Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  ☒    Form 40-F  ☐

 

 

 

 

 

1.Corporate information

Spotify Technology S.A. (the “Company” or “parent”) is a public limited company incorporated and domiciled in Luxembourg. The Company's registered office is 5, Place de la Gare, L-1616 Luxembourg, Grand Duchy of Luxembourg.

The principal activity of the Company and its subsidiaries (collectively, the “Group,” “we,” “us,” or “our”) is audio streaming. The Group’s premium service (“Premium Service”) provides users with unlimited online and offline high-quality streaming access to its catalog of music and podcasts. In select markets, the Premium Service provides eligible users with limited online and offline streaming access to its catalog of audiobooks. The Premium Service offers a music listening experience without commercial breaks. The Group’s ad-supported service (“Ad-Supported Service” and together with the Premium Service, the “Service”) has no subscription fees and provides users with limited on-demand online access to the catalog of music and unlimited online access to the catalog of podcasts. The Group depends on securing content licenses from a number of major and minor content owners and other rights holders in order to provide its service.

2.Basis of preparation and summary of material accounting policies

The interim condensed consolidated financial statements of Spotify Technology S.A. for the three months ended March 31, 2024 and 2023 have been prepared in accordance with IAS 34 Interim Financial Reporting. The interim financial information is unaudited. The interim financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary to fairly present the information set forth herein. The interim condensed consolidated financial statements should be read in conjunction with the Group's consolidated financial statements for the year ended December 31, 2023, as they do not include all the information and disclosures required in the annual consolidated financial statements. Interim results are not necessarily indicative of the results for a full year. The interim condensed consolidated financial statements are presented in millions of Euros.

On January 1, 2024 the Group adopted the International Accounting Standards Board (“IASB”) issued amendments to paragraphs 69 to 76 of IAS 1 Presentation of Financial Statements to specify the requirements for classifying liabilities as current or non-current. The amendments are applied on a retrospective basis and require the Group to reclassify the Exchangeable Notes (as defined below) as a current liability if the exchange conditions are met, even if no noteholder actually requires us to exchange their notes. Adoption of this amendment did not result in the reclassification of the Exchangeable Notes as a current liability at any reporting date, from the inception of the Exchangeable Notes to March 31, 2024 as the exchange conditions had not been met.

There are no other new IFRS or IFRS Interpretation Committee (“IFRIC”) interpretations effective during the three months ended March 31, 2024 that have a material impact to the interim condensed consolidated financial statements.

In April 2024, the IASB issued IFRS 18 Presentation and Disclosure in Financial Statements (“IFRS 18”) which replaces IAS 1 Presentation of Financial Statements. IFRS 18 requires an entity to classify all income and expenses within its statement of profit or loss into one of five categories: operating; investing; financing; income taxes; and discontinued operations. The first three categories are new. These categories are complemented by the requirement to present subtotals and totals for “operating profit or loss”, “profit or loss before financing income and taxes” and “profit or loss”. IFRS 18, and the amendments to the other standards, is effective for reporting periods beginning on or after January 1, 2027, but earlier application is permitted. The Group is currently evaluating the impact of this amendment.

There are no other IFRS or IFRIC interpretations that are not yet effective and that are expected to have a material impact to the interim condensed consolidated financial statements.

3.Critical accounting estimates and judgments

In preparing these interim condensed consolidated financial statements, the significant judgments made by management in applying the Group's accounting policies and the key sources of estimation and uncertainty were the same as those applied to the consolidated financial statements for the year ended December 31, 2023.

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events.

4.Finance income and costs

5.Income tax

The effective tax rates for the three months ended March 31, 2024 and 2023 were (13.0)% and (9.3)%, respectively. The Group operates in a global environment with significant operations in various jurisdictions outside Luxembourg. Accordingly, the consolidated income tax rate is a composite rate reflecting the Group's earnings and the applicable tax rates in the various jurisdictions where the Group operates.

For the three months ended March 31, 2024, the income tax benefit of €23 million was due primarily to the recognition of deferred taxes as a result of the unrealized increase in the fair value of the Group's long-term investment in Tencent Music Entertainment Group (“TME”) resulting in a tax benefit of €64 million, partially offset by utilizing share-based compensation deductions recognized in equity to offset current taxable income resulting in tax expense of €26 million. For the three months ended March 31, 2023, the income tax expense of €19 million was due primarily to the impact of utilizing historical share-based compensation deductions recognized in equity to offset current taxable income, income taxes associated with the Group’s profitable subsidiaries as well as impacts of prior year items.

Transactions recorded through other comprehensive income/(loss) have been shown net of their tax impact, as applicable.

The Group is in scope of the OECD Pillar 2 Model Rules (“P2 Rules”). The P2 Rules have been enacted (or substantively enacted) in most jurisdictions in which the Group operates, including Luxembourg and Sweden. Although no material exposure arising from Pillar 2 has been identified to date, material Pillar 2 impacts to our tax expense remain possible.

We are subject to ongoing tax audits in several jurisdictions, and most of these audits involve transfer pricing matters. Tax authorities in certain jurisdictions have challenged our tax positions. We regularly assess the likely outcomes of these audits, taking into account any new information available, in order to determine the appropriateness of the tax reserves. If management concludes that it is not probable that a tax position will be accepted, the effect of that uncertainty is reflected at either the most likely amount or the expected value, taking into account a range of possible outcomes.

