, Marketplace, to name a few of the major areas. We also had movements in other costs of revenue, such as continued favorability with cloud costs, as Daniel mentioned. So there are a bunch of things driving the upside.

From a year-on-year perspective, it's the continuation of the trends we talked about last quarter that I mentioned too: music improvements driven by the growth of our Marketplace business, our continuing pivot to profitability in podcasting, and also optimizing other costs of revenues. For Q2, we see momentums from these same areas persisting.

Bryan Goldberg (Head of Investor Relations)

Okay. We've got another question from Doug Anmuth on Investor Day goals. You often say that Spotify is well-positioned to deliver on the 2022 Investor Day goals, but the company's changed a lot since then. Were the changes that you've made and the newfound discipline required to actually deliver those goals, or should you now have real upside because Spotify is being run very differently?

Daniel Ek (Chairman and CEO)

Yeah. I mean, one of the things we talk about at Spotify is, obviously, that change is the only constant. It's a sort of mantra I have internally. So that we're changing is not perhaps something you as investors should be all that surprised about because that's the only thing we pride ourselves internally with. And you can see that in some of my opening remarks too about sort of how we pivot focus internally as well. But I think maybe to set context on the 2022 Investor Day, the 2022 Investor Day wasn't as much backward-looking as it was forward-looking. So what we tried to do then is to outline where we were going with the company. And some of those things, we used both internally and externally pretty much at the same time to kind of set the directions for the team.

In there, we talked about the Spotify machine. The Spotify machine being that this isn't just a sort of one-trick pony anymore, but it is actually multiple verticals working together to provide a consistent, great story around just more and more choice for consumers that drives more and more engagement because you may come for the music and stay for the audiobooks, and some consumers may come for the podcast and stay for the audiobooks. So there's just going to be more ways for people to interact with it. The machine takes care of all the complexity on the back end to deal with what was historically a very difficult problem to solve, which is multiple business models in one consumer experience. So that's the sort of key arc of what you're seeing contributing to this story.

Now, specifically related to resourcefulness, I do agree that we've made a harder pivot to that than we probably initially planned. But if you walk back to some of our comments, we did say that 2022 was an investment year and that we also would go back eventually to focus on something else. Obviously, that was a harder pivot in 2023 than we initially planned to do. And I think that served us well. But I would say it's really an 80/20 story. 80% is pretty much the same, but we're actually delivering on all the things we said in 2022. And 20% is there may be some added upside by us just being a more resourceful company.

I'm certainly surprised in a positive way by the resilience and the resourcefulness that the teams are showing on some line items like marketing and cost of delivery, just to mention two examples. I think we can be a better company than even what I said in 2022. I think you shouldn't see this as something very different than what we outline. It is pretty much the same, but hopefully with a little bit crisper execution on it.

Bryan Goldberg (Head of Investor Relations)

Okay. We've got a question from Rich Greenfield on TikTok. With the U.S. government set to ban TikTok barring court intervention, how are you thinking about the opening that could create a music discovery and short-form content tied to music?

Daniel Ek (Chairman and CEO)

Yeah. I'm not going to comment on other companies and related on their strategy or what may happen with their regulatory proceedings. But obviously, what I can say is that we are focused on winning discovery, and we're going to add as many ways that we can to improve the discovery of Spotify. So you saw us in the quarter add music videos. You're going to see music clips in a bigger way. You can already today, if you open up the apps, start seeing more and more videos on the music side where artists are engaging with fans in a similar way like a Reels product that TikTok did a few years ago. So I think the whole industry, TikTok and other companies, have obviously improved the user experience. We're all, as an industry, learning about these trends and best practices and trying to improve our products.

So that's what great competition does. It helps improve for everyone. And of course, we are not any different than anyone else in that we're trying to learn from the Marketplace. We learn what consumers like. We try to improve upon it and make the best possible user experience. So short-form music content is a big focus of ours. You're going to see more video on the music side make its way into the product in 2024. And two other things, by the way, that you're going to see is, of course, more AI products in the music side as well. And in addition to that, I believe you're going to see an even more global music ecosystem than any time before in history. So we're excited about all these sort of three core trends in music.

