Earnings Call Transcript - SPOT Q4 2022

Operator, Operator

Good morning, and welcome to Spotify's Fourth Quarter 2022 Earnings Conference Call and Webcast. All participants are now in a listen-only mode. As a reminder, this conference call is being recorded. I would now like to turn the call over to Bryan Goldberg, Head of Investor Relations. Thank you. Please go ahead, Mr. Goldberg.

Bryan Goldberg, Head of Investor Relations

Thanks, operator, and welcome to Spotify's Fourth Quarter 2022 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 Paul and afterwards, we'll be happy to answer your questions. Questions can be submitted by going to slido.com and using the code #SpotifyEarningsQ422. Analysts can ask questions directly into Slido, and all participants can then vote on the questions they find the most relevant. If for some reason you don't have access to Slido, you can e-mail Investor Relations at ir@spotify.com, 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, CEO

All right. Hey, everyone and happy new year and thanks for joining us. We had a great Q4 and ended 2022 strongly. Our user and subscriber numbers continue to climb, showing the value of our investments in the platform over the past few years. We're now in an even stronger competitive position, and I'm confident in our future prospects. And I'll let Paul fill in on more of the specific details. However, a notable call out in the quarter was our eighth annual Wrapped campaign, which was a big contributor to our Q4 success, and we broke all sorts of records and reached several all-time highs with an increase of over 30% in user engagements. Wrapped was trending all over social media, but it wasn't just about Wrapped. So, by the end of the year, we had more than 100 million tracks on our platform and more than 5 million podcasts and more than 300,000 audiobooks being enjoyed by almost 0.5 billion listeners. In 2021, we said that 2022 would be an investment year, and it was. And in light of our recent news on cost and staff reductions, I'm sure some of you are wondering if we believe that investment was a mistake. And the answer is no and yes. I still believe it was the right call to invest, and I would do it again. For instance, in the last 12 months, we grew our users substantially, enhanced our capabilities, developed a better product, and brought more content to creators and users around the world. We also made tremendous strides in setting Spotify apart from everyone else in our space. My expectation was never that these investments would have a great impact in the short term, yet they have. More importantly, for our shareholders, I fully expect that they will continue to pay dividends in the months and years to come. But things change, and the macro environment has changed significantly in the last year. In hindsight, I probably got a little carried away and overinvested relative to the uncertainty we saw shaping up in the market. So, we are shifting to focus on tightening our spend and becoming more efficient. This remains consistent with the plan we outlined at Investor Day, but you should expect us to execute on it with even greater intensity. However, to be clear, this doesn't mean we're changing our strategy. We will continue to work to build the platform of the future, and that will take investment in new opportunities that we outlined, like podcasts and audiobooks. And if anything, thanks to our position in users and subscriptions, this should allow us to both increase revenue per user over time as well as improve our stickiness with consumers even more. But going forward, we will do it with an intense focus on efficiency, and that marks a pretty big shift in how we will act. To meet this objective, we are also rethinking how we operate. We've set up a new org structure that streamlines decision-making and prioritizes speed and efficiency. 2023 marks a new chapter for us, but our commitment to achieving our goals remains the same. I'm really optimistic about the direction we're headed in, and I'll continue to focus my efforts on guiding the long-term success of the company. And with that, I'll hand it over to Paul to go deeper into the numbers, and then Bryan will open it up to the Q&A.

