Spotify Q1 2025 earnings name: Daniel Ek talks development, pricing, superfan merchandise, and a future the place the platform may attain 1bn subscribers

Spotify delivered one other quarter of working revenue and subscriber growth in Q1, whilst broader financial turbulence continues to create uncertainty throughout international markets.

On Tuesday (April 29), the streaming large reported a report quarterly working revenue of €509 million ($535.6m) for first three months of the yr, which was – regardless of lacking its personal goal €548 million –  its highest quarterly working revenue to this point.

SPOT additionally beat its personal subscriber steerage by 3 million customers, reaching 268 million premium subscribers.

Spotify’s Q1 outcomes included complete quarterly income (together with Premium and ad-supported) of €4.190 billion ($4.4bn), which was up 15% YoY at fixed forex.

On Spotify’s earnings name, CEO Daniel Ek struck a realistic tone in regards to the macroeconomic atmosphere. “There’s numerous uncertainty on the planet. And when volatility rises, it’s pure to ask who is perhaps affected and the way. And from the place I sit, Spotify is faring higher than most,” Ek instructed analysts.

“The underlying knowledge in the mean time may be very wholesome,” Ek emphasised. “Engagement stays excessive, retention is powerful, and due to our freemium mannequin, folks have the pliability to stick with us even when issues really feel extra unsure.

“So sure, the brief time period might deliver some noise, however we stay assured within the long-term story, and the course we’re heading in feels clearer than ever.”

Ek was joined on the decision by Chief Enterprise Officer & Co-President Alex Norström, CFO Christian Luiga, and Gustav Söderström, Spotify’s Co-President, Chief Product & Expertise Officer

Listed below are six extra issues we realized from SPOT’s management workforce on the decision…

1. Spotify remains to be engaged on a Tremendous premium tier — nevertheless it “want[s] companions to return to the desk”

Spotify’s management workforce was requested in regards to the platform’s much-anticipated “superfan product”.

Bloomberg reported earlier this yr that Spotify is getting ready to launch a “Music Professional” tier as quickly as this yr, doubtlessly priced at an extra $5.99 per 30 days on prime of a Premium subscription.

This higher-priced tier is anticipated to incorporate perks like early entry to live performance tickets, AI-powered remix options, and higher-fidelity audio.

The response from Daniel Ek and Alex Norström (Chief Enterprise Officer & Co-President) appeared to substantiate Spotify’s dedication to launching pricier tiers round “new choices”, however emphasised the necessity for cooperation from trade companions to make that occur.

“With reference to larger tiers, we see nice potential in them as we’ve talked about earlier than,” stated Norström. “So creating larger tiers round new choices is one thing we’re working in direction of”.

He added, nevertheless, that “we want alignment and assist from our trade companions to supply these varieties of latest experiences to our customers. And I feel it’s additionally value noting that we’ll proceed to search for new methods to put money into our premium providing as we’ve accomplished all alongside.”

“We’d like alignment and assist from our trade companions to supply these varieties of latest experiences to our customers.”

Alex Norström

Daniel Ek echoed Norstrom’s feedback, explaining that “for the very, very long run, it’s an upside alternative for Spotify”.

He added: “For the close to time period, the best way to consider it for Spotify is, we’re not depending on [the new tier] for development, however we need to make it occur.

“So that is actually one the place I’d put, once more, the emphasis is for the superfan, we do want the companions to return to the desk and be a part of this journey.”

It’s vital to spotlight right here that they didn’t verify which companions they have been referring to precisely.

They might properly have been referring to rightsholders, however labels aren’t the one entities Spotify wants to barter with earlier than it will probably launch its Music Professional tier – particularly if it desires live performance tickets within the combine.

We all know, for instance, that live performance large Stay Nation has held ticketing talks with Spotify, Apple, and Amazon round presale entry for super-premium tier subscribers.

Discussing these talks with traders on Stay Nation’s earnings name in February, CEO Michael Rapino stated: “So far as the newest spherical with Spotify and Apple and Amazon, they’ve approached us all. We’ve talked to all of them about concepts on in the event that they wished stock.

