Spotify Technology S.A. (SPOT) Q3 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the Spotify Q3 2020 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. I would now like to hand the call over to your speaker today, Bryan Goldberg, Head of Investor Relations. Thank you. Please go ahead.

Great. Thank you, and welcome to Spotify’s third quarter 2020 earnings conference call. I hope everyone is continuing to stay safe. Our team is again hosting this call remotely. Our CEO, Daniel Ek, is participating from Stockholm, Paul Vogel, our CFO is at his home office in New Jersey and I’m joining from New York. We’ll start with opening comments from Daniel. After the remarks, Daniel and Paul will be happy to answer your questions. We’ll again be taking questions exclusively through slide. Questions can be submitted by going through slido.com S-L-I-D-O.com and using the code #SpotifyEarningsQ320. Analysts can ask questions directly into slido and all participants can then vote on the questions they find the most relevant. If you some reason you don’t have access to slido, you can e-mail investor relations at ir@spotify.com and we’ll add in your question. Before we begin, let me quickly cover the Safe Harbor. During the call, we will 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 letter to shareholders and in filings with the Securities and Exchange Commission. During this call, we will also refer to certain non-IFRS financial measures. Reconciliations between our IFRS and non-IFRS financial measures can be found in our letter to shareholders, in the financial section of our Investor Relations website and also furnished today on Form 6-K. And with that, I will turn it over to Daniel.

All right. Hi everyone, and thanks for joining us. So Q3 was a very strong quarter surpassing our own expectations on several measures. I think this is a testament to all the amazing contributions of the Spotify team in these uncertain times remains focussed on the needs of our creators, fans and partners around the world. Monthly active users beat the top end of our guidance and subscribers hit the very top end of our range and our service now reaches 320 million users and a 144 million subscribers. The size of our total catalog increased significantly, and our advertising business returned to growth. And we also beat expectations in our newest markets, where we're seeing growth continue to accelerate. I think this affirms our belief that there's a significant pent up demand for Spotify around the world, even in places where our service has yet to launch. These results illustrate the power of our business despite COVID and other related challenges across the globe. And as a result of our performance this quarter, we have updated our Q4 guidance ranges to reflect increased optimism on where we expect to end the year. It's also worth noting that we've paid out more than a billion to right holders in every quarter in 2020. And I'm proud to say that we're on track to pay another billion plus in Q4. In addition to sharing our results, I believe these calls are also timed to help frame where we're headed. And our team remain laser focused on building the world's largest audio network. And while it's still early days, it's clear to us that our strategy is working. So we know that when we reach more listeners, we're able to attract more creators to our platform. So with more reach, comes more content. And with more content, especially content unique to Spotify, there comes more opportunities to monetize. And that interplay is super important, because it's really the foundation of our flywheel. And that flywheel continues to accelerate faster with every new user and creator that comes on our platform. Bottom line, as I look at the increase, specifically in reach that we're seeing this quarter, it gives me the confidence in our ability to monetize that growth. So to fuel the flywheel, you'll see us continue to invest in enhancing our user experiencing, furthering market expansion and develop and acquiring unique content for both, new and established craters. And related to this, you've seen us make a few big moves in launching new content. So I would like to shed some light on how it's going. Our number of new podcasts increase over 20% and music releases are up 13% over the prior quarter. And we saw a strong positive reaction when Michelle Obama and Joe Rogan's podcast launched during the quarter. And we're seeing great success with our original exclusives, which now account for more than 19% of all pod capitalists on the platform. In addition, we're hard at work on new content development that will roll out in the months ahead. And one of the residual benefits of our time indoors is the many creators have turned -- turned back to what they do best, which is creating. And as a result, future music releases look very strong too. And as we know, new music is now coming from artists like Billie Eilish, Drake and Sir Paul McCartney, just to name a few. Another benefit of the investment that we made in our content and user experience is that Spotify listeners are enjoying greater value than ever before. And we believe this presents two distinct opportunities. So one, with about 60% of Spotify subscribers starting out in our free tier and are off-performance on MAUs in 2020, we are confident that we have a long runway to continue to grow our subscriber base in the months and years ahead. And two, long term is engagement and/or our listener value per hours high it gives us the ability to selectively increase our price. So here's how I think about it. While our primary focus remains user growth based on our maturity in certain markets, and the increasing value we provide to our subscribers, including of course enhanced content, we've seen engagement and more specifically value per hour grow substantially over these past few years. And I believe an increase in value per hour is the most reliable signal we have in determining when we're able to use price as a lever to grow our business. And while it's still early, initial results indicate that in the markets where we've tested increasing prices, our users believe that Spotify remains an exceptional value and they've shown a willingness to pay more for our service. So as a result, you'll see us further expand price increases, especially in places where we're well positioned against the competition, and our value per hour is high. I would however, throw in one big caveat; we will continue to tread carefully in these COVID times to ensure that we don't get ahead of the market. So to wrap it up, it was a really strong quarter. And as history has shown us, why we don't always nail the timing, we're usually right in predicting the outcome of our strategy. I continue to believe in the long term value of each and every listener on Spotify and there's still billions of listeners that we've yet to reach around the world. Listeners who tried Spotify tend to stay, and they often convert to a subscriber. That is why our continued focus is on reaching more listeners, as ultimately, this will translate into long term value for our investors. And with that, I'll turn it back to Bryan.