Tax provisions related to uncertain tax positions in the interim condensed consolidated statement of financial position, which management has concluded are not probable to be accepted were €11 million as of March 31, 2024 and €8 million as of December 31, 2023. None of the provisions related to uncertain tax positions are reasonably expected to be resolved within the next twelve months. Interest and penalties included in income tax expense were not material in any of the periods presented. Due to the uncertainty associated with our tax positions, any future agreement with the tax authorities could have a significant impact on our results of operations, financial condition and cash flows.

Net deferred tax assets of €24 million and €20 million have been recorded in the interim condensed consolidated statement of financial position as of March 31, 2024 and December 31, 2023, respectively. In evaluating the probability of realizing the deferred tax assets, the Group considered all available positive and negative evidence of future taxable profit, primarily past operating results. As of March 31, 2024 and December 31, 2023, deferred tax assets of €824 million and €796 million have not been recognized. Changes in profitability in the jurisdictions where these balances originated, among other factors, could have a substantial impact on management's assessment of deferred tax recognition.

6.Earnings/(loss) per share

Basic earnings/(loss) per share is computed using the weighted-average number of outstanding ordinary shares during the period. Diluted earnings/(loss) per share is computed using the weighted-average number of outstanding ordinary shares and potential outstanding ordinary shares during the period. Potential ordinary shares, which are based on the weighted-average ordinary shares underlying outstanding stock options, restricted stock units, other contingently issuable shares, warrants, and Exchangeable Notes and computed using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted earnings/(loss) per share when their effect is dilutive. The computation of earnings/(loss) per share for the respective periods is as follows:

Potential dilutive securities that were not included in the diluted earnings/(loss) per share calculations because they would be anti-dilutive were as follows:

7.Leases

The Group leases certain properties under non-cancellable lease agreements that primarily relate to office space. The expected remaining lease terms are up to 10 years.

Below is the roll-forward of lease right-of-use assets:

Below is the roll-forward of lease liabilities:

(1) €9 million and €10 million of interest paid on lease liabilities are included in operating activities and €15 million and €15 million of payments of lease liabilities included in financing activities within the interim condensed consolidated statement of cash flows for the three months ended March 31, 2024 and 2023, respectively.

(2) €2 million of lease incentives received are included in financing activities within the interim condensed statement of cash flows for the three months ended March 31, 2023. There were no lease incentives received during the three months ended March 31, 2024.

Below is the maturity analysis of lease liabilities:

Excluded from the lease commitments above are short term leases. Expenses relating to short term leases were approximately €1 million for both the three months ended March 31, 2024 and 2023. Additionally, the Group has entered into certain lease agreements with approximately €40 million of commitments, which had not commenced as of March 31, 2024, and, as such, have not been recognized in the consolidated statement of financial position.

The weighted-average incremental borrowing rate applied to lease liabilities recognized in the interim condensed consolidated statement of financial position as of March 31, 2024 was 6.4%.

During the three months ended March 31, 2024, the Group entered into agreements to sublease a portion of its leased offices under finance leases. As an intermediate lessor, the Group accounts for sublease arrangements separately from the related head lease agreements. Subleases are classified as either finance or operating leases by reference to the right-of-use asset arising from the head lease. Where the lease transfers substantially all the risks and rewards of ownership to the lessee, the contract is classified as a finance lease; all other leases are classified as operating leases. The Group does not currently have any subleases classified as operating leases. Amounts due from lessees under finance subleases are recognized as receivables discounted using the interest rate implicit in the lease. Below is the roll-forward of finance lease receivables:

Below is the maturity analysis of finance lease receivables:

8.Property and equipment

The Group had €1 million and €4 million of leasehold improvements that were not placed into service as of March 31, 2024 and December 31, 2023, respectively. 

9.Goodwill and intangible assets

Amortization charges related to intangible assets of €8 million and €10 million are included in research and development in the interim condensed consolidated statement of operations during the three months ended March 31, 2024 and 2023, respectively. There were no impairment charges for goodwill or intangible assets for the three months ended March 31, 2024 and 2023, respectively.

10.Restricted cash and other non-current assets

11.Trade and other receivables

12.Other current assets

Content asset amortization of €51 million and €50 million is included in cost of revenue in the interim condensed consolidated statement of operations for the three months ended March 31, 2024 and 2023, respectively.

13.Equity and other reserves

As of March 31, 2024 and December 31, 2023, the Company had 202,256,242 and 201,343,630 ordinary shares issued and fully paid, respectively, with 3,202,177 and 4,200,241 ordinary shares held as treasury shares, respectively.

For the three months ended March 31, 2024, the Company repurchased 900,000 of its own ordinary shares and reissued 1,898,064 treasury shares upon the exercise of stock options and restricted stock units. For the three months ended March 31, 2023, the Company did not repurchase any of its own ordinary shares and reissued 836,293 treasury shares upon the exercise of stock options, restricted stock units, and contingently issuable shares.