Paul Vogel, CFO

Thanks, Daniel, and thanks, everyone, for joining us. I'd like to add a bit more color on the quarter and then touch upon the broader performance of the business and our outlook. Let's start with Q4. User growth was very strong in the quarter. Total monthly active users grew to 489 million in Q4. This was 10 million ahead of guidance, up 33 million quarter-over-quarter and the largest Q4 net additions in our history. Moving to premium. We finished the quarter with 205 million subscribers, 3 million ahead of guidance, thanks to broad-based strength across several regions, particularly Latin America. Our revenue grew 18% year-on-year to approximately EUR 3.2 billion in the quarter. Reported results were aided by a 600-basis point currency benefit. However, this was 200 basis points less than forecast. So, while reported revenue was a touch below forecast, our organic growth on a currency-neutral basis modestly outperformed due primarily to advertising. Turning to gross margin. Gross margin of 25.3% was above guidance by 80 basis points due primarily to lower podcast content spend, along with broad-based favorability in our core music business led by strength in Marketplace. Moving to operating expenses. Growth in the quarter was lower than forecast due mainly to currency movements and to a lesser degree, lower marketing spending. When combined with our better gross profit, our operating loss was ahead of guidance by EUR 69 million. As we previewed last quarter, free cash flow was negative in Q4 due primarily to timing shifts around certain payments. However, we continue to generate roughly $200 million in free cash flow on a trailing 12-month basis, and we expect to be free cash flow positive for the full year of 2023. Looking ahead, we are pleased with our momentum into 2023. When combined with our increased focus on speed and efficiency, we are confident in our ability to continue our double-digit top line trajectory in conjunction with improvements in profitability. With respect to first quarter guidance, we continue to see strong momentum in MAU and anticipate reaching half a billion users by the end of Q1. On the subscriber front, we expect to add about 2 million net subscribers, bringing total subscribers to 207 million. We're also forecasting EUR 3.1 billion in total revenue, a gross margin of roughly 25%, excluding severance charges and an operating loss of EUR 194 million with the latter reflecting EUR 35 million to EUR 45 million in severance charges within our operating expenses. While we no longer give full year guidance, for the full year 2023, we see strong growth for both users and subscribers. So, we are feeling good about the momentum exiting 2022. Gross margin and operating expenses are expected to improve throughout the year, as we have mentioned previously, while free cash flow is expected to be in line with historic averages. Given many of the adjustments we made at the start of 2023, including our decision to reduce our workforce by 6%, we see our operating expenses growing slower with a material improvement in our operating loss compared with 2022. This is according to plan. As Daniel mentioned, we are entering a new area with even more focus. And with that, I'll hand things back to Bryan for Q&A.

Bryan Goldberg, Head of Investor Relations

Thanks, Paul. Our first question today is from Matt Thornton regarding subscribers and pricing. Has Spotify experienced any increase in subscribers due to recent price hikes from competitors? If not, does this give Spotify more confidence to raise prices? Additionally, what are the reasons, if any, that Spotify might choose not to increase prices?

Daniel Ek, CEO

I'll take this and feel free to chime in, Paul. So, I think the most important thing, if we kind of elevate this, is our priority is to grow revenue as fast as we possibly can. So, when we look at a market, there's generally two strategies we can use to achieve that. One of those strategies would be to grow the number of people who can join our platform. The second strategy would be to increase the revenue per user that we already have on the platform. Generally, our approach when we're early in a market is to try to grow the number of participants on the platform. The usual way to do that is not to try to increase prices too early, but to keep a competitive price that attracts the most amount of users onto the platform. Then as the market matures, it will shift more so that most of the revenue growth comes from price increases. So, to put things in context, in 2022, we increased our price point in more than 40 markets around the world. It's definitely something that we're doing, and we're looking at it as a balanced portfolio approach where in some markets, we're selectively increasing prices because we're in a more mature place. In other markets, we're mostly focused on growth. That's our general approach, and I don't have anything specific to announce at this point, but we are constantly discussing various price increases with our rights holder partners, and we will always look at what's most beneficial to our business in growing the revenue and growing the profitability in each market we're in.

Paul Vogel, CFO

Yes. I would just add, in terms of just the subscriber outperformance in Q4, it was pretty broad-based. So, it was broad-based globally and by product. We had strength in the family plan and Duo plan. We outperformed by EUR 3 million. There was outperformance in pretty much every region. We had success with our holiday campaign, which we do every December, and Wrapped was a huge success as well, driving traffic to Spotify. So overall, the overall subscriber performance was pretty broad-based.

Bryan Goldberg, Head of Investor Relations

All right. Our next question is going to come from Michael Morris on music economics. Universal CEO recently called for a change to the streaming music business model, citing an increase in lower quality content, diverting economics away from artists. Do you believe this is happening on your platform? And what do you see as the path forward with your music label partners on this topic?

Daniel Ek, CEO

So first off, we have great relationships with all of our music partners and are in constant dialogues with them about their performance and our performance in all the markets around the world. The most important thing to note is that much like platforms and media, one of the most interesting changes is that people's music taste is becoming more personalized. As this taste becomes more personalized, you're seeing two things happening. The number of artists that matter for users are increasing materially. The other change is that, unlike in the early days of streaming, we're seeing a notable increase in local repertoire. For instance, if you look at many local geographies now, you're seeing a lot of local music being very impactful. There's a lot more artists that matter now than perhaps ever before. The big counter to that would be whether artists can sustain themselves or if it's more about one-hit wonders. You're seeing a little bit of both happening in the music industry at this moment. Many trends are powerful and beneficial for consumers, providing more choice and more artists making their way. However, you need to balance that with having the ability to sustain artist careers, which is a constant dialogue we have with our label partners. Generally, what we're seeing is encouraging because of the response from artists worldwide and their ability to grow their audience.