Bryan Goldberg (Head of Investor Relations)

All right. We've got a follow-up from Rich Greenfield on top-line growth. Daniel, in the short video you created on the quarter, you sounded very pleased with your 20% revenue growth rate. Premium's been the key driver aided by price increases. Curious, how should we be thinking about advertising growth going forward? Can it start to increase your overall growth rate and grow 20%+?

Daniel Ek (Chairman and CEO)

Yeah. You're right that our premium product was sort of the big driver of the quarter, and we felt really good about that. Ben can add to this, but we saw a lot of strength in the quarter as well as it relates to advertising. I think it's a little bit early to say on my side how the macro on the advertising side will develop, but I remain cautiously optimistic that we're seeing some really good growth. But again, just to remind investors, the reality is even if advertising will become a better part of the story, it's still a relatively small part of our overall revenue mix. So anything we can do on our subscription side will obviously materially outperform any improvement on the ad side.

Don't think I'm not excited about advertising, but it just happens to be that the subscription side obviously is the bigger part in order to get to the 20% revenue growth. Did I miss anything, Ben?

Ben Kung (Interim CFO and VP of Financial Planning and Analysis)

Yeah. I think I would just add that even in the most recent quarter, ads was just shy of the 20% mark. So we are getting quite close to sort of kind of almost parity growth rates between the two segments. I would just say that sort of in the near term, we continue to see strong growth in supply and monetizable impressions. So we're just very focused on making sure we're optimizing across all channels to meet the growing demand as budgets continue to unlock sequentially each quarter.

Bryan Goldberg (Head of Investor Relations)

Okay. We've got a question now from Benjamin Black on Universal Music Group. Could you talk a little bit about your expanded relationship with Universal Music Group that was announced this quarter? What are the key benefits for you, and where could we see the biggest impact to the financial model?

Daniel Ek (Chairman and CEO)

Yeah. I mean, generally speaking, we're always just to set expectations. We're always sort of working with our partners across all different content mixes and, of course, the major labels too. A huge part of what we're trying to do is operationally improve and allowing us for more flexibility to work together. That means to allow the teams on the various side to give more opportunities to experiment on the platform with rights. So a way of showcasing that is really, for instance, around the music videos that now are in, I believe, 11 or 12 markets around the world. That's a great way of just showing how we work with our label partners across the board.

You're also going to see music clips show up in a bigger way where artists are using ways of short-form storytelling on video to tell a story around their album or tell fans about a new album drop that they should be pre-saving. So there's lots and lots of innovation that's happening together with our label partners and artists alike. And UMG is obviously a very important partner to us, just as the other major labels and independent labels are too.

I think long-term, the way to think about that from a financial impact point of view is really the more we can improve engagement, the more value we're creating, the more ability we will have eventually to capture some of that value through price increases or more inventory that then drives advertising, which, of course, is to the benefit not just of Spotify, but is the benefit of the entire creative community.

Bryan Goldberg (Head of Investor Relations)

All right. Our next question is going to come from Rich Greenfield on music royalty rates. How does the recent launch of an audiobook $9.99 unlimited product impact your statutory music royalty rates? Why are publishers concerned?

Daniel Ek (Chairman and CEO)

Yeah. I mean, so first, I talked about this, but a huge part in this next phase of Spotify is really to allow for more flexibility for consumers. So we went from a single plan, $9.99 back in the day, to then improving family plans, to then adding Duo, to then having day pricing, week pricing in certain markets. And now you're seeing an audiobook-only tier, and you're going to see eventually a music-only tier too. So that's on the specific around the offering side. You will see a lot more sort of tiers that allows for more flexibilities to consumers to opt into the type of deal that they believe offers the greatest value for them in terms of how they're using Spotify.

Now, specifically to our content partners, while I won't comment on any specifics, what I would say is that, of course, this is the sort of natural tension between suppliers and distributors. There's always a tension around payments. Now, to level set this, we did our Loud & Clear a while ago, but I think it's important to note that Spotify in 2023 had record payouts to the entire creative community. Global publishing revenue will hit a record for 2023, and we will pay even more in 2024. So I feel really good about where we are relative to our partners and the fact that we are growing the creator ecosystem. That still remains our goal, and I feel good about delivering on that goal too.