As of March 31, 2024 and December 31, 2023, the Group's founders held 341,341,690 and 343,841,690 beneficiary certificates, respectively.

14.Share-based compensation

The expense recognized in the interim condensed consolidated statement of operations for share-based compensation is as follows:

Activity in the Group's RSUs and other contingently issuable shares outstanding and related information is as follows:

In the table above, the number of RSUs and other contingently issuable shares released include ordinary shares that the Group has withheld for settlement of employees' tax obligations due upon the vesting of RSUs and other contingently issuable shares. For most of our employees, when RSUs vest, the Group withholds the number of shares that are equal to the monetary value of the employee’s tax obligation from the total number of shares that otherwise would have been issued. The Group then remits cash to tax authorities on the employees' behalf. If all the RSUs outstanding at March 31, 2024 subsequently vest, the Group estimates that it would be required to remit approximately €273 million to tax authorities over the vesting period for the years 2024 through 2028. In determining this estimate, the Group used the Company's ordinary share price as at March 31, 2024. The actual amount remitted to tax authorities is dependent on the Company's ordinary share price on each of the vesting dates as well as the number of awards that ultimately vest.

Activity in the Group's stock options outstanding and related information is as follows:

The weighted-average contractual life for the stock options outstanding at March 31, 2024 was 2.8 years. The weighted-average share price at exercise for options exercised during the three months ended March 31, 2024 was US$246.13. The weighted-average fair value of options granted during the three months ended March 31, 2024 was US$116.04 per option.

The following table lists the inputs to the Black-Scholes option-pricing models used for share-based compensation for the three months ended March 31, 2024 and 2023:

15.Exchangeable Notes

On March 2, 2021, the Company’s wholly owned subsidiary, Spotify USA Inc. (the “Issuer”), issued US$1,500 million aggregate principal amount of 0% Exchangeable Senior Notes due 2026 (the “Exchangeable Notes”), which included the initial purchasers’ exercise in full of their option to purchase an additional US$200 million principal amount of the Exchangeable Notes. The Exchangeable Notes will mature on March 15, 2026, unless earlier repurchased, redeemed or exchanged. The Exchangeable Notes are fully and unconditionally guaranteed, on a senior, unsecured basis by the Company.

The net proceeds from the issuance of the Exchangeable Notes were €1,223 million after deducting transaction costs of €18 million. The transaction costs were immediately expensed and included in finance costs in the interim condensed consolidated statement of operations for the three months ended March 31, 2021.

The Exchangeable Notes are the Issuer’s senior unsecured obligations and are equal in right of payment with the Issuer's future senior, unsecured indebtedness, senior in right of payment to the Issuer’s future indebtedness that is expressly subordinated to the Exchangeable Notes and effectively subordinated to the Issuer’s future secured indebtedness, to the extent of the value of the collateral securing that indebtedness. The Exchangeable Notes will be structurally subordinated to all future indebtedness and other liabilities, including trade payables, and (to the extent the Issuer is not a holder thereof) preferred equity, if any, of the Issuer’s subsidiaries.

The noteholders may exchange their Exchangeable Notes at their option into consideration that consists, at the Issuer’s election, of cash, ordinary shares of the Company, or a combination of cash and ordinary shares, but only under certain circumstances as set forth in the indenture governing the Exchangeable Notes (the “Indenture”). The circumstances required to allow the noteholders to exchange their Exchangeable Notes were not met during the three months ended March 31, 2024.

The Exchangeable Notes were not redeemable prior to March 20, 2024, except in the event of certain tax law changes as set forth in the Indenture. As of March 20, 2024, the Exchangeable Notes are redeemable, in whole or in part, at the Issuer’s option at any time, and from time to time, and on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Exchangeable Notes to be redeemed, plus accrued and unpaid special and additional interest, if any, but only if the last reported sale price per ordinary share exceeds 130% of the exchange price on:

(1) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Issuer sends the related redemption notice; and

(2) the trading day immediately before the date the Issuer sends such notice.

In addition, the Issuer will have the right to redeem all, but not less than all, of the Exchangeable Notes if certain changes in tax law as set forth in the Indenture occur. In addition, calling any Exchangeable Note for redemption will constitute a make-whole fundamental change with respect to that Exchangeable Note, in which case the exchange rate applicable to the exchange of that Exchangeable Note will be increased in certain circumstances if it is exchanged after it is called for redemption.

Upon the occurrence of a “fundamental change” as set forth in the Indenture, noteholders may require the Issuer to repurchase their Exchangeable Notes at a cash repurchase price equal to the principal amount of the Exchangeable Notes to be repurchased, plus accrued and unpaid special and additional interest, if any, to, but excluding, the fundamental change repurchase date as set forth in the Indenture.

The Group accounted for the Exchangeable Notes at fair value through profit and loss using the fair value option in accordance with IFRS 9, Financial Instruments. The fair value of the Exchangeable Notes as of March 31, 2024 was €1,270 million. See Note 19 for information regarding the key inputs and assumptions used to estimate the fair value of the Exchangeable Notes.