Bryan Goldberg, Head of Investor Relations

All right. Next question is going to come from Doug Anmuth on gross margin. As you move beyond the 2022 investment year, do you still expect gross margin to expand in 2023? And can you talk about the key drivers?

Paul Vogel, CFO

So, the short answer is yes. We think Q1 will be the low point in terms of gross margin for the year, with gross margin improving throughout 2023. That's still the plan. When we look at Q1, in particular, our core margin, namely music and podcasting, is improving. Some of the investments made in the back half of the year are still slightly impacting Q1. We think those will continue to moderate throughout the year, which will partly help gross margin. We've talked about the improvements in podcast gross margin as well and expect that to get better throughout the year. We expect Q1 to be the low point for gross margin, and we do expect it to improve throughout the year, with hopefully a nice trajectory heading into 2023.

Bryan Goldberg, Head of Investor Relations

All right. Next question comes from Mario Lu on operating income. You mentioned in the deck an expectation for meaningful improvement in operating income in fiscal '23 and beyond. That being said, is there a rough timeline regarding when we should expect overall operating income to reach breakeven?

Paul Vogel, CFO

Yes. We haven't given a timeline on that. I would say, first thing is, you can expect to see a meaningful improvement in the operating loss in '23 relative to '22. We expect that to be pretty significant. Again, as Daniel mentioned, we invested a lot in 2022, so we'll get some returns on that investment in 2023, along with higher revenue growth and more gross profit dollars. We expect that to improve throughout the year. Exactly when we break even, we haven't said yet, but we feel like we're on a good path and in a good position right now to have that speed and efficiency that we want to see in 2023.

Bryan Goldberg, Head of Investor Relations

All right. Another question from Matt Thornton on margins. Do you still expect 2022 to have been the peak drag from podcasts? Do you still expect podcasts to reach breakeven within several years? And do you still expect consolidated gross margin to reach 30% within five years?

Daniel Ek, CEO

Then you can chime in because I think some added context here might be pretty good as well. The big thing I want to highlight again is we mentioned, as Paul said before, that 2022 would be an investment year. We broke out the various verticals where you would see music making steady improvements, but our podcasting business has indeed been a drag on our gross margin profile. We announced that 2023 would be a year where we see a reversal of some of those trends. So, you should expect music to be meaningfully improving, with things like Marketplace playing an important role. Podcasting, as it grows in size with advertising revenue, as well as more efficient spending, will mean improvements there as well. Paul, maybe you can chime in on the detailed questions.

Paul Vogel, CFO

Yes, I can be quick now. The answer is yes to 2022 being the peak drag from podcasts, yes to podcasts reaching breakeven within several years, and yes, we still believe our consolidated gross margins can reach 30% in five years.

Bryan Goldberg, Head of Investor Relations

Okay. Our next question is going to come from Justin Patterson. This is for Daniel. As Alex takes on responsibility as Chief Business Officer, how should we think about his priorities and leadership for content and advertising, and how those might differ from Dawn's?

Daniel Ek, CEO

I don't think from a strategy point of view that it will differ all that much from Dawn's. However, again, the primary reason for the reorg was to drive speed and improve efficiency. Speed will come from having more decision-making and faster decision-making. Essentially, Spotify is a lot more complex of a business than it was several years ago. To have both Gustav and Alex help me in the day-to-day in this much more complex business will materially mean that we'll have more brains thinking about these things. We'll be having more decision-making so we can make decisions faster, because that honestly is one of the biggest blockers at this point. It's not that we can't execute on the ground. It's actually making real and material decision-making at the top that's been one of our challenges. We will now look at the business holistically instead of bit by bit. Marketing was under Alex's preview previously, but not advertising and not content. Now we're looking at it as one P&L and focusing on driving efficiency across the board by readdressing resources to where they're most needed. That will be a big improvement from prior organizational setups.

Bryan Goldberg, Head of Investor Relations

All right. Next question from Doug Anmuth, users and subscriber growth in '23. How would you think about 2023 net adds for MAUs and premium subscribers relative to your performance in '22? What are some of the puts and takes here?

