Spotify Technology S.A. (SPOT) Q3 2026 Earnings Call Transcript

Operator: Good day, and welcome to Spotify's third quarter 2026 earnings call and webcast. All participants are in a listen-only mode. If you require operator assistance at any time, please press star zero. 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.

Bryan Goldberg: All right. Thanks, operator, and welcome to Spotify's third 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 dot com, and using the code hashtag SpotifyEarningsQ326. 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 at ir@spotify.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 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. With that, I'll turn it over to Alex.

Alex Norström: Thank you, Bryan, 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 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 306 million, beating our guidance by one million. That strength shows up where it 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 spent time talking about, so I want to share our progress. We've been open with you that we're rebuilding this business, and we said the momentum would start to show in the second half of the year. In Q3, Ads grew 9% at constant currency, up from the 3% in each of the first two quarters. Further, our automated channels continue to scale, and sponsorship products are growing, particularly in podcasts. We're moving in the right direction and there's more progress ahead. 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 Luiga will walk you through the details further, but as we know from experience, investing in our product, features, and brand strengthens our position, and we can see that playing out right now. 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. This year, we expect to reach 316 million subscribers. As I've mentioned before, very few consumer subscription businesses have ever reached this 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. 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 a 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 pays 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. 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 multi-year agreement with Joe Rogan, whose show remains the world's most popular podcast. 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 audiobooks to more than 180 markets by the end of the year, making Spotify the world's first global audiobook service. This enhances subscriber lifetime value, add-on monetization, and will benefit Spotify around the world. Gustav will share more about this. 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.

Gustav Söderström: Thank you, Alex. Alex just spoke about durability at scale, and I want to share how we're creating that. At a recent Investor Day, I talked about two 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 accelerated in that new world. For much of the following decade, we, and everyone else, could instead largely rely on extrapolation of what already existed. 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. Today, I want to talk about three things that we anticipated some time ago that are now becoming real, and the effects of those. First up is agents. 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 through our application or via another agent. We made a bet that consumers using services like ChatGPT would also start demanding intelligence from their media service. 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 what 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's 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. TVs, gaming consoles, 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. 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. Before most people were regular users, we integrated Spotify into ChatGPT, making Spotify the first service available. This was also the case with Meta Ray-Bans, OpenAI's Dots, and we were the only media service integrated into Meta's Muse at launch. The list goes on and on. We are simply everywhere. So that whenever you find a great song, a book, or a podcast, or even want to create a podcast of your own, it's right there. You just save it, playlist it, and it shows up in Spotify 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 a free user 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 one 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 emails, booking restaurants, checking your kids' school schedule, et cetera. This is where you see services like Muse absolutely thriving. People love getting rid of chores. But entertainment is the opposite. Nobody asks an agent to summarize a song for them. The whole point of getting rid of these chores 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've talked a lot about them. Popular features like messaging, Jam, collaborative playlists, and comments. 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 SongDNA 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 their 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 mixed playlists. Consumption is growing 90% quarter-over-quarter, and millions of people create mixes of their own each month. Why does this matter? Playlists 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 Spotify 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 audiobooks, we said our geography gave us a unique perspective. In Sweden, audiobooks are almost as big as 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 audiobooks. 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 of today's market. When people adopt audiobooks, they come to Spotify on more days. Audiobooks started as a bet. It's now a global business, and it's still early. All of this connects to how we're building an even stronger subscription business. In addition to the growth of audiobooks and Premium, we're expanding the Spotify Partner Program, a fan favorite among passionate podcast listeners, to 35 more markets this fall. Two 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 fans 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 audiobooks and the Spotify Partner Program the longest, they're contributing to acquisition, retention, active days, and margin improvement. With that, I'll hand it over to Christian.

