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Good day, and welcome to Spotify's Second Quarter 2025 Earnings Call and Webcast. As a reminder, this conference call is being recorded. I would now like to turn the call over to Bryan Goldberg, Head of Investor Relations. Thank you. Please go ahead.

All right. Thanks, operator, and welcome to Spotify's Second Quarter 2025 Earnings Conference Call. Joining us today will be Daniel Ek, our CEO; Alex Norstrom, our Co-President and Chief Business Officer; Gustav Soderstrom, our Co-President and Chief Product and Technology Officer; and Christian Luiga, our CFO. We'll start with opening comments from the team. And afterwards, we'll be happy to answer your questions. Questions can be submitted by going to slido.com, and using the code #SpotifyEarningsQ225. Analysts can ask questions directly into Slido, and all participants can then vote on the questions they find the most relevant. If for some reason, you don't have access to Slido, you can e- mail investor relations at [email protected], and we'll add in your question. Before we begin, let me quickly cover the safe harbor. During this call, we'll be making certain forward-looking statements, including projections or estimates about the future performance of the company. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could 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. And with that, I'll turn the call over to Daniel.

Thank you, Gustav, and thanks, everyone, for joining us today. Let me cover first the quarter 2 results, and then I'll come back a bit on perspective on our outlook. So first, starting quarter 2, MAU grew by 18 million to 696 million in total, exceeding our guidance by 7 million. We added 8 million net subscribers finishing at 276 million, up 12% year-on-year and 3 million ahead of our guidance. Total revenue was EUR 4.2 billion and grew 15% year-on-year on a constant currency basis. Currency movements during the quarter impacted reported revenue by EUR 104 million relative to our guidance. Our premium revenue rose 16% year-on-year on a constant currency basis, driven by subscriber growth and ARPU gains associated with price increases. Our Advertising business delivered currency-neutral growth of 5% year-on-year. Our automated sales channels were the largest contributor to overall advertising growth. If we exclude the near-term impacts from the strategic initiatives like the optimization of our licensed podcast and the rollout of the Spotify Partner program, we had a low double-digit constant currency advertising growth. As Daniel and Alex mentioned, we believe there is an opportunity to grow our Advertising business more quickly and 2025 is very much a transition year onto a new tech stack. Moving to profitability. Gross margin came in at 31.5%, in line with guidance and expanding roughly 230 basis points year-on-year as we strategically invest to accelerate our long-term growth ambitions. Our margin expansion was driven by premium revenue growth outpacing music and audiobook costs, partially also offset by the Spotify partner program cost. Additionally, our ad-supported margin expanded due to podcast and music gains. Our operating income of EUR 406 million was EUR 133 million below guidance, primarily due to social charges in the quarter, which were EUR 98 million above forecast due to share price appreciation. As a reminder, we don't forecast share price movements in our outlook for the business since they are outside our control. The remaining variance to guidance was largely driven by a lighter ad sales contribution and a tax-related charge. Finally, free cash flow was EUR 700 million in the quarter. Year-on-year performance here was driven by our growth in operating income as well as our improving net working capital. We ended the quarter with EUR 8.4 billion in cash and short-term investments. Looking ahead at our guidance in quarter 3, we are forecasting 710 million MAU, an increase of 14 million from quarter 2; and 281 million subscribers, an increase of 5 million over quarter 2. We're also forecasting EUR 4.2 billion in total revenue. Our revenue outlook incorporates a sizable headwind of approximately EUR 200 million due to unfavorable currency movements over the last quarter. We're also forecasting ARPU to be flat year-on-year on a constant currency basis. Moving down the P&L, we expect quarter 3 gross margin of 31.1% and an operating income of EUR 485 million. Consistent with our previously stated expectations, our gross margin guidance reflects a more variable rate of sequential gross margin progression over the course of this year as we undertake strategic investment to support the long-term growth. Quarter 3 gross margin guidance also reflects a regulatory charge of 40 basis points, consistent with the prior year period. Excluding the regulatory charge, our expected quarter 3 gross margin is in line with quarter 1 and quarter 2 levels. We remain confident in our business. And while we're investing in the future growth, we will deliver a full year margin expansion in 2025. Our operating income guidance reflects temporarily elevated growth in operating expenses in quarter 3 due to timing factors, and we remain well positioned to deliver year-on-year expansion in operating margin for the full year of 2025. With respect to capital allocation, our liquidity remains strong, and we expect 2025 to see healthy year-on-year growth in free cash flow. We continue to focus on prioritizing growth opportunities while managing our balance sheet to support our long-term strategy. We are also planning for the upcoming maturity of our exchangeable notes in March of 2026. To the extent excess capacity arises above these needs, we will take our shareholders into consideration. In support of this and as an initial step, the Board has approved an upsizing of our share repurchase authorization to a total of $2 billion, of which about $100 million have been utilized prior to quarter 2. The mandate is giving us enhanced flexibility to be opportunistic in this regard. In conclusion, quarter 3 will be more reflective of our near-term investments, and we anticipate that they will bring healthy returns over the medium and long term. Our top of funnel and subscriber performance are strong, and we remain confident in our ability to drive healthy growth. With that, I'll hand it back to you, Bryan.