Paul Vogel, CFO

We don't give 2022 guidance anymore. I think what we said in my opening statements is we expect really strong growth. '22 was a real outlier regarding how much we outperformed. But we often see years where we either over-index on MAU or on subs, and it can change throughout the year regarding our trends. In general, any time we're growing MAUs as we are, it's a good sign of the business's health and future subscriber growth for Spotify. We're not giving guidance, but we feel really good about the momentum as we exit 2022. We are also confident about the guidance for Q1 and how we're trending.

Daniel Ek, CEO

My only addition would be to note that much of the investments we've been making over these past few years that culminated in 2022 were about making platform improvements. Improving the number of content we have on our platform, improving the tools for creators and consumers alike, has led to better acquisition and retention of consumers really across the board. I feel really good about that. Some expected benefits from these investments took longer to materialize, but we're already seeing them in 2022, which is really positive news for the years to come.

Bryan Goldberg, Head of Investor Relations

Okay. Our next question is going to come from Michael Morris on advertising. How has advertising revenue been trending in the first quarter of 2023? Do you expect the relative performance of podcasting and music growth to persist in 2023? How far forward do you have insight into demand trends?

Paul Vogel, CFO

If you take a step back and look at advertising in Q4 overall, it continued to be very up and down. In Q4, we outperformed our expectations, admittedly with lowered expectations coming into Q4. We actually outperformed those by about EUR 50 million. Even within that, we had two months that outperformed and one month that underperformed. So even within Q4, it was pretty up and down. I think Q1 will likely be more of the same. We feel good about the ad stack we're building, and the acquisitions we've made, particularly Megaphone, Chartable, and Podsites, improving measurement and attribution across all of advertising. We're confident in that and in where the technology is going, but it will depend somewhat on how the macro environment rolls out over time. It's been uncertain. However, we did slightly outperform in Q4, so we'll see how the year unfolds.

Bryan Goldberg, Head of Investor Relations

Okay. Next question from Benjamin Black on Marketplace. You had expectations for approximately EUR 200 million in Marketplace revenue for 2022. How did you track versus expectations? How should we think about the trajectory of Marketplace in '23?

Paul Vogel, CFO

We outperformed that EUR 200 million. I think we had said at the Investor Day that we expected Marketplace to grow at least 30% in 2022. It exceeded those expectations pretty nicely. We had strong Marketplace growth overall in 2022 and feel that product has a lot of momentum behind it. We expect good results in 2023 as well.

Bryan Goldberg, Head of Investor Relations

Okay. Next, we have a question from Michael Morris. Can you share details on investments that have impacted Premium gross margin? What types of products are being invested in? When do you expect them to be released? And what is the projected path to contribution?

Paul Vogel, CFO

A lot of this is about things that we test and learn. We don't always discuss them, and some items may emerge six, nine, or twelve months later. So when we talk about an investment year, some of that is part of what's going on. These are initiatives that we think will improve engagement, users, and subscribers. We have to absorb the costs as we're testing. We do this with sometimes 10 or hundreds of initiatives within quarters. We believe we'll get the benefits of some of those moving forward into 2023, and you'll see the incremental investment slow, with benefits beginning to materialize in '23.

Bryan Goldberg, Head of Investor Relations

Okay. Next question from Rich Greenfield on audiobooks. Is audiobooks as a category working? Was it a mistake? How has it impacted your thinking about new categories, some of those you teased at the Investor Day?

Daniel Ek, CEO

It's early days on audiobooks. That's kind of what I can say. We're seeing encouraging signs, and we're definitely seeing people take up the offering but we're nowhere near where we want to be and where we believe the category can go. Rather than give specifics or pre-announce things, the most important context is that there are two types of companies. Some will wait until they've perfected a product before launch, while others will release something they know needs work and improve from there. We're definitely the latter. Many didn't understand how we could succeed in podcasting several years ago, yet now we are the leader in that space. You shouldn't draw any conclusions about our full intent in the audiobook category right now. We're encouraged because we think audiobooks have massive potential and that very few consumers currently participate in the ecosystem. Compared to our other verticals, music and podcasts, we had the same thoughts. Nothing has really changed regarding our view of the space and potential, and we're focused on executing. You'll see many new offerings in the audiobook category from Spotify during 2023.

Bryan Goldberg, Head of Investor Relations

All right. Our next question is going to come from Deepak on user choice billing. Were there any noticeable benefits to subscribers from the rollout of Google user choice billing in the fourth quarter? Are you seeing any conversion uplift?