Christian Luiga: Thank you, Gustav, and thanks everyone for joining us today. I'll cover the quarter three 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 11 million to 788 million, up 11% year-over-year. We added six million net subscribers during the quarter, growing quarter-over-quarter across all regions. We reached 306 million, which was one 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 Norström 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 social 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 21st, we have repurchased 2.2 million shares for $1.1 billion U.S. 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 three 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 $9.9 billion in cash and cash equivalents and no debt other than lease liabilities. Looking ahead to quarter four, we are forecasting MAU of 818 million, an increase of 30 million from quarter three. 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 Spotify free tier. On subscribers, we're forecasting 316 million for quarter four or a net addition of 10 million. We're also forecasting total revenue of EUR 5.2 billion in quarter four. This reflects a year-over-year ARPU increase of 4.5% - 5%, driven by recent pricing actions and the performance of our Audiobooks+ 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 four, we expect to continue our progress towards double-digit growth. We anticipate a quarter four gross margin of 33.8%, approximately 70 basis points above prior year. Our gross margin outlook includes the initial investments in the expansion of audiobooks 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 three years. Taken together with the first nine months of the year, our quarter four 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 four. 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. 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 are very pleased with how we are tracking into the end of 2026. It is too early to give guidance on 2027, and as I have 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.

Bryan Goldberg: All right. Thanks, Christian. Again, if you have got any questions, please go to slido.com, #SpotifyEarningsQ3 2026. We will be reading the questions in the order in which they appear in the queue with respect to how people vote up their preference for questions. Today's first question is going to come from Sean Diffley, and it is on the free tier. Please discuss early learnings in markets like India and Indonesia, where you are adding some friction to the ad-supported tier, and how we can think about conversion to paid in those markets.

Alex Norström: Thanks for the question, Sean. It has been voting up as the most important question here in the queue, so let us go right at it. Last quarter, I was making a few comments on some changes that we are making to our product and our funnels and in particular, in emerging markets, and you are mentioning two of them here. These changes include things like better data hygiene in 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 higher LTV and so on. All of these things that we are doing, that you are 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 thereby also for our revenue. We have a long track record of durable growth. I just spoke about that in our initial remarks here. This durability that we have been talking about is really the result of a lot of these types of optimizations, and this is just another example of that. Speaking of India specifically, it is a market where we have 1.4 billion users. We see GDP growth of 7%-8% several years in a row. What better market is there for us to work on to improve our business growth? I see no other. This is an incredible market and tremendous opportunity for us.

Bryan Goldberg: All right. 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?

Alex Norström: I'll start and then you can jump in, Christian. 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 good return, we will deploy, and you've seen us do that. With respect to inorganic opportunities, we will do those too, but there's no real change there. You've seen us do that many times before, with companies like WhoSampled, who helped us provide a unique data set to ramp About the Song, which is now used by almost 100 million people. You saw us acquire Findaway, which helped us accelerate audiobooks. You saw us buy Sonantic, which helped us do AI DJ. We'll continue to do this as we see opportunity. Beyond that, if there is excess cash, we will start engaging in buying back shares. You've seen us do that this year. We've mentioned that we're going to buy back shares to counter the dilution that's coming from the employee stock programs. You've mentioned that that's about one million shares, and we've done that. We're now up to 2.2 million shares in buybacks, totaling about $1 billion or a little more than $1 billion. We're making progress also there. Christian, is there anything you would like to add? Yeah, I just want to wrap it up by saying that we will maintain a degree of strategic flexibility with a strong balance sheet. You will see us have a strong balance sheet and a cash balance that makes us be flexible in strategic moves.

Christian Luiga: At the same time, as Alex said, 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.

Bryan Goldberg: All right, our next question is going to come from Jessica Reif Ehrlich on our ubiquity strategy. As listening shifts to third-party AI agents, as with the new Muse integration, who owns the customer relationship and the data, and how do you keep that from turning Spotify into a back-end supplier?