Thanks, Daniel. Again, if you have any questions, please go to slido.com #SpotifyEarningsQ320. Once your question is entered, you can edit or withdraw your question by selecting the option in the bottom right. We'll be reading the questions in the order they come in with respect to help people vote up their preference for questions.

And our first question today comes from Matthew Thornton. When you think about the two sided marketplace, longer term, do you believe that there's opportunity to monetize and play a role in accelerating the discovery, consumption, growth of live and virtual events, as well as memorabilia and merchandise?

Yes, so long term if you think about our marketplace strategy, it's essentially about having creators meet fans. And so there's three distinct components of this. One is to grow their fan bases. The second is to engage further in their fan base. And then the third is monetizing those fan bases. And we're going to create tools and services in all three of these categories. First, how you grow your fan base, second in how you engage with your fan base, and then thirdly, and how you monetize it. And of that, of course, live is a very, very interesting component assets, merchandise, as well. And we're early days in some of our experiments. But I do think the future of the platform certainly holds a lot more of those types of tools, as well.

All right, our next question comes from Michael Morris from Guggenheim, I'll has -- excuse me. Joe Rogan performed overall, since launching on Spotify, any indication listeners from other platforms are migrating to Spotify in advance of exclusivity?

Yes, so Jury [Ph] has performed really well. So far it's exceeded expectations since it's been moved over to our platform. We obviously had some expectations of how what would happen now, and then what would happen in the exclusivity period. So we feel really good about how it's performed. We've definitely had faster growth than we expected. And we're expecting another step up when, when the when the podcast goes exclusive to us before the end of the year.

All right. Our next question comes from Richard Kramer of Arete. Can you share some rough percentages of premium subscribers that are actually paying? We understand the number is around 60% with the remaining 40% under family plans.

Yes, so we don't break out the mix by-products. As we've talked about, ARPU has come down. And some of that has been product mix, or most of them product mix. And so family plan has grown as a percentage of the overall user base, and it is a decent amount of our users right now. No, for us as we've talked about a lot, we really look, we're looking holistically as Daniel mentioned about growing overall users and growing overall subscribers, and are we able to grow them in a way that is as a positive LTV to SAC as something that can be long term profitable for both us as well as the industry to continue to add more users overall, to generate more revenue, gross revenue for the entire industry and for Spotify. And so that's been a real big success for us. And so with an LTV to SAC of two and a half to three times, which has been pretty steady since we've gone public. We feel really good about the product mix within our portfolio.

All right, another question from Richard. Spotify has now had 15 straight quarters of declining premium ARPU even adjusting for FX with the industry trend towards further bundling and towards saturation to develop markets should investors expect any reversal of this trend in 2021?