All right. Our next question is going to come from Benjamin Black on gross margin. This quarter, your gross margins didn't beat your guidance for the first time in a while. Has there been a change in your guidance philosophy? And how should we be thinking about the trajectory of gross margins for the balance of the year and into 2026?

Thank you, Benjamin. I'm going to start by answering in the end and then go to the first question. So just as we have heard from Daniel and Gustav and Alex, I mean, we feel very strong about the way we are running the business and the foundation and the investments we're doing in future growth and future profitability. So just over time, we will, of course, seek to increase our margin -- gross margin, and that will come from several building blocks. In music, there will be the marketplace and the ads monetization. Podcast will be ad scaling monetization and SVP monetization. In audiobooks, we will continue to monetize over the experience we're doing. Same time, we have seen that in the small numbers in this quarter, but also over the time, other cost of revenue like customer service and payment services, we are slightly scaling on that as well. So that's just what we see. And we don't guide to specifically a quarter 4 or 2026, but we naturally have a seasonally stronger quarter 4. And the 2 things that I can't point to at this stage is that ad-supported gross margin usually hits its highest point in quarter 4. And of course, we had a 40 basis points impact in quarter 3 that will not come back in quarter 4. And then back to your first question then on how we -- if we have changed our philosophy? No, we haven't changed our philosophy at all. You can look at it a little bit like what kind of certainty we have and how we work with certainty when we do our guidance, which I think you would expect from yourself also in trying to figure out guidance. When we do the guide for the quarter, we look at the certainty in our licensing deals or in the market or in other aspects that can hit the margin. And we don't go out with a typically a gross margin guidance that we feel uncertain about. So we try to calibrate into a more certain level when we guide on that. And if you do that, you usually will be above or on target. And now we are on target, which means we had very little issues in this quarter when it comes to uncertainty.

All right. Our next question. We've got another one from Jessica Reif Ehrlich on capital allocation. You just doubled your share buyback authorization to $2 billion with $1.9 billion now remaining. Do you expect to execute this by the expiration of April 2026? And even if you do, you still have a significant amount of financial flexibility. How are you thinking about uses of capital over the next 3 to 5 years?

Thank you, Jessica. Just I think it's good to start with a long-term view on this and which is the same as a short-term view. Our first priority is growth opportunities that we can drive -- that can drive attractive returns. So we want to invest in growth in this company foremost. And to do that, we do seek to have a balance sheet that supports our long-term strategy. And I think that's really important to understand in everything we do. On the other hand, also then now what we have declared is that we believe the buyback is a good tool to use opportunistically and that gives us additional flexibility. And so we're not going to talk about how much and when and how that will be utilized, but we do believe this is a good tool for us in addition to what we have declared before, and it was important for us to make that statement also to you in the market.

All right. Our next question comes from Benjamin Black on ARPU. Could you help us understand the implied FX-neutral ARPU trends for the third quarter? What are the puts and takes? And how should ARPU evolve for the fourth quarter?

Okay. Our next question is going to come from Doug Anmuth on Apple. You stated in the May Amicus brief related to the Apple court case that iOS U.S. paid sub conversions were improving. How does alternative payment expand the subscriber funnel? And what other opportunities does it open up across purchase flow, communication, marketing and potential new business lines?