16.Trade and other payables

17.Accrued expenses and other liabilities

On December 4, 2023, the Company announced a reduction in force, through which our employee base was reduced by approximately 17%. As of December 31, 2023, we had accrued employee severance costs related to the reduction in force of €136 million included within current accrued expenses and other liabilities. As of March 31, 2024, we have €27 million of accrued employee severance costs related to the reduction in force included within current accrued expenses and other liabilities. We expect to substantially settle our obligations related to the reduction in force by the end of the second fiscal quarter of 2024.

18.Provisions

Various legal actions, proceedings, and claims are pending or may be instituted or asserted against the Group. The results of such legal proceedings are difficult to predict and the extent of the Group's financial exposure is difficult to estimate. The Group records a provision for contingent losses when it is both probable that a liability has been incurred, and the amount of the loss can be reasonably estimated.

As of April 2019, the Group's settlement of the Ferrick et al. v. Spotify USA Inc., No. 1:16-cv-8412-AJN (S.D.N.Y.), putative class action lawsuit, which alleged that the Group unlawfully reproduced and distributed musical compositions without obtaining licenses, was final and effective. Even with the effectiveness of the settlement, we may still be subject to claims of copyright infringement by rights holders who have purported to opt out of the settlement or who may not otherwise be covered by its terms. The Music Modernization Act of 2018 contains a limitation of liability with respect to such lawsuits filed on or after January 1, 2018. Rights holders may, nevertheless, file lawsuits, and may argue that they should not be bound by this limitation of liability. For example, in August 2019, the Eight Mile Style, LLC et al v. Spotify USA Inc., No. 3:19-cv-00736-AAT, lawsuit was filed against us in the U.S. District Court for the Middle District of Tennessee, alleging both that the Group does not qualify for the limitation of liability in the Music Modernization Act and that the limitation of liability is unconstitutional and, thus, not valid law. The Group intends to vigorously defend this lawsuit, including plaintiffs' challenges to the limitation of liability in the Music Modernization Act.

19.Financial instruments

The Group's currency pairs used for cash flow hedges are Euro / U.S. dollar, Euro / Australian dollar, Euro / British pound, Euro / Swedish krona, Euro / Canadian dollar, and Euro / Norwegian krone. The notional principal of foreign exchange contracts hedging the revenue and cost of revenue line items in the interim condensed consolidated statement of operations was approximately €1,504 million and €987 million, respectively, as of March 31, 2024, and approximately €1,414 million and €991 million, respectively, as of December 31, 2023.

The carrying amounts of certain financial instruments, including cash and cash equivalents, trade and other receivables, restricted cash, trade and other payables, and accrued expenses and other liabilities approximate fair value due to their relatively short maturities. The Group measures its finance lease receivables as described in Note 7. The carrying amount of our finance lease receivables is considered to approximate their fair value at March 31, 2024. Refer to the consolidated financial statements for the year ended December 31, 2023 for information regarding the Group's measurement of its lease liabilities. All other financial assets and liabilities are accounted for at fair value.

The following tables summarize, by major security type, the Group's financial assets and liabilities that are measured at fair value on a recurring basis, and the category using the fair value hierarchy:

The Group's policy is to recognize transfers into and transfers out of fair value hierarchy levels at the end of each reporting period. During the three months ended March 31, 2024, there were no transfers between levels in the fair value hierarchy.

The Group's approximate 8% investment in TME is carried at fair value through other comprehensive income/(loss). The fair value of ordinary shares of TME is based on the ending New York Stock Exchange American depository share price. The fair value of the investment in TME may vary over time and is subject to a variety of risks including company performance, macro-economic, regulatory, industry, USD to Euro exchange rate and systemic risks of the equity markets overall.

The table below presents the changes in the investment in TME:

A 10% decrease or increase in TME's share price would have resulted in a fair value of the Group's long term investment in TME ranging from €1,320 million to €1,613 million at March 31, 2024.

The following sections describe the valuation methodologies the Group uses to measure its Level 3 financial instruments at fair value on a recurring basis.

The Group has interests in certain long term investments, the most significant of which is our equity investment in DistroKid, an independent digital music distribution service. These long term investments primarily represent unlisted equity securities carried at fair value through other comprehensive income/(loss). The fair values of these equity investments are generally determined using business enterprise values based on market transactions or by (i) applying market multiples to the projected financial performance and (ii) discounting the future value to its present value equivalent. The key assumptions used to estimate the fair value of these equity investments include market multiples of revenue or earnings before interest, income taxes, depreciation and amortization for benchmark companies used to estimate business enterprise value and discount rate.

The fair value of the long term investments may vary over time and is subject to a variety of risks including company performance, macroeconomic, regulatory, industry, USD to Euro exchange rate, and systemic risks of the overall equity markets.

The table below presents the changes in the other long term investments:

As of March 31, 2024 and December 31, 2023, the number of outstanding warrants was 800,000.

The outstanding warrants are valued using a Black-Scholes option-pricing model. Assumptions used to estimate the fair value of the warrants in the option pricing model are as follows:

The table below presents the changes in the warrants liability:

The table below presents the changes in the Exchangeable Notes:

The change in estimated fair value is recognized within finance income/(cost) in the interim condensed consolidated statement of operations, excluding changes in fair value due to changes in the Group’s own credit risk, which are recognized in other comprehensive income/(loss) and will not be reclassified to the interim condensed consolidated statement of operations.