Yes, so just sort of, I guess dovetailing on my last answer. For us, it has been historically about really thinking about growing users and subscribers first, before worrying about the monetization part second. And as I mentioned, it really has been a focus on the holistically as the LTV to SAC, positive and staying in that two and a half to three range. That being said, well let me back up. With ARPU in the quarter was down 10%, it was down 6% on an FX neutral basis, which was pretty much in line with our expectations. So the quarter did stay in line with where we thought it would be? We did announce a little while ago, a couple weeks ago, that we have raised prices in a few markets continuing to test where it makes sense for us to potentially raise pricing. And for us, it's that balance, it's continuing to that balance of growing users and subscribers. And in markets where we think we have the opportunity to potentially raise prices, we will and will continue to test. If you look back over the last 5 years to 10 years, we've added a tremendous amount of value into this ecosystem, now having sort of 65 million to 70 million music tracks, 2 million podcasts and we've done that without raising prices. So the value you're getting a subscriber is definitely increased materially over that 5 years to 10 years. And so for us, it's really looking at different markets in different regions, looking at the overall streaming penetration in those markets, looking at our penetration in those markets, looking at the maturity of markets, and thinking about where it may make sense for price increases, and where it may not. I will just reiterate what Daniel said in his opening comments, that we’ll be very cautious and careful around COVID, in terms of how we think about any potential price increases moving forward. And again, we're still testing and learning and anything we do will we will be very market specific.

All right, our next question comes from Eric Sheridan of UBS. How should we think about podcasts investments beyond 2020? Are you at the necessary scale or further investments needed in areas such as tools for creation and measurement, exclusive content and local language content outside the U.S?

Yes. I mean, I actually just want to backup, and I think this kind of relates to the prior question as well about this sort of long term opportunity. So one is, we're aiming to be the number one audio platform in the world. And that category in itself is huge. We're talking about billions of users, and many, many millions of creators. And so to the extent that we're still cashflow positive, and to the extent that the LTV to SAC is as favorable, as we've seen in the past, we will continue to invest and we still believe we're early days in our growth. And so that's why the vast majority of our focus has been on growing that user base and growing the number of subscribers rather than sort of raising prices. We are however, adding that to the mix because again, the overall growth in each and every market is the priority that we're having. And that's the revenue growth. And we can grow that by either adding more users or raising the prices of the existing users that we're doing it in. And so but because we really have this macro opportunity, and we're still in the beginning, even though we have 320 million monthly active users, we still think that there are billions more to go after in this ecosystem, and we're going to invest in better tools. And that will increase the engagement and if increases the engagement, that increases our ability to monetize them, as well. And if you add them into marketplace, and all these other things, you'll see monetization increase even further, and that can drive up ARPU and gross profit for both us and the whole ecosystem as well.

All right, next question comes from Matthew Thornton. On pricing you guys raised family plan price in seven markets. What are you seeing in those markets? For example, penetration, engagement, FX, something else that led you to raise price? Do you expect similar actions in more markets in the fourth quarter and into 2021?

Yes, so I guess I'll just reiterate what I said in the last question, which is for us, it's about looking at each market individually. Looking at overall streaming, streaming growth, streaming penetration, our market share there, our position in those markets, and being smart and selective about where we think it made sense. So that's, that's where it was for those seven markets. They're also sort of geographically different. So ways to kind of test and learn and see how the impacts of those price increases, evolve. We've done it selectively. We did it in Norway a little while ago. We did it in New Zealand a little while ago. So we have some early learnings of what happens there. No indications yet in terms of have any impact on retention or churn or engagement or new subjects too early to tell, but again, given how we've been smart about their collective in the past, we feel pretty confident about the markets we've, we've changed so far.

I would just add it in addition, Norway we did quite a while ago. And we do know that it had no impact whatsoever on our negative impact, I should say. So that gives us confidence. We don't have a lot of data on the recent market launches that we have that that's mature yet, but it's looking very good. So I think this kind of adds to our optimism and the framework that I outlined in the opening remarks about the value per hour, which is the thing that we're looking at, as we look at to our to our future ability to raise prices.

Alright, next question from Richard Kramer. Does Spotify get any revenue from hosting podcasts where ads are sold by the content owner creator?