Yes, Doug. As we mentioned in the Amicus brief, it did impact positively our conversions, and you can see some of that in the quarter. Obviously, most of the growth was broad-based and not just in the U.S. or North America, but also in developing markets, too. So it was really a great quarter from a growth perspective, both on the sub side and the user side, but we certainly saw positive effect of the Apple case in the U.S. Now how does that impact us? Well, the simplest term would be if you think about the consumer experience pre the Apple case. So at that point, if you would fail a payment as a subscriber, we could notify you that your subscription had expired, but we couldn't tell you anything else. So we simply had to rely on alternative means for reaching the consumer. That included e-mails, that included perhaps if we were lucky, some other retargeting of some form through advertising to then get the customer to redo it. But there was no way for us to directly communicate to the customer, and there was no way for that customer to take action on when they hit the sort of subscriber wall inside of that experience. And that meant many people were not stopping to use Spotify, but simply were downgraded to the ad experience, sometimes without even knowing exactly what happened and why it happened if they were using third-party platforms like a car, et cetera, using the platform. So clearly not a great consumer experience. Now if you look at that today, obviously, we can now directly communicate and we can add a call to action in the app. It's not full on payments, but it's still a way where we can directly communicate to the consumer. Now what are new products and how could that influence us? Well, you could imagine a la carte transactions being a very big potential driver for future revenue growth. And we played around with that when it comes to books, for instance, where it makes a lot of sense if you're an author for us to be able to sell books, but you can also imagine new digital products that we could potentially introduce in the future as well. So I think that this is such an important part that -- we said this several years ago when we were talking about monetization and the big sort of theme around investors were thinking about pure-play advertising platforms versus pure-play subscription platforms. And our view was that it simply for any media platform didn't make any sense to be only subscriber-based or only be advertising based. You need both of these drivers. But now we can also add the third driver, which is a la carte transactions to that. We simply think that the big media platforms of the future will be the ones that have advertising subscription and a la carte as methods. And for that, in-app payments is a very important part. Now we hope that the Epic -- what followed in the Epic suit will happen in the EU with the DMA and the DMCC as well that those get enacted and acted upon. If that's the case, then we would see some of that same benefit also in the other markets as well.

Yes. And just specifically, as I mentioned in my also remarks, we have a low double-digit growth if you exclude these more strategic short-term impacts from the inventory that we've taken away and the change in the SPP program.

Okay. Our next question comes from Jason Bazinet on gross margin. Can you please discuss the key drivers of gross margin expansion after 2025?

Yes. Thank you, Jason. And a little bit I alluded to this before, and I just want to add something also to that. But long term, of course, we do believe there's going to be a gross margin expansion, and we will continue that. It comes from Advertising business, as we talked about, that is both in the music side and the podcast side, but also how we monetize the marketplace in music and the SVP in the podcast side. And then we have the audiobooks monetization that we do -- continue to do. And then Daniel, he just mentioned also the third leg in this, the a la carte that we will also introduce and can introduce, which will also be an expansion driver for the future.

Okay. We've got a question now from Deepak Mathivanan on operating expenses. Realizing the timing shifts on the second half OpEx this year, how should we think about expense growth for the next few quarters? Are there any areas of incremental investments in headcount, marketing or technology that you currently anticipate for 2026?

Yes. And maybe, this is Daniel, adding to Alex. I would also say that the biggest thing to realize as you're operating a subscriber service at scale is really managing for retention or lack of churn, I should say. So again, I don't know about other sort of players and what their profiles look for. But what we're certainly noticing and certainly an advice for investors is a lot better to keep the customer around for a longer time than to lose the customer and then try to reacquire the customer back at a later point, too. So at scale, the subscription business is really around retention, not new customer acquisition.

All right. Great. Thanks, everyone, for the questions. That concludes our Q&A section of the call. I'd like to turn it back over to Daniel for some closing remarks.

Yes. Thanks, Bryan. It's really been a great first half of '25, and we're focused on delivering a strong finish. The business is healthy and well prepared, and I generally believe we're in the best position we've ever been to capture the opportunities ahead. So thank you, everyone, for joining us today and look forward to chatting to you soon again.

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