The fair value of the Exchangeable Notes was estimated using a combination of a binomial option pricing model and prices observed for the Exchangeable Notes in an over-the-counter market on the last trading day of the reporting period. A weight of 75% was applied to the binomial option pricing model and a weight of 25% was applied to the price of the Exchangeable Notes in the over-the-counter market on the last trading day of the reporting period. The key assumptions used in the binomial option pricing model for the Exchangeable Notes were as follows:

A decrease or increase of 10 percentage points in volatility would have resulted in a fair value of the Exchangeable Notes ranging from €1,250 million to €1,296 million at March 31, 2024. A 10% decrease or increase in the Company's ordinary share price would have resulted in a fair value of the Exchangeable Notes ranging from €1,259 million to €1,285 million at March 31, 2024. A decrease or increase of 100 basis points in credit spread would have resulted in a fair value of the Exchangeable Notes ranging from €1,286 million to €1,255 million at March 31, 2024.

20.Segment information

The Group has two reportable segments: Premium and Ad-Supported. Revenue for the Premium segment is generated primarily through subscription fees. Revenue for the Ad-Supported segment is primarily generated through the sale of advertising across the Group's music and podcast content. Royalty costs are primarily recorded in each segment based on specific rates for each segment agreed to with rights holders. All podcast content costs are recorded in the Ad-Supported segment. The costs of providing audiobook content as part of the Premium subscription are recorded in the Premium segment. The remaining costs that are not specifically associated to either of the segments are allocated based on user activity or the revenue recognized in each segment. No operating segments have been aggregated to form the reportable segments.

Key financial performance measures of the segments including revenue, cost of revenue, and gross profit are as follows:

Operating expenses, finance income, and finance costs are not allocated to individual segments as these are managed on an overall Group basis. The reconciliation between reportable segment gross profit to the Group's income/(loss) before tax is as follows:

Premium revenue is attributed to a country based on where the membership originates. Ad-Supported revenue is attributed to a country based on where the advertising campaign is delivered. There are no countries that individually make up greater than 10% of total revenue included in “Other countries.”

21.Commitments and contingencies

The Group is subject to the following minimum guarantees relating to the content on its Service, the majority of which relate to minimum royalty payments associated with its license agreements for the use of licensed content:

In addition, the Group is subject to various non-cancelable purchase obligations and service agreements with minimum spend commitments, including a service agreement with Google for the use of Google Cloud Platform and certain podcast and marketing commitments:

Various legal actions, proceedings, and claims are pending or may be instituted or asserted against the Group. These may include, but are not limited to, matters relating to intellectual property, data protection, consumer protection, employment, and contractual rights. As a general matter, the music and other content made available on the Group's Service are licensed to the Group by various third parties. Many of these licenses allow rights holders or other authorized parties to audit the Group's royalty payments, and any such audit could result in disputes over whether the Group has paid the proper royalties. If such a dispute were to occur, the Group could be required to pay additional royalties, and the amounts involved could be material. The Group expenses legal fees as incurred. The Group records a provision for contingent losses when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. An unfavorable outcome to any legal matter, if material, could have an adverse effect on the Group's operations or its financial position, liquidity, or results of operations.

This discussion and analysis reflects our historical results of operations and financial position and contains estimates and forward-looking statements. All statements other than statements of historical fact are forward-looking statements. The words “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “seek,” “believe,” “estimate,” “predict,” “potential,” “continue,” “contemplate,” “possible,” and similar words are intended to identify estimates and forward-looking statements.

Our estimates and forward-looking statements are mainly based on our current expectations and estimates of future events and trends, which affect or may affect our businesses and operations. Although we believe that these estimates and forward-looking statements are based upon reasonable assumptions, they are subject to numerous risks and uncertainties and are made in light of information currently available to us. Many important factors may adversely affect our results as indicated in forward-looking statements. These factors include, but are not limited to:

•our ability to attract prospective users, retain existing users, and monetize our products and services;

•competition for users, user listening time, and advertisers;

•risks associated with our international operations and our ability to manage our growth and the scope and complexity of our business;

•risks associated with our new products or services and our emphasis on long-term user engagement over short-term results;

•our ability to predict, recommend, and play content that our users enjoy;

•our ability to generate profit or positive cash flow on a sustained basis;

•our ability to convince advertisers of the benefits of our advertising offerings;

•our ability to forecast or optimize advertising inventory amid evolving industry trends in digital advertising;

•our ability to generate revenues from podcasts, audiobooks, and other non-music content;

•potential disputes or liabilities associated with content made available on our Service (as defined above);

•risks relating to acquisitions, investments, and divestitures;

•our dependence upon third-party licenses for most of the content we stream;

•our lack of control over third-party content providers who are concentrated and can unilaterally affect our access to content;

•our ability to comply with complex license agreements;

•our ability to accurately estimate royalty payments under our license agreements and relevant statutes;

•the limitations on our operating flexibility due to financial commitments required under certain of our license agreements;

•our ability to identify the compositions embodied in sound recordings and ownership thereof in order to obtain licenses or comply with existing license agreements;