Gustav Söderström: Thank you, Jessica. It's a great question, so I get the chance to talk about things I love. 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 are talking to that agent, which remote controls Spotify in the background. The listening is not shifting. It's actually happening and thus increasing through Spotify. How we think about this, though, is, as I said in my prepared remarks, as another example of the ubiquity strategy. When connected speakers started happening, we tried 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 eSDK, the embeddable SDK, making it dead easy for any speaker provider to integrate Spotify. That turned into a great growth vehicle for us. This is why we're ubiquitous today. Thinking the same way about this, we rebuilt Spotify as an agent, so that it's dead easy for other agents to integrate us and talk agent to agent. What this means is that inside an agent like Muse, you can say, "I would like to create a podcast about this and that," that you've been talking to the Muse agent about. This podcast gets published to Spotify, but only visible to you so that you can listen to it in the morning commute. What happened there is actually that we learn more about you because that podcast is now inside Spotify. We know things that we wouldn't have known otherwise about your interest. This is actually a positive data loop for Spotify rather than the other way around. 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. 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. This is also the reason why we built all of this technology, as I talked about in my prepared remark, to be able to stretch the music, put it together in the right way. As you know, we are also investing in remixes and covers and so forth. 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. That is exactly what we are seeing now. We are seeing really good adoption of Spotify inside these agents. While other companies are maybe trying to figure out what to do and many are leaning out, we are actually leaning in and participating in the growth instead of standing by the roadside and looking at it. We are very excited about this. This is why we said we were going to be the world's first truly intelligent media service, and this is why we have invested in all of this technology.

Bryan Goldberg: Okay, we have 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 Audiobooks+ globally to Reserved Fitness and the expanded Spotify Partner Program, Taste Profile in the U.S. et cetera. What is the 2027 roadmap for monetizing all of these products and features, through new tiers, add-ons, or price increases?

Alex Norström: Jessica, Alex Norström here. I see that we are excited about 2027. I am really excited about 2027 as well, but it is going to be premature for me to talk about specificity around next year. I will give you a bit of how Gustav Söderström and I think about the underlying recipe here. 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. You have seen us do that. About a year ago, we launched the new Spotify free tier, which is the best free tier out there, and that has kept yielding results over the past 12- 18 months. The other thing we do is, of course, to enrich our Premium tier. To your point, I cannot really remember a time in Spotify's history where we have added so much value back to the Premium tier like this current year here. Then we create products on top of that for the niche audiences and the power law like we have talked about. 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 a simple but very powerful recipe that we have followed and deployed for many years now.

Bryan Goldberg: Our next question is going to come from Eric Sheridan. This time 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?

Alex Norström: They are tracking really well against our expectations. We have 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. I will tell you this, there are a lot of things that have been changing, but there are these three things that have not changed, and they remain why advertisers are interested in coming to Spotify. One is that we have a beloved brand. Second of all, we have high-quality content. It is licensed content, and we also have high-quality engagement. It is not just about the hours, it is also about the moments of the day and the context you are in, and as many days in a month as possible. We have 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. What then is our job internally? Well, it is 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 is making easier for folks out there to create audio ads and so on. All of these are things that is underway. We have done a lot of work already. But this will just continue to improve and this is what is powering the Q4 guidance.

Bryan Goldberg: Okay, got another question from Eric Sheridan. This time 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?