“There’s a price to that, and we’d entertain and have a look at that choice if it made sense for us compared to different choices now we have for that presale, which is a really priceless asset.”

In the meantime, on Tuesday, in the course of the Q1 earnings name of one in every of Spotify’s greatest companions, Common Music Group, the corporate’s management workforce was additionally requested in regards to the timeline for the introduction of super-premium subscription tiers at DSPs like Spotify.

Michael Nash, UMGs EVP and Chief Digital Officer, stated: “We’re deeply engaged with all of our key companions, together with Spotify on this class of alternative, and we’re very inspired by the course of all these conversations.

He added that “We hope to have the ability to publicly elaborate on the collaborative plans that we’re creating later this yr” and that UMG is “very inspired to listen to [Spotify] executives verify on [their own Q1 earnings call] that with regard to larger tiers, they see nice potential in them… and we have been additionally inspired to listen to them reaffirm that creating larger tiers round new choices is one thing that we’re working in direction of.”

2. Spotify’s Trade Relations Are “Higher Than Ever”

Spotify’s management workforce was requested in regards to the present state of the corporate’s “relationship with the broader trade”.

Daniel Ek’s evaluation of the corporate’s trade partnerships was constructive. “I’ve a simple reply to that,” he stated.

“We at the moment are in a state of affairs the place the connection between us and our trade companions is best than it’s ever been in our historical past,” he added.

“We at the moment are in a state of affairs the place the connection between us and our trade companions is best than it’s ever been in our historical past.”

He continued: “That basically signifies that we’re actually aligned on the incentives, the place all of us [are] attempting to develop the music trade. And as such, we’re actually in fixed dialog with one another to consider all these items.

“I foresee this to proceed to be the case, and there’s going to be much more enhancements within the years forward.”

Spotify lately renewed its offers with main music corporations Warner Music Group and Common Music Group (each in Q1).

When requested if SPOT’s Q1 outcomes mirrored these new offers with Common and Warner Music, and if the “direct publishing relationships” included as a part of these offers “impacted [Spotify’s] prices,” CFO Christian Luiga stated: “Every thing that now we have signed and contracted is mirrored on our monetary numbers in the best way now we have agreed with and in the best way now we have entered the contract.”

3. Daniel Ek doesn’t assume it’s ‘inconceivable to get to 1 billion subscribers’ sooner or later

When requested about balancing development investments with growing margins, Daniel Ek shared his imaginative and prescient for Spotify’s future.

“Basically, we imagine this enterprise to be a lot greater than most different folks imagine it to be,” Ek stated.

“I don’t see it [as] inconceivable to get to 1 billion subscribers.”

daniel Ek

To elucidate, he shared a narrative from Spotify’s earlier years: “I bear in mind again within the day once we hit 1 million subscribers, and I stated the objective was to get to 100 million subscribers. And I feel most of them thought I used to be fully nuts.”

Now at 268 million premium customers, Ek sees even greater potential.

“In case you ask me what’s the North Star objective right here, on what number of paying clients we may get, I don’t know, however I don’t see it [as] inconceivable to get to 1 billion subscribers.”

This explains why development stays a prime precedence for Spotify. As Ek summarized elsewhere on the decision: “No.1, 2 and three on our agenda is to prioritize development initiatives.”

4. AI Is Remodeling Product Growth and Inner Operations at Spotify

Gustav Söderström addressed a query about AI’s position in driving productiveness on the platform, revealing that Spotify has lengthy seen AI as central to its mission.

“Again in 2018, we stated internally that machine studying, as AI was known as again then, was the product,” Söderström defined. “What we’re essentially attempting to do as an organization is to grasp you as a consumer.”

Söderström additionally highlighted how AI is now enabling new consumer experiences: “AI is absolutely the following step and evolution of that, the place machine studying allowed personalization, AI additionally permits for real-time interactivity and reasoning on prime of your knowledge,” he famous, pointing to SPOT’s AI playlists having lately rolled out in beta to over 40 markets.