So yeah, of course, there's always going to be tension between that sort of supplier-distributor thing, but I would say we are on track for a better 2024 for songwriters and publishers. So I feel good about delivering lots and lots of value. And relative to the CD era, publishers and songwriters are faring way better in this streaming economy. So I feel good about that.

Bryan Goldberg (Head of Investor Relations)

Okay. Our next question is going to come from Jessica Reif Ehrlich on advertising. This past quarter, The Trade Desk called audio a key area of growth for their business. Programmatic advertising is currently a small part of your business. Can you provide some color on the growth opportunity in programmatic and advertising in general?

Ben Kung (Interim CFO and VP of Financial Planning and Analysis)

Thanks, Jessica. It's a great question. We believe, as you sort of framed in your question, that programmatic is a growing and important part of the mix, and we're bullish on this channel long term. It's an opportunity really for all to participate, small, mid, large-sized enterprises and businesses across the board. As Daniel mentioned kind of in a prior answer, ads is still the smaller part of our mix. And as you call out in your question, programmatic is also a small part of that smaller portion. Right now, as I said in my prior answer related to advertising, we just continue to sort of focus on optimizing across all formats and delivery channels to meet the opportunity where it is.

In terms of near-term opportunity, again, very focused on 2024, we continue to watch closely but are encouraged by what we're seeing as advertiser budgets unlocking sequentially each quarter. We've got some good macro trends momentum heading into the summer and the second half with global events like the Euros, Olympics, amongst others.

Bryan Goldberg (Head of Investor Relations)

Great. Okay. We actually have time for one more question, and that's going to be a follow-up from Jessica Reif Ehrlich on Christian Luiga. You recently announced Christian as your new CFO. Daniel, what in particular about Christian's capabilities or skill set do you think will be most additive to Spotify? And what will Christian's top priorities be when he joins the company?

Daniel Ek (Chairman and CEO)

Yeah. So I've actually seen Christian firsthand for quite some time. Just as a sort of fun anecdote, so Christian was part of the team at TeliaSonera that made the Spotify investment in 2015. So he's very familiar with the company and myself and Martin Lorentzon, the other co-founder of Spotify. So we know Christian quite well, and it's been fun to follow his progress from afar, obviously at TeliaSonera and then going to Saab, tackling different industries but kind of always with a consistent great track record. And that's a track record of improving the bottom line but at the same time be very, very focused on driving a much better business even on the top line too.

And I think that's the sort of key thing that got me and the rest of the team to be excited about him too because this is a person who's been at many different industries and seen many different things. And this is not just someone who's focused on optimizing on the bottom line by cutting costs but actually someone who's focused on what's right for the business even on the top line too. And that feels like the right fit for us. So we're very excited about that. And really, the top priorities as he comes in is to be focused on together with the team on driving even further improvements on being resourceful. That is our sort of key mantra. We think we still have more ways to go when it comes to that. So we're excited about that.

And then one of the questions here alluded to sort of capital allocation. So I'm sure that will be one of his top priorities together with myself and the team too. So we're excited about it. But yeah, he's going to be a great addition, I think, to the team. And I look forward to all of you guys meeting him as well.

Bryan Goldberg (Head of Investor Relations)

All right. Great. So that's going to conclude our Q&A session today. Thanks, everyone, for the questions. Now I'd like to turn the call back over to Daniel for some closing remarks.

Daniel Ek (Chairman and CEO)

All right. Well, thanks, Bryan. We've talked about 2024 as the year of monetization, and I think we're really delivering on that ambition. Now, as we've shifted the focus on strong revenue growth and margin expansion, we see a clear opportunity to ensure we're also continuing to grow the top of our funnel. I feel good about the changes we're implementing and remain very confident in our ability to reach the ambitious plans we've outlined. So thanks, everyone, for joining us, and I look forward to speaking to you next quarter.

Bryan Goldberg (Head of Investor Relations)

Okay. Great. 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.