Spotify Technology S.A. (NYSE: SPOT) Q4 2020 earnings call dated Feb. 03, 2021
Ladies and gentlemen, thank you for standing by, and welcome to Spotify’s Q4 2020 Earnings Call. [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.
Bryan Goldberg — Head of Investor Relations
Great. Thank you, and welcome to Spotify’s Fourth Quarter 2020 Earnings Conference Call. Joining us today will be Daniel Ek, our CEO; and Paul Vogel, our CFO. We’ll start with opening comments from Daniel, and after the remarks, Daniel and Paul will be happy to answer your questions. We’ll again be taking questions exclusively through Slido. Questions can be submitted by going to slido.com and using the code #SpotifyEarningsQ420. Analysts can ask questions directly into Slido and all participants can then vote on the questions they find the most relevant. If 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 letter to shareholders 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 letter to shareholders, in the Financial section of our Investor Relations website and also furnished today on Form 6-K.
And with that, I’ll turn it over to Daniel.
Daniel Ek — Chief Executive Officer, and Chairman
All right. Thanks, Bryan, and hi, everyone, and thank you so much for joining us. Despite the global uncertainty of 2020, it was a remarkable year for Spotify. Following a strong Q2 and Q3, Q4 met or exceeded our guidance by nearly every metric. Monthly active users reached 345 million coming in at the very top of the range and we now have a 155 million subscribers, which surpassed all expectations.
Over the last year, we have demonstrated our ability to pivot quickly, anticipate user trends and adapt to their new behaviors, and it is easy to forget but 2020 had plenty of uncertainty and puts and calls. Our success really is a testament to the strength of the teams and I’m confident this experience will serve us well in the future.
Going into 2021, COVID still has the potential to be a headwind as it is difficult to fully gauge its impact. For Spotify, more time at home resulted in more people discovering streaming and turning to our platform, but it also created a disruption in listening habits, consumption hours and the release of new music and podcasts. We believe it’s cost of the pull-forward subscribers across the back half of 2020, which makes it really hard to predict it will drive the same subscriber growth in the year ahead. However, the trend lines are healthy and long-term, the shifts from linear to on-demand that COVID accelerated will continue and remains a massive multi-billion user opportunity.
Knowing your focus is likely on our outlook for the upcoming year, I wanted to spend a few minutes addressing how I’m thinking about 2021 and some of the uncertainty and some opportunity it brings. And as a reminder, our approach to forecasting is to only forecast where we have a very high degree of certainty that we will achieve. Given the uncertainty we face today, I suspect that our full-year 2021 plan will have a higher variance than prior years. Therefore, what you see reflected in the forecast is what I believe we will absolutely do. This does not mean that that’s what I hope we will achieve as evidenced by our outperformance in 2020.
So, I thought it might be worthwhile to outline some of the biggest drivers that may contribute to this variance. For example, while we have seen some pull-forward effects that may slow down the subscriber growth in some markets, we are shifting to drive more aggressive revenue growth, where we know our pricing power will enable us to increase ARPU. We’ve long believed that Spotify provides exceptional value and the positive early data we’re seeing from this price increase that we announced in October makes us very optimistic that our users agree. This week, we implemented price increases across a number of markets and we will continue to evaluate future increases carefully based on the broader global economic impact of COVID.
Another important tailwind we will pursue is the continued expansion into new markets. We launched in South Korea on Tuesday morning, tapping into one of the fastest-growing music markets in the world. And there are still millions of creators and billions of listeners who don’t yet have access to Spotify, and work is underway to change that, and I will share more in the near future.
The impact from expansion into new markets also create some uncertainty as we forecast user growth. And it’s been really challenging to predict. Take Russia as a prime example. We quickly and significantly surpassed all expectations there. The result of this outperformance is that, we saw some additional pull-forward of user demand, again leading to growth in 2020 that we expected to occur in 2021.
Another area of the business where we’re seeing extremely strong results, but [Indecipherable] payoff of Spotify is still in front of us is podcasting. In the last year alone, we tripled the number of podcasts on our platform, moving from about 700,000 in Q4 2019 to 2.2 million podcasts today. And we’ve also significantly grown the number of podcast users on Spotify. Going forward, I think our investment in Originals & Exclusives are creating more and more reasons for listeners to use [Phonetic] Spotify. And our exclusive programming is already proving to be an essential part of our differentiation. That said, with a small number of these shows on our platform today, but many more in the pipeline, it is very difficult to know exactly when we’ll see the compounding effect of these investments. But all early indications are very positive.
Another example is our advertising business. Other platforms have experienced inconsistent ads growth in their early years and we’re no exception to that and we’re putting more resources into developing this business, and in Q4, our ads business accelerated finishing above forecast. In our mature markets, our largest issue was that we were inventory constrained, and while this sounds like a good problem to have, and I guess it is, it is difficult for us to predict how quickly we can open up new inventory. And I expect that as the category of audio ads matures and more radio dollars move to streaming, this area will become much more predictable, but for the next year or two, it will be a bit more uncertain.
So, to conclude, 2021 brings more uncertainty than any normal year. That said, we have a high degree of confidence in our ability to deliver against the guidance we provided, and we were able to overcome unprecedented uncertainty in 2020 and exceed almost all expectations. And I believe that we can do the same in 2021. I’m also focused on identifying where we can see new opportunities and drive sustained growth in the long-term. Just look at what happened to video in 2020. Linear video fell apart [Phonetic] as we were smart [Phonetic] on demand and the companies who were not prepared to take advantage of this disruption faced huge challenges as their business models were upended. A similar shift hasn’t happened yet to linear radio, but you long heard me say that it’s coming and I’m more confident today that that’s inevitable. But unlike video, there are only a handful of companies who will be able to take advantage of this disruption in audio and no other company has the capabilities or is as well-positioned as Spotify for this massive opportunity and that is our eye on the price.
And with that, I’ll turn it back to Bryan.
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