Gustav Söderström: Yeah, thanks, Eric. This is Gustav. I will talk about this from a few different lenses. There is obviously productivity within the organization, then there is cost on the consumer experience. First of all, Alex and Christian and I, we said early this year that we were going to invest a little bit ahead because we saw a lot of opportunity. One question that you didn't ask, but I'm going to answer anyway, is what did we get for the investment? First of all, we also said that these investments and these costs were going to start moderating in Q4, which they are. As Alex said in his opening remark, this is a quarter of doing what we said we were 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 one 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, 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 as 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 LLMs allow you to do is to finally talk to Spotify in English. 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. We are very excited about the adoption that we are seeing of these features. Another favorite I mentioned in my opening remarks is Mixing Tools, which is scaling like crazy. We are feeling very good about the return of this investment. I want to reiterate, we said that the costs were going to moderate, and they are moderating now in Q4 and into 2027. 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 open-source models. We have done a lot of investment in controlling our own costs. Now we are seeing two things I am very excited about. We have very clear cost controls, where we can route to the models that we want. We are also finally seeing the next level of productivity. I think many companies have said that they see 100% growth in lines of code, PRs, et cetera, and so have we. There is a question like, does that actually translate into end user features? Now as we have gone through, we have six months development cycles, we are seeing significant acceleration in end user products that are shipping, what we call DoDs, definitions of done, things that are merged and shipped to end users. We are shipping much more. The last part of that question is, well, does that translate into actual value? I just told you that it does. We see engagement, retention, active days going up, not just across products like audiobooks, but also across discoveries, saves, listening hours, et cetera. I feel very good about where we are right now. As Christian Luiga always asks me to say, and always says, we are going to keep being diligent with our cost, as you have seen us be for the several last years. You will also see us take these opportunities when we see them.

Bryan Goldberg: All right. We have 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 lifts Spotify's overall revenue growth rate? Could that be a 2027 event?

Christian Luiga: Thank you, Richard. Christian here. As you say, we are recovering as expected. As we said for a long time, we will move towards double-digit growth in the second half of 2026. In Q4, 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 podcasts, as Alex Norström alluded to before. Going into 2027 and going into path, a 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. That will, of course, drive the revenue growth from the total.

Bryan Goldberg: Okay. 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?

Gustav Söderström: Yeah. 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. What happened is, not surprisingly, a lot of other companies asked us about that and said, "We would also like to use this technology." Because we've taken these costs anyway, we could choose to just amortize them over our few thousand developers, or we could choose to amortize them over more developers. That's how we're thinking about it. We're taking these costs anyway to stay at the forefront. 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.

Bryan Goldberg: Okay. Our next question is going to come from Jason Bazinet on the Family Plan. It was recently reported that you are beginning to crack down on Family Plan subscribers that do not live in the same home. What markets are you pursuing this enforcement? How long before the implementation is complete? What financial impact do you expect from this?

Alex Norström: 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 has been around for, I think it is now close to 12, 13 years in Spotify history, and it makes up a pretty significant proportion of our subscriber base. As such, it is important for us to just make sure over time that we improve the verification methods that we have. There are certainly ways, over time, to find holes around it. As that happens, we figure out how to improve it over time. This is not something that has an end date. This is not an implementation that is going to complete. This is just ongoing routine.

Bryan Goldberg: Okay. Our next question is going to come from Justin Patterson on AI investment. Now that you have had nearly one year of deploying new tools like Claude Code, could you talk about your view on AI ROI and how that has evolved and shaped your thought on investment levels?

Gustav Söderström: 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. I do not think everyone is yet seeing the true heart of productivity metrics. We are, as we have now had about two cycles. With cycles, I mean six-month development cycles, because we roughly plan in six-month increments. Then we measure. We decide what we are going to do for six months, then we build it, and then we can measure how much of that we delivered. We are seeing very significant acceleration in the last six-month cycle in actually building and shipping end-user features. I feel very good about that AI ROI. Obviously, as I said, the next step is to figure out, sure, it is great shipping features, but is anyone using them? Are they producing engagement, retention, and revenue? As I said before, it's actually all of the above. We have adoptions, producing engagement, increases retention, but it is also, in the case of audiobooks, driving direct ARPU. We feel very good about what we're seeing right now, which is why you should expect us to remain at these investment levels. 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. You're going to see us roughly at the same levels. We're going to take these opportunities when we see them, and we're going to communicate them the way we have.

Bryan Goldberg: Okay. 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?