•assertions by third parties of infringement or other violations by us of their intellectual property rights;

•our ability to protect our intellectual property;

•the dependence of streaming on operating systems, online platforms, hardware, networks, regulations, and standards that we do not control;

•our ability to maintain the integrity of our technology infrastructure and systems or the security of confidential information;

•undetected errors, misconfigurations, bugs, or vulnerabilities in our products;

•interruptions, delays, or discontinuations in service arising from our systems or systems of third parties;

•changes in laws or regulations affecting us;

•risks relating to privacy and data security, content moderation, and use of artificial intelligence;

•our ability to maintain, protect, and enhance our brand;

•risks associated with increased scrutiny of environmental, social, and governance matters;

•payment acceptance-related risks;

•our dependence on key personnel and ability to attract, retain, and motivate highly skilled employees;

•our ability to access additional capital to support strategic objectives;

•risks relating to currency exchange rate fluctuations and foreign exchange controls;

•the impact of economic, social, or political conditions, including inflation, changes in interest rates, geopolitical conflicts in Europe and the Middle East, and related market uncertainty;

•our ability to accurately estimate user metrics and other estimates;

•our ability to manage and remediate attempts to manipulate streams and attempts to gain or provide unauthorized access to certain features of our Service;

•risks related to our indebtedness, including risks related to our Exchangeable Notes;

•fluctuation of our operating results and fair market value of ordinary shares;

•tax-related risks;

•the concentration of voting power among our founders, which limits shareholders’ ability to influence our governance and business; and

•risks related to our status as a foreign private issuer and a Luxembourg company.

We operate in an evolving environment. New risk factors and uncertainties emerge from time to time, and it is not possible for our management to predict all risk factors and uncertainties, nor are we able to assess the impact of all of these risk factors on our business or the extent to which any risk factor, or combination of risk factors, may cause actual results to differ materially from those contained in any forward-looking statements.

We qualify all of our forward-looking statements by these cautionary statements. For additional information, refer to the risk factors discussed under Part I, Item 3.D. “Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2023 (“Annual Report on Form 20-F”) and in our other filings with the U.S. Securities and Exchange Commission (“SEC”).

You should read this discussion and analysis completely and with the understanding that our actual future results may be materially different from our expectations.

Investors and others should note that we announce material financial information to our investors using our Investors website (investors.spotify.com), SEC filings, press releases, public conference calls, and webcasts. We use these channels, as well as social media, to communicate with our users and the public about our company, our Service, and other issues. It is possible that the information we post on these channels could be deemed to be material information. Therefore, we encourage investors, the media, and others interested in our Company to review the information we post on the channels listed on our Investors website.

Our mission is to unlock the potential of human creativity by giving a million creative artists the opportunity to live off their art and billions of fans the opportunity to enjoy and be inspired by it.

We are the world's most popular audio streaming subscription service. With a presence in 184 countries and territories, our platform includes 615 million monthly active users (“MAUs”), including 239 million Premium Subscribers (as defined below) as of March 31, 2024.

We currently monetize our Service primarily through both subscriptions and advertising. Our Premium Subscribers have grown 14% year-over-year, as of March 31, 2024, to 239 million. Our 615 million MAUs have grown 19% year-over-year, as of March 31, 2024.

Our results reflect the effects of our trial programs, both discounted and free trials, in addition to seasonal trends in user behavior and, with respect to our Ad-Supported segment, advertising behavior. Historically, Premium Subscriber growth accelerates when we run such trial programs.

For our Ad-Supported segment, typically we experience higher advertising revenue in the fourth quarter of each calendar year due to greater advertising demand during the holiday season. However, in the first quarter of each calendar year, we typically experience a seasonal decline in advertising revenue due to reduced advertiser demand.

On April 2, 2024, the Company announced the launch of audiobooks on our Premium Service in three additional markets: Canada, Ireland, and New Zealand, offering up to 15 hours of access a month to more than 250,000 audiobooks as part of a subscription to the Premium Service. Audiobooks are available for eligible Premium Subscribers in the U.S., U.K., Australia, Canada, Ireland, and New Zealand. On March 1, 2024, the Company announced the launch of Audiobooks Access Tier in the U.S., offering Ad-Supported Users a subscription for 15 hours of access a month to more than 250,000 audiobooks.

The global macroeconomic environment continues to be uncertain, reflecting the impacts of inflation, changes in interest rates, continued geopolitical conflicts in Europe and the Middle East, and related market uncertainty. We will continue to actively monitor and respond accordingly to the macroeconomic environment.

For additional information refer to Part I, Item 3.D. “Risk Factors” in our Annual Report on Form 20-F.

We use certain key performance indicators to monitor and manage our business. We use these indicators to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans, and make strategic decisions. We believe these indicators provide useful information to investors in understanding and evaluating our operating results in the same manner we do.