So the short answer is no. Obviously, we sell the ads for things that we own or exclusively license. We don't take any revenue for things that just sort of get passed through onto our platform. That being said, Daniel mentioned in his opening comments that on a trailing 30-day basis 19% of our podcast, MAU now engages with their own content. And so to the extent that that continue to move up on our platform, it gives us even more opportunity to monetize.

Alright, our next question comes from Justin Patterson. How do you think about TikTok’s influence on the music industry? What if any trades from TikTok can you layer into your business?

Yes, TikTok is a great discovery vehicle for music, as it is for a lot of cultural memes that's going on in the world today. I obviously like many others are fascinated with the growth of it and fascinated with the creative expression from creators on that platform. And really the whole kind of remix in culture, I would say. Now that said, related to Spotify, again our focus isn't so much on making the average user a creator that many of the social platforms do. We instead want to add superpowers to the people who want to be professional creators. And that's kind of our focus. But to the extent that we're looking at something like TikTok, it is more about giving our artists, looking at what they're doing on that platform and making sure we provide more creative ways that allows them to express themselves on our platform to. And we have been trying out a number of these things, music and talk being the most obvious example that we launched more recently. But there has also been music stories as a way for creators to talk about their content and their expression. Katy Perry's -- Katy Perry made a great one and more recently, but I'd really encourage you guys to check it out.

Alright, our next question comes from Rich Greenfield. Can you talk about the controversy created by the Joe Rogan podcast? And how are you handling this with your employees?

Yes. Again, overall I would just say we have millions of millions of creators on the platform and almost 70 million pieces of content. And the most important thing for us is that we, anything we do on our platform is based consistently applying those policies. So we have a content policy. It's openly available, anyone can look at it. We obviously review all the content goes that goes up and it doesn't matter if you're Joe Rogan, or anyone else. We do apply those policies. But it's important to note that this needs to be evenly applied, no matter if it's internal pressure or external pressure as well, because otherwise we are a creative platform for lots of creators. And it's important that they know what to expect from our platforms. If we can't do that, then there are other choices for a lot of creators to go to. So that consistency is super important in terms of our messaging.

Alright. Our next question comes from Eric Sheridan. Can you provide more granularity on the recovery and advertising trends? Is it a broader array of advertisers engaged with the platform? Is it a recovery in overall ad budget trajectory versus earlier this year? Can you quantify the exit rate in September that you referenced in the shareholder letter?

Yes, so the recovery was pretty broad based. If you look at it by the different products we sell, our direct business was pretty strong and sort of in line with our expectations, and it improved pretty significantly from a pretty significant downturn in the prior quarter due to COVID. We've seen programmatic, grow and was in line with expectations. And we saw particular strength on the ad studio side, which is our self-service tool and podcasting was up pretty significantly year-on-year as well. So it was kind of, that's sort of the breakdown of how advertising, recovered. And we do feel good about where the quarter was, and it did perform a little bit above expectations. We think about the trajectory coming out September, again, pretty strong. We feel good about where it was. We were -- had positive, advertising growth in all three months of Q3, and it built upon itself within the quarter. And I would say well, we don't explicitly guide to both premium or advertising revenue. Our expectation is that, Q4 advertising revenue will grow faster than it did in Q3.

All right. Another question from Richard Kramer. How long do you anticipate until the two sided marketplace effort covers -- covers its costs?

Do you want to start with that one Paul?

Yeah, I'm not sure how to answer that, since we, we don't actually break up the profitability or the cost of any of our businesses that way. I would say, at a high level we feel really good about the two sided marketplace in general. We feel good about the trend through to the first nine months of the year. And beyond that, [Indiscernible] to come into – maybe I’ll turn it over to Daniel to talk about the marketplace growth in general.

I think the metric that we evaluate our investments over is in whether or not the traction they have in the marketplace. And to that extent, on the marketplace side, what I'm encouraged by is that we're obviously seeing a tremendous uptake in our sponsored recommendations. So it's up to 76%. And more importantly, it's retained over 74% of the customers that, that experiment with the format from the quarter before. So that's a strong engagement metric. And it shows that we're providing a lot of value to the ecosystem. And that combined with the growth of the number of creators that are using that gives us the confidence that this will be a great thing for the music industry and a great thing for Spotify in the long term.