Christian Luiga: Jason, Christian here. Thanks for the question again. I will just go back a little bit to what we said before. Having a strong balance sheet gives us strategic optionality and flexibility to create shareholder return. We have said that we will do that by investing in our organic journey, but also inorganic journey. On top of that, as we've been 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. That's what we have started doing in quarter 1. There's no news on that, and I think it's a quite clear message, and we work very opportunistically in how we invest.

Bryan Goldberg: Okay. Our next question's 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 podcasts and has assistant-like capabilities. How do you believe the opportunity for this product has changed?

Gustav Söderström: Yeah. 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 client for the hardcore frontier users. We learn a lot. This is why we have these features, like creating podcasts. Then we also built skills for them so that third-party agents could also create them. 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. We think this is definitely a tailwind for us. 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 Connect for the agentic 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.

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

Alex Norström: We certainly see similar positive benefits, which is why we've decided to go broad and basically have the first global audiobooks business. 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 user's lead. This is now almost three years ago when Gustav and I saw the uptake of audiobooks in Germany popping just as a, really as an accident. Someone uploaded some audiobooks onto our service and really saw that users were captured by this type of content. 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 could make a difference. We could certainly be helpful in bringing more book listeners to the world. We decided to set a sail. Now we are three years later, and we have had a good three years of real positive benefits. We have increased our audiobooks listenership by 40%. This is even before launching to the rest of the world. We have seen listening hours grow as well. The way you think about the impact is really that we have increased the number of days that people are active on Spotify, which ultimately drives retention and also lifetime value. We have also seen early but very strong indications on add-ons for this type of category really working out. 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 are doing right now. As far as margin goes, the way to think about that is, we have set targets at Investor Day, and we are marching towards those targets.

Bryan Goldberg: Okay. We have 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?

Gustav Söderström: Thanks, Richard. An excellent question. I am going to answer in two parts. First, I want to, again, push back a little bit on the, as 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 have not talked about it because I did not want competition to understand, but it has been fantastic for us. 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. That was not negative for us. We did not get commoditized. We actually grew tremendously. 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. 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. 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, want me to go through your email and try to help you find subscription that you're not using?" The important part of that is the last sentence, "That you're not using." The good thing for Spotify is we will never bet on you forgetting about your subscription. We will never bet on breakage or trying to trick you. In fact, I think Alex Norström has talked about this. We have over 100 million users that use Spotify 28 days of the month. We're one of the most highly engaging services in the world. 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. 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 unsubscribe 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 financial crisis, et cetera. We're one of the most resilient subscriptions that exist. It is because we never bet on you forgetting about your 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.

Bryan Goldberg: All right. We've got time for about two more questions. The next one's 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? As the product delivers more value, how do you balance raising prices against growing the subscriber base?

Alex Norström: Thanks for the question, Batya. We've used the concept of value to price ratio and also the value stick many times. I'll 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. In the first 15 years of Spotify, we had a lot of investment in just value, better product, better content experience. It's just better everything all the time, every year. 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. That's the journey we're on. As you can see us launching more product, 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. That's really how we balance raising price against a growing subscriber base.

Gustav Söderström: Just to fill in there, I think I covered already the demand. We're very excited about the demand that we see for these AI-based features. We talked about SongDNA, 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 agentic sets. So, we feel quite good about the demand for them.

Bryan Goldberg: All right. 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 two-year mark in the first quarter of 2027. How do your 2027 pricing plans and the add-on tiers factor into renewal talks on core streaming terms? Do you expect the renewed agreements to be structured like your current deals?

Alex Norström: Of course, we don't speak to the specific of agreements with our partners. But I can say this is a reoccurring two-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 is 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.

Bryan Goldberg: 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 Norström for some concluding remarks.

Alex Norström: Thank you, Bryan. To close us out, we are building a durable business at scale with a tremendous amount of opportunity ahead. 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.

Bryan Goldberg: All right. 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.

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