Paul Vogel, CFO

It's still early days. It's tough to know. In general, though, we are excited about the opportunity. The join flow is better, giving users a choice of payment methods and how they wish to purchase from us. We're optimistic about user choice billing. It should reduce friction and improve conversion over time, though it's early to assess impact.

Daniel Ek, CEO

It is positive, though. So, it's early days, but positive.

Bryan Goldberg, Head of Investor Relations

All right. We've got another question from Rich Greenfield on podcasting. Investors remain skeptical that podcasting is a good business and that it has meaningfully moved the needle for Spotify. Can you help them understand why you believe in the investment to date, especially in the context of your recent management changes?

Daniel Ek, CEO

The most important thing is to go back to context. Four years ago, we entered podcasting, and the major player had been doing it for 20 years with an unassailable lead. We tackled this heads on, as we realized this was a nascent space that was growing, although still under-consumed relative to potential. We have now grown the audience significantly from what was true four years ago. We haven't just taken audience from another platform; we’ve actually expanded the pie for podcasters. Now we have 5 million creators on Spotify, a massive increase. This has added several benefits to Spotify, making our business more defensible as it meaningfully contributes to our advertising strategy. We're seeing consumers consuming music and podcasts on our platform, and the number of users consuming podcasts keeps growing as well. As that happens, their retention increases, which positively impacts our business. You might be asking about the drag on gross margin. What does that mean for the future? We’re focused more on efficiency and creating more leverage going forward. The management changes do not correlate with a change in strategy regarding podcasting. The focus is on increasing decision-making speed and efficiency, consistent with what we said during the Investor Day in June. Some investors may doubt our seriousness about this shift, but my remarks today demonstrate our real commitment to driving efficiency.

Bryan Goldberg, Head of Investor Relations

Another question from Benjamin Black on pricing. Last quarter, you alluded to a potential win-win with respect to the conversations you're having with labels around price increases. What are some of the concessions you're looking for from the labels?

Daniel Ek, CEO

I can't comment on individual negotiations with our rights partners. However, as I mentioned before, we are considering how we can grow our business in the best possible way. Sometimes that means keeping prices low to grow platform participation, sometimes it means increasing revenue per user, and sometimes it's about increasing our margin per user. What's important about our Spotify story is that this creates win-win situations with our label partners. If Spotify does well in the market, it generally increases revenues for the labels as well. We've seen this time and again; our close partnership generates material benefits for both companies over time. We’ll continue to drive more benefits for all our creative partners and Spotify.

Bryan Goldberg, Head of Investor Relations

All right. We've got another question from Doug Anmuth on marketing. How are you thinking about sales and marketing spend for 2023 following the ramp in spending over the past two years?

Paul Vogel, CFO

Yes, we definitely increased marketing significantly in 2022. It was a driver of the outperformance in MAU and was very intentional. We had a plan at the beginning of the year to invest, particularly in some of our newer markets, to secure our foothold there. By all accounts, it was extremely successful, often even more so than we anticipated. In 2023, we will be more efficient with our marketing spend. As Daniel mentioned, we're going to be more efficient and thoughtful about our spending moving forward. No specific guidance, but yes, there was a big ramp in 2022, and you'll see us be more efficient with marketing going into '23.

Bryan Goldberg, Head of Investor Relations

Okay. Another question for Ben Black on ticketing. Could you give us an update on your ticketing business? Is this an area of focus? How should we think about the business model and market opportunity?

Daniel Ek, CEO

Long term, I think it's absolutely a business model and market opportunity for Spotify. Our strategy is to be an open platform, enabling as much as possible while being partner-friendly. For instance, we want to work with our label partners and merchandise and other domains. Our strategy is very simple; we see a double-sided win-win here, which will translate into business opportunities long term. Creators are trying to grow their audience on Spotify and engage more, and we're obviously trying to help them monetize that audience better. A significant part of this, especially for music audiences, is obviously touring. By helping creators sell more tickets, it meaningfully benefits many artists' livelihoods. We've seen a tremendous increase in users visiting the Concerts tab on Spotify in 2022. The strategy isn't to compete with the ecosystem but to enable it. From there, opportunities will arise. You can currently see many concerts promoted by major vendors on the platform. We will add more inventory, which over time will become significant business opportunities for Spotify.

Bryan Goldberg, Head of Investor Relations

Okay. Next question from Mario Lu on cost savings. Can you quantify the annual savings from the headcount reduction you announced last week? Any specific areas of the business impacted more than others?