All right, next question from Brian Russo of Credit Suisse. Can you help us quantify how much of your advertising revenue is related to podcast listening versus music? And how different the growth rate of podcast related advertising is from your overall advertising revenue growth?

Yes, we don't. We don't break it out that way. I would say podcasts revenue was a significant driver of growth in the quarter. It was up, I would say very significantly from last year. So your growth in podcasting was very, very strong. I think we feel really good about podcasting in general. I think Q3 my memory serves me correct, had about 2x the number of podcasts advertisers in Q3 than we did in Q2. And the retention among those advertisers was very high between the people who advertised in Q2 advertised in Q3. We've seen, big upfront podcast, media buys as well. So in general, the traction on podcasting is strong, both from a revenue standpoint, from a retention standpoint, and then from a growth in the number of podcasts advertiser standpoint.

All right, next question from Eric Sheridan. You said it is stronger than expected rush to launch and a successful India marketing campaign. How is your approach to market launches and/or stimulating user acquisition in emerging markets evolved over the past few years? And what that might mean for medium long term growth prospects?

Yes, I mean overall, it's an evolving toolbox is what I would say. So I'll just give you one example. In the Western world, we tend to focus a lot on signups by email in many of these emerging markets, you can't do that. It's all about phone numbers and the ability to interact with already existing services like WhatsApp and others to drive growth. So whether we're extending the toolbox and it adds value and amortize on the core base, like, for instance our WhatsApp integrations or Instagram integrations or for instance, the adding the signup flow to involve signing up via your phone number, instead of an email. All of those are sort of small changes and tweaks that we're adding that then gives benefits across the base globally. And so we continue to do that. And then the separate thing that we're doing is that because of our platform and our knowledge of culture and the team that we hire on the ground, we really focus on getting the cultural aspects, right. So we invest a lot in understanding that and spending that time. And you see that very, very clearly when it goes rights, such as the Russia launch, where you saw us not only like many international players get the international content, right. But you saw people also to a wide degree, getting the local content like to sell. It’s the combination of those things, sort of macro learnings. But more importantly, I would say adding more tools in the toolbox, which is something that we've been doing over these past years, but then compound making us better and better and better as we launch new markets. And so I'm very encouraged by that. And but the big surprise that I do want to sort of address for all investors is that there seems to be a lot of pent up demand for Spotify in markets that we haven't launched it. And I think Russia is the great existence, proof of that. And that has surprised, even us internally. We were very optimistic about the launch, but it exceeded our wildest expectations. So that's super encouraging. And that gives us even more reinforcement as we go and launch the rest of the world.

All right. Our next question comes from Josh Le of Covenant Capital. Your churn rate has been declining due in part to lower ARPU. How do you think of the balance between ARPU and churn at what churn rate, would you raise price?

Yes, so I think it's obviously all tied together, right. We have a number of products that are have very high retention that have helped to lower churn over time. Our affinity plans, like family plans and student plans have really done a good job from that standpoint. As we've talked about, not to sort of repeat myself again. But all of what you're talking about gets into that LTV to SAC calculation and it's all about thinking about, how are we growing overall revenue for the long term? How does that impact the overall churn and retention over the long term, and what's the maximum amount of sort of gross profit dollars we're going to get on a user over that period of time. And that's sort of what we're thinking about. And so your churn has come down for a couple of reasons, or I guess a number of reasons. Obviously the product continues to get better. So that's number one. Number two is just as you get bigger, the number of users you've had for a longer period of time, you have more users who are on your platform for a longer period of time, which naturally helps churn when you have a product like ours, which is great. And so for us it is combining that balance. And as we talked about before, you’re looking at the ability to continue to grow users and continue to grow subscribers, over the long term, and to get to the billion plus users that our long term target is looking after and balancing that with what's the right pricing for that.