We track MAUs as an indicator of the size of the audience engaged with our Service. We define MAUs as the total count of Ad-Supported Users and Premium Subscribers that have consumed content for greater than zero milliseconds in the last thirty days from the period-end indicated. Reported MAUs may overstate the number of unique individuals who actively use our Service within a thirty-day period as one individual may register for, and use, multiple accounts. Additionally, though we strive to detect and minimize non-bona fide accounts that may typically be created in an attempt to artificially stream content, they may contribute, from time to time, to an overstatement in our reported MAUs. Our MAUs in the tables below are inclusive of Ad-Supported Users who may have employed methods to limit or otherwise avoid being served advertisements. For additional information, refer to the risk factors discussed under Part I, Item 3.D. “Risk Factors” in our Annual Report on Form 20-F, and in our other filings with the SEC.

The table below sets forth our MAUs as of March 31, 2024 and 2023.

 

MAUs were 615 million as of March 31, 2024 and 515 million as of March 31, 2023, which represented an increase of 19%. MAUs benefited from our continued investment in driving the growth of our Service through successful consumer marketing campaigns, enhanced content offerings, and product enhancements, resulting in continued user engagement and customer satisfaction.

We define Premium Subscribers as users that have completed registration with Spotify and have activated a payment method for Premium Service. Our Premium Subscribers include all registered accounts in our Family Plan and Duo Plan. Our Family Plan consists of one primary subscriber and up to five additional sub-accounts, allowing up to six Premium Subscribers per Family Plan Subscription. Our Duo Plan consists of one primary subscriber and up to one additional sub-account, allowing up to two Premium Subscribers per Duo Plan Subscription. Premium Subscribers includes subscribers in a grace period of up to 30 days after failing to pay their subscription fee.

The table below sets forth our Premium Subscribers as of March 31, 2024 and 2023.

Premium Subscribers were 239 million as of March 31, 2024 and 210 million as of March 31, 2023, which represented an increase of 14%. Our free trial offers and global campaigns were meaningful contributors of total gross additions in Premium Subscribers, while our Family Plan and Duo Plan also accounted for a significant portion of gross additions in Premium Subscribers.

We define Ad-Supported MAUs as the total count of Ad-Supported Users that have consumed content for greater than zero milliseconds in the last thirty days from the period-end indicated.

The table below sets forth our Ad-Supported MAUs as of March 31, 2024 and 2023.

Ad-Supported MAUs were 388 million as of March 31, 2024 and 317 million as of March 31, 2023, which represented an increase of 22%. Ad-Supported MAUs benefited from our continued investment in driving the growth of our Ad-Supported Service through successful consumer marketing campaigns, enhanced content offerings, and product enhancements, resulting in continued Ad-Supported User engagement and customer satisfaction.

Premium average revenue per user (“ARPU”) is a monthly measure defined as Premium subscription revenue recognized in the quarter indicated divided by the average daily Premium Subscribers in such quarter, which is then divided by three months.

The table below sets forth our average Premium ARPU for the three months ended March 31, 2024 and 2023.

For the three months ended March 31, 2024 and 2023, Premium ARPU was €4.55 and €4.32, respectively, which represented an increase of 5%. This increase of €0.23 is primarily attributable to price increases, resulting in a €0.44 increase in Premium ARPU. This increase was partially offset by changes in product and market mix, decreasing ARPU by €0.14, and unfavorable movements in foreign exchange rates, decreasing ARPU by €0.07.

We operate and manage our business in two reportable segments - Premium and Ad-Supported. We identify our reportable segments based on the organizational units used by the chief operating decision maker to monitor performance and make operating decisions. See Note 20 to our interim condensed consolidated financial statements for additional information regarding our reportable segments.

We generate revenue for our Premium segment through the sale of subscriptions to the Premium Service. The Premium Service is primarily sold directly to end users. The Premium Service is also sold through partners who are generally telecommunications companies that bundle the subscription with their own services or collect payment for the stand-alone subscriptions from their end customers. Premium partner subscription revenue is based on a per-subscriber rate in a negotiated partner agreement. We also bundle the Premium Service with other services and products.

We generate revenue for our Ad-Supported segment primarily from the sale of display, audio, and video advertising delivered through advertising impressions across our music and podcast content. We generally enter into arrangements with advertising agencies that purchase advertising on behalf of their clients and we also enter into arrangements directly with some large advertisers. These advertising arrangements are typically sold on a cost-per-thousand-impressions (“CPM”) basis and are evidenced by an insertion order that specifies the terms of the arrangement such as the type of advertising product, pricing, insertion dates, and number of impressions or downloads in a stated period. Additionally, we generate revenue through arrangements with certain advertising automated exchanges, internal self-serve, and advertising marketplace platforms to distribute advertising inventory for purchase on a CPM basis.

Cost of revenue. Cost of revenue consists predominantly of royalty and distribution costs related to content streaming. We incur royalty costs, which we pay to certain record labels, music publishers, and other rights holders, for the right to stream content to our users. Music royalties are typically calculated monthly based on the combination of a number of different variables. Generally, Premium Service royalties are based on the greater of a percentage of revenue and a per user amount. Royalties for the Ad-Supported Service are typically a percentage of relevant revenue, although certain agreements are based on the greater of a percentage of relevant revenue and an amount for each time a track is streamed. We have negotiated lower per user amounts for our lower priced subscription plans such as our Family Plan, Duo Plan, and Student Plan. In our agreements with certain record labels, the percentage of revenue used in the calculation of royalties is generally dependent upon certain targets being met. The targets can include such measures as the number of Premium Subscribers, the ratio of Ad-Supported Users to Premium Subscribers, and/or the rates of Premium Subscriber churn. In addition, royalty rates vary by country. Some of our royalty agreements require that royalty costs be paid in advance or are subject to minimum guaranteed amounts. For the majority of royalty agreements, incremental costs incurred due to unrecouped advances and minimum guarantees have not been significant to date. We also have certain so-called most favored nation royalty agreements, which require us to record additional costs if certain material contract terms are not as favorable as the terms we have agreed to with similar licensors. Cost of revenue also reflects discounts provided by certain rights holders in return for promotional activities in connection with marketplace programs. Additionally, it includes the costs of discounted trials. Royalties payable in relation to audiobook licenses are generally consumption-based.