“I haven’t discovered the necessity to truly power our group to undertake new instruments or AI in any respect. Our workers is normally very enthusiastic about all new expertise, they usually’re normally method forward of the curve.”

Gustav Söderström

On the productiveness entrance, Söderström highlighted how AI is rushing up work on the platform: “We’re additionally seeing AI being utilized in the remainder of the product growth cycle, particularly in prototyping of latest experiences that transfer rather more shortly and with larger constancy after which much less dependence on key engineering assets.”

He additionally defined that Spotify doesn’t wrestle with AI adoption internally: “Generally, I’d say that as in earlier expertise shifts at Spotify, I haven’t discovered the necessity to truly power our group to undertake new instruments or AI in any respect,” he stated.

“Our workers is normally very enthusiastic about all new expertise, they usually’re normally method forward of the curve. So the true job for me, and us as managers, is to allow them to make use of AI by signing the fitting instruments, eradicating authorized blockers round knowledge utilization, exposing the fitting knowledge units and many others. for these instruments to truly be helpful and secure to make use of for our workers on prime of proprietary firm knowledge.

“In order that’s the place we invested the previous few years, and the adoption itself isn’t a problem for us. I’m very enthusiastic about that.

5. Video Is Driving Vital Engagement Development at Spotify

Daniel Ek was requested whether or not a free ad-supported streaming TV providing may work on Spotify, prompting insights into how video is increasing the platform’s utility.

“I feel structurally, there’s clearly no cause why it wouldn’t work,” Ek stated, explaining that “an important cause why now we have added video is as a result of creators are asking us for it.”

He added: “Whereas I’m positive sooner or later, there will probably be a chance for us so as to add fully new creators onto the platform, the true objective that we’ve been going after is that we realized so lots of our current creators wished to specific themselves in several methods.

“And also you’ve seen us over the previous few years now add that with every part from music creators now with the ability to have full-length music movies onto the platform.

“The perfect issues at Spotify has began like that, the place persons are actually telling us why aren’t you doing this?”

Elsewhere on the decision, Söderström shared proof of video’s development on the platform: “We’ve seen a 44% year-over-year development in time spent with video content material. Particularly Gen Z are main this development, spending 81% extra time with video on Spotify year-over-year.”

6. Daniel Ek reiterated that there will probably be extra segmentation of the streamer’s providing, and that pricing will probably be a “large” alternative for the platform within the coming years

Daniel Ek was requested on the decision about how large of a chance “pricing” i.e worth rises will probably be over the following a number of years.

Analyst Wealthy Greenfield famous that “once we take into consideration the pricing, the price of Spotify has solely risen $2 from $10 to $12 because you launched”.

The corporate introduced in July 2023 that the worth of its flagship particular person subscription tier can be growing for the primary time within the US, from $9.99 per 30 days to $10.99, following widespread calls to take action from a number of music trade leaders.

SPOT raised the worth for its Premium tier in the USA once more in June 2024, to $11.99.

Spotify can also be getting ready worth will increase throughout a number of international markets in Europe and Latin America beginning this summer season ( however not within the US).

Daniel Ek defined: “It’s actually vital to grasp that there’s numerous levers you’ll be able to pull at numerous phases.

“On the very first inning, we didn’t even hassle all that a lot about conversion [from free to paid] as a result of the important thing objective was simply getting folks within the door.  Then over time, we type of added yet another [leg] to the stool the place we bought quite a bit higher at changing folks from free to paid. We did so by including issues just like the Household plan and Scholar plans and so forth.

“The story I’m actually right here attempting to color is that within the very early innings, the first option to develop is to maintain that worth at an insanely whole lot. And that’s the place we began with Spotify. It was simply an insanely whole lot. It was simply too good to be true, and that’s what led to a lot of the early development.”

Ek argued that “while you’re nonetheless rising tremendous quick, elevating costs isn’t a sensible technique,” however that “as development then form of modulates as you get bigger and bigger into the market, pricing turns into one other leg to the stool, one other lever to drag”.

“We’re simply within the early innings. I nonetheless imagine there will probably be extra segmentation. However sure, I feel the chance [in pricing] is large.”Music Enterprise Worldwide