I would just also add this, I think the important mental model to look at this is a ladder. So we start off, where the users in many cases are in either in a legal environment or in a much lower monetized environment like traditional radio in the U.S. for creators. And we then move them into our free tier. Most of them don't wake up thinking I'm going to pay $10 a month for music. There are very few of those customers around that have that mind-set. So we start getting them into the service, they liked the service, they enjoy the service. Then whether it's a family plan, or an introductory offer, or just the fact that they love the service that’s get them to upgrade to one of our plans. That's all good and great. But then what happens as they get to that plan, and they get even more benefits, the ad free environment, even more platforms where Spotify becomes available, like cars and solos and a bunch of other things. That adds that experience, and you're spending more and more and more hours on Spotify. And that's the value per hour, the metric that I was referencing in my introductory remarks. And the more hours you're spending then the more value you're deriving from Spotify. And we're seeing a clear correlation with that, and our ability to then later on raise prices. But the key here is to, to really kind of look at the balancing act for overall growth. That is what we're focusing on. So to the extent where we focus on the top of the funnel to grow that, that's obviously the most long term beneficial. But in some markets that are more mature, we can also add the later part of that which is focusing on the ones that are already in the funnel and raising prices for them. So it's that balancing act that we need to play all the time. But I would want to say is think about that mental model of the staircase and the ladder and we are constantly in various stages, in various markets on that. And even among certain demographics in an existing markets we may be at various stages in that ladder too.

Alright, we've got a follow up from Josh Le on pricing. What could be the impacts of Apple's bundle to Spotify pricing?

I think the primary impact one, I would start off by saying we haven't noticed any impact. And I think that's evidenced by the quarter we had. But to the extent that there is an impact, it's obviously going to reinforce their ecosystem. So if you're already bought into the Apple ecosystem fully, this gives you an even further reason to, to stick with that ecosystem and double down on that. Now that said, what we're actually finding is most customers aren't in just one ecosystem, because most of our competitors by the way are the ecosystem competitors, like Google or Amazon or Apple at this point. And they're all trying obviously to create as many incentives as possible to get customers to stay within one ecosystem. And what we're finding is more and more of that customers are actually experimenting across many different ecosystems. So they may be an Apple iPhone user, but they may have an Android Auto car, or they may have an Alexa device in their homes. So they're across many of these different ecosystems. And this is where our ubiquity strategy is so important, because we play very nice on all hardware, regardless of if it's Google's devices, Apple devices, or Amazon devices. So I think this is a key sort of competitive difference between us and the normal ecosystem players whose real business model is to just reinforce the ecosystem that they're already in.

Okay. And the next question comes from Richard Greenfield. Advertising is still less than 10% of your revenue, despite how fast you've scaled and they use globally. What do you think the long term revenue mix looks like?

You want to go first Paul or do you want me to take that?

I can go first. Look, I think we are very bullish and optimistic on the advertising opportunity for us at Spotify. I think we've talked about it, you should be north of 10%. I think, could it be 20%? I think 100%, it could. We have tremendous growth on the music side, on overall MAU used and free music, and then you throw podcasts on top of it. And the growth there we can, there's a lot of opportunity. I think for us, the innovation we're bringing into the market and the ecosystem, I think is really going to be helpful. I think there's been very little innovation, particularly on the podcasting side in terms of how to better target advertising and allow creators to actually monetize their product in a much higher way. And I think our ability to help bring those tools and services into the ecosystem will be great for the overall growth of business, it will allow creators to actually make more money off of their podcasts. And I think it will benefit us as well. So I think we still see tremendous opportunity for, for advertising to be a larger share of our overall revenue growth.

My only addition again is, our goal is to be the number one audio platform in the world. Audio as a category is going to be absolutely massive. And I think the good news is, if you look at the comparison, do you think we have a sheet sheet? Just look at video. I think it's very evident that some of the growth in the ad platforms that you saw this quarter from the other players in the industry was focused on video ads. And so as I look at that and I look at audio, we still have a lot of innovation to do on that format. But it's evident to me that as maturity, the business model will not be just about subscription for Spotify, it's going to be the combination of subscription, it's going to be advertising and it's going to be a-la-carte, all three of them in an interplay. And our goal is to try to grow into becoming the largest platform in that, and I think you can add innovation on the outside. And you get to into the level monetization, which if you think about it from the offline to online parallel, online usually is worse at the beginning. But then over time, as it sees more -- more innovation on this stack, usually following a big platform growth on user side, then monetization starts to catch up. And I think you should expect the same journey here and that's certainly what we're investing against.