Paul Vogel, CFO

We're not going to quantify the savings. You can do the math. It's roughly 600 employees that were affected. We are closely examining open headcount to assess which we want to backfill and which will be eliminated as we aim for increased efficiency in capital and employee deployment. There wasn't really any specific area, it was pretty broad across most of Spotify's divisions.

Bryan Goldberg, Head of Investor Relations

We've got another question from Rich Greenfield on the product. Spotify recently began testing a Friends tab on the bottom strip of the app. Can you help us understand your thinking here?

Daniel Ek, CEO

We conduct many experiments on the product side in various areas. What you've seen is one of those experiments. Since we're not committed to rolling that out, I don't have much comment other than to say that we are committed to creating the best audio experience for consumers and creators globally. Obviously, social could meaningfully enhance an even stickier and more engaging experience.

Bryan Goldberg, Head of Investor Relations

We've got a follow-up question from Doug Anmuth on subscribers. You typically see MAU to Premium subscriber conversion in the 12 to 18-month range. Do you expect any change to that conversion or to churn given the large MAU cohorts over the past couple of years?

Paul Vogel, CFO

At a high level, we've repeated this for a while; any time you're seeing accelerating growth in MAU, it tends to be very good for the business and ultimately leads to subscribers in time. At this point, we don't see any reason why our historical trends would change. It's tough to pinpoint, but again, given the strong MAU outperformance this year, it tends to be an excellent sign for sub growth in the future. In terms of churn, we don’t disclose those numbers. Year-over-year churn was pretty consistent with last year. Even with strong growth, we haven’t seen any uptick in churn.

Daniel Ek, CEO

One addition I’d make is that it’s generally true that the longer someone stays with us, the higher the chance they'll be a Premium subscriber. Country mix changes, and market maturity will influence this. In mature markets, it may take shorter than in developing markets, etc. But the trend remains; the longer they stay, the more likely they are to convert. The better engaging experiences we create increase that likelihood, leading to positive business results for us long-term.

Bryan Goldberg, Head of Investor Relations

All right. We've got time for one to two more questions. We're going to go to the next one from Benjamin Black on margins. I think you classified 2022 as an investment year. Could you break down which investments are falling off that will drive the positive gross margin inflection in 2023 and 2024?

Paul Vogel, CFO

Several factors will improve gross margin. We discussed many of them. Marketplace growth will aid music gross margin. Many 2022 investments will begin bearing fruit in '23, leading to revenue growth. We've previously indicated that 2022 was the peak year for the podcasting drag on gross margins, so we expect improvements in 2023.

Bryan Goldberg, Head of Investor Relations

All right. We're going to take the last question from Rich Greenfield on competition. Does Spotify need to enhance music discovery, knowing that TikTok appears ramping up to launch a music subscription service in the U.S. and Europe later this year?

Daniel Ek, CEO

We have a decent music discovery function already, which works well. That said, we're always looking to improve. You're right that TikTok is a formidable competitor across all platforms today. However, we believe we are in a better position than we've been in many years due to the improvements made. I look forward to sharing more about our plans at Stream On; there are updates in the works for both music and podcasting that I think will mean a lot. We’re focused on having the best platform possible for both consumers and creators. Given our improvements in music and the addition of podcasts and audiobooks, we offer a more resilient consumer experience now. I'm genuinely optimistic about our competitive differentiation. Looking at our 2022 results regarding MAUs and improvements in Gen Z audience in Southeast Asia shows that our products and platform resonate well in the competitive marketplace.

Bryan Goldberg, Head of Investor Relations

All right. Thanks, Rich. That concludes our Q&A session for today's call. I'm going to turn it now back over to Daniel for some closing remarks.

Daniel Ek, CEO

Thank you, everyone, for joining the call. I want to reiterate my confidence in the business as we enter the next phase. It was great to close out 2022 on a high note; Q4 was a proof point showing the investments made in the last few years are paying dividends. A key is recognizing that our progress is not always linear; we tend to draw linear conclusions when in reality, we've undergone a multi-year approach that culminated in what we presented at our Investor Day in June. That plan is what we're pursuing. I look forward to sharing more about our evolution and what we’re building at our upcoming Stream On event on March 8. Meanwhile, please check our webcast for the record for more quarter details. Thank you, everyone, for joining us.

Bryan Goldberg, Head of Investor Relations

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

Operator, Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.