Cost of revenue also includes the cost of podcast content assets (both produced and licensed). Amortization of podcast content assets is recorded over the shorter of the estimated useful economic life or the license period (if relevant) and begins at the release of each episode. We make payments to podcast publishers, whose content we monetize through advertising sales in the Spotify Audience Network (“SPAN”), which are also included in cost of revenue.

Cost of revenue also includes credit card and payment processing fees for subscription revenue, advertising serving, advertising measurement, customer service, certain employee compensation and benefits, cloud computing, streaming, facility, and equipment costs.

Research and Development. We invest heavily in research and development in order to drive user engagement and customer satisfaction on our platform, which we believe helps drive organic growth in MAUs, which in turn drives additional growth in, and better retention of, Premium Subscribers, as well as increased advertising opportunities to our users. We aim to design products and features that create and enhance user experiences, and new technologies are at the core of many of these opportunities. Expenses primarily comprise costs incurred for the development of products related to our platform and Service, as well as new advertising products and improvements to our mobile application and desktop application and streaming services. The costs incurred include related facility costs, consulting costs, and employee compensation and benefits costs. We expect engineers to represent a significant portion of our employees over the foreseeable future.

Many of our new products and improvements to our platform require large investments and involve substantial time and risks to develop and launch. Some of these products may not be well received or may take a long time for users to adopt. As a result, the benefits of our research and development investments are difficult to forecast.

Sales and Marketing. Sales and marketing expenses primarily comprise employee compensation and benefits, public relations, branding, consulting expenses, customer acquisition costs, advertising, marketing events and trade shows, amortization of trade name intangible assets, the cost of working with content creators and rights holders to promote the availability of new releases on our platform, and the costs of providing free trials. Expenses included in the cost of providing free trials are derived primarily from per user royalty fees determined in accordance with the rights holder agreements.

General and Administrative. General and administrative expenses primarily comprise employee compensation and benefits for functions such as finance, accounting, analytics, legal, human resources, consulting fees, and other costs including facility and equipment costs, directors' and officers’ liability insurance, and director fees.

For both the three months ended March 31, 2024 and 2023, Premium revenue comprised 89% of our total revenue. For the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, Premium revenue increased €534 million, or 20%. The increase was due primarily to an increase in the number of Premium Subscribers and an increase in Premium ARPU, as described above.

For both the three months ended March 31, 2024 and 2023, Ad-Supported revenue comprised 11% of our total revenue. For the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, Ad-Supported revenue increased €60 million, or 18%. This increase was due primarily to growth in music impressions sold and CPM, which increased revenue in our direct and programmatic channels by €39 million. Ad sales from podcasts, supported by growth in podcast impressions sold, and our self-serve platform, also increased revenue by €26 million during the three months ended March 31, 2024.

The general movement of the Euro relative to certain foreign currencies, primarily the U.S. Dollar, for the three months ended March 31, 2024, as compared to the same period in 2023, had an unfavorable net impact on our revenue. We estimate that total revenue for the three months ended March 31, 2024 would have been approximately €53 million higher if foreign exchange rates had remained consistent with foreign exchange rates for the comparable period in 2023.

For the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, Premium cost of revenue increased €331 million, or 17%, and Premium cost of revenue as a percentage of Premium revenue decreased from 71% to 70%. The increase in Premium cost of revenue was driven primarily by increases in Premium revenue and audiobook licensing costs, partially offset by benefits from certain marketplace programs. These collectively resulted in higher content costs of €343 million. Additionally, there was an increase in payment processing fees of €11 million, partially offset by a €7 million decrease in streaming delivery costs during the three months ended March 31, 2024.

For the three months ended March 31, 2024 as compared to the three months ended March 31, 2023, Ad-Supported cost of revenue increased €25 million, or 7%, and Ad-Supported cost of revenue as a percentage of Ad-Supported revenue decreased from 103% to 94%. The increase in Ad-Supported cost of revenue was driven primarily by an increase in content costs of €26 million due to growth in both advertising revenue and the volume of streams during the three months ended March 31, 2024.

The general movement of the Euro relative to certain foreign currencies, primarily the U.S. Dollar, for the three months ended March 31, 2024, as compared to the same period in 2023, had a favorable net impact on our cost of revenue. We estimate that total cost of revenue for the three months ended March 31, 2024 would have been approximately €41 million higher, if foreign exchange rates had remained consistent with foreign exchange rates for the comparable period in 2023.