Next question comes from Ben Swinburn of Morgan Stanley. What drove the decision to raise prices in the markets you called out the shareholder letter? Why the seven? Why family plan? What are the signals you're looking for in other markets to move to raise prices? And what's your assessment of the risk competitors continue to discount more? Or subsidize indicators to Apple TV plus free with Apple Music in order to take share?

Yes, I think it goes back to what I said earlier on. For us, it's a lot about looking at each market individually and thinking about where are they in the evolution of streaming? Where are we in terms of market share within those markets? How long have we been in those markets? What are the new trends we're seeing? To some extent, if you look at the markets, we did raise prices, and they're somewhat diverse, it gives us some element of sort of testing and understanding of different types of markets, some larger ones, smaller ones in different geographic mix. And we think just why family planning obviously, we think there's a tremendous amount of value within the family plan. So we thought that was an area where there might be an opportunity where it would work in some markets. And so, we're really testing and learning. We've, as we've mentioned earlier, we've done this in a couple of markets. And we'll continue to learn and iterate where we think it makes sense.

All right, next question from John Egbert at Stifel. You're about two months into the non-exclusive edition of Joe Rogan to the platform. Can you talk about how the podcast is performed relative to expectations thus far? Are you reaching a large number of listeners that are also consuming music for the first time? Are people listening outside the U.S?

Yes, overall, great success so far. I think the real test will come however, when the podcast becomes exclusive at the platform, but we're very encouraged with the launch so far. It's very much been an international hit, which may have been a little bit of a surprise, we thought maybe skewed more in U.S. than what it has. So I think that speaks to the appeal just of the platform that we have for someone like Joe Rogan. But also of course, the appeal of his show that it has on audiences all around the world. So we're encouraged with that. In fact, we're encouraged with most of the original and exclusive that we've launched so far, of which I do want to just add as a caveat, like Joe Rogan launched in September. So these are recent numbers. And on the list for Q4, the slate looks just fantastic. So I think you should be expecting us to do a lot more than what you've seen even so far. And I think one once we summarize the year, and certainly the next sort of six months, when we look back on it I think you'll see that a part of the success will be Joe Rogan. But it's really a whole slate of a number of different content pieces that are interacting and creating a much better experience on Spotify, than what you can find on other platforms.

Yes, and I would just add just on top of that, the Jerry [ph] is number one podcast in a number of markets. And some markets that are non-English speaking as well, so we know that he travels really well globally.

Okay, great. Next question from Kevin Rippey at Evercore ISI. Can you discuss the factors that led the Michelle Obama podcast to be made available on platforms other than Spotify?

Overall, it's I think it's important to talk about the fact that in many cases when we do deals, and then when they become available on the platform, we've done the deals, and sometimes even a year prior to the deals becoming available, and more and more. So our strategy going forward will be to make more and more of the content exclusive to Spotify. But in this particular instance, it was the early days and we made the decision to experiment and have it windowed by being available on Spotify first, and then later make it available on the platform. And we'll still experiments. By the way, I do want to say, but I think as a strategy, you should expect more and more of the content to go entirely exclusive, like with Joe Rogan.

Okay, another question from John Egbert at Stifel. Can you discuss the adoption and P&L impact of the two sided marketplace tools relative to your expectations? Are you on track to meet or exceed the 50% growth target for gross profit from two sided marketplace? And has UMGs commitment accelerated adoption or has the cadence of album releases during COVID been a headwind?

Yes, so at a high level we are still on plan to meet the expectations for the full year that we gave in terms of marketplace contribution to gross profits and nothing has changed there. And then they were doing a talk about the UMG side.

Yes again, it's still early days in terms of the UMG deal. But obviously, I think this is fantastic for just as an enforcement for the marketplace strategy. And we're still ramping up that partnership and bringing more and more of UMGs inventory onto the marketplace. So that's still very much the focus, but I think it bodes really well for 2021. And, as I mentioned before, we have a 76% increase in unique participants on our products and a 74% retention. So I think that speaks well to the fact that people are enjoying this, it is becoming a bit more of a word of mouth, where more and more creators and artists see this. And again, to kind of take two steps back. The goal here is we in the marketplace strategy, we want to do three things; we want to create more and more tools for artists and labels to grow their fan base on Spotify and then add more and more tools and services to enable them to interact with those fans, and more and more tools and services that enables them to monetize those fans better than what they're currently doing. That is the strategy and we're adding more and more tools, and you should expect this to double down on that strategy.

Great. The next question comes from Steven Kahl [ph] at Wells Fargo. We've seen a number of advertising companies speak to Q4 being sequentially worse for ad growth due to rising coronavirus cases. What's baked into your Q4 guide in terms of ad revenue or ad at ARPU?

Yes, as I said earlier, we don't give specific guidance on our premium versus ads. But I did say we expect that the year-over-year growth in advertising in Q4 will be higher than what we saw in Q3. Obviously, there's a lot of uncertainty around COVID, around a second or third wave. And so there's some conservatism in our numbers, we would hope. But again, there's a lot of uncertainty as well.

And my only addition, of course, is that while of course we care about advertising, and still a relatively small of a small part of the overall revenue pool.

Alright, the next question comes from Justin Patterson. Podcasts have been a meaningful investment area for the past two years. Can you discuss what you've learned during this timeframe? And how audience reach is translating into listening hours and subscriber conversion? What are the next levers to improve the user experience?

Obviously, a tremendous amount of learnings in podcasting, some that translated incredibly well, from music into audio. I think the most important was that the core thesis we had as we started doing this was that we could serve users better by not just doing music, but actually adding podcasting as well. And that the net result would be that we you would see a higher engagement or higher retention across both categories. That has turned out to be true. And I think that should give you a lot of encouragement as investors that the strategy's working. Then in terms of all the other aspects, of course, like if you think about music, it's a three and a half minutes piece of content that you're selling. So a lot of it's, it's not a huge investment for people to try out a new song. In podcasting in many cases, it may be half an hour to an hour's worth of investment to try a new podcaster. So the way we merchandise content, the way we recommend content is entirely different in podcasting, as it is in from music. So that's still an area where we're developing a lot of learnings and trying a lot of things. So for instance, we shipped a few quarters ago three [Indiscernible] as a way of giving people a snack by way of discovering new shows. And we have many, many more experiments currently underway and many more things that you should expect us to ship to. But overall, I think the key thing to look into is we are using the podcast stacks now to give creators further ability to engage with their fans. Music and talk being the primary example this quarter where you know whether you're a podcaster now you can all -- we know music is a huge use case for a lot of podcasters. But licensing has been a big problem. And because Spotify has music and podcasts on the very same platform, we now have that benefit where podcasters can talk about music and incorporate that in their shows. That's great. And just a similarly, we know a lot of music artists want to talk about the music that they're creating. And so music and talk works really well for them, too. So this is just another way where you can see a natural extension of this audio first strategy playing out in the open, and you should look for more developments on those formats. We've talked in the past about polls, as well, being one of those things that we've experimented with many, many more things through enable more engagement between creators and fans.

All right, great. And we are actually out of time for today's Q&A session. I'd like to turn the call back over to Daniel for some closing remarks.

All right, well, thanks Bryan. Well, I'm really proud of our team and how well our business has performed over the first nine months of the year. And as I said earlier, it's a real testament to our flywheel. And as we gain momentum, I strongly believe that you'll see us drive greater acquisition, retention, engagement and monetization, which is good for Spotify, good for our users and good for creators. And there's no doubt it's also good for the entire audio ecosystem. And for that reason, as well as the continued outperformance of our business, I remain very optimistic. For more on this quarter, by the way, listen to the Spotify for the record podcast, which will go live on our platform tomorrow morning. So that's a big plug for me to end it all. Thanks again for joining us and have a great day.

Okay, thanks again, everyone for joining. The replay call will be available on our website and also on the Spotify app under Spotify earnings call replays. Thanks again.

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