Earnings Call Transcript - SPOT Q4 2021

Operator, Operator

Good afternoon, and thank you for standing by. At this time, I would like to welcome everyone to Spotify's Fourth Quarter 2021 Earnings Call and Webcast. I would now like to turn the call over to Bryan Goldberg, Head of Investor Relations. You may begin your conference.

Bryan Goldberg, Head of Investor Relations

Great. Thanks, and welcome to Spotify's Fourth Quarter 2021 Earnings Conference Call. I apologize for the slight delay due to a technical issue. Today, we have Daniel Ek, our CEO, and Paul Vogel, our CFO, joining us. We will start with opening comments from Daniel and Paul, and then we'll be happy to answer your questions. You can submit questions by visiting slido.com and using the code #SpotifyEarningsQ421. Analysts can ask questions directly on Slido, and all participants will have the opportunity to vote on the questions they find most relevant. Before we begin, I want to quickly cover the safe harbor. During this call, we will be making certain forward-looking statements, including projections or estimates about the company's future performance. These statements are based on current expectations and assumptions subject to risks and uncertainties. Actual results could materially differ due to factors discussed on this call, in our letter to shareholders, and in our filings with the Securities and Exchange Commission. We will also refer to certain non-IFRS financial measures. Reconciliations between our IFRS and non-IFRS financial measures can be found in our letter to shareholders, on our Investor Relations website, and also available today on Form 6-K. With that, I'll turn it over to Daniel.

Daniel Ek, CEO

All right. Hi, everyone, and thanks for joining us. Obviously, it's been a few notable days here at Spotify. When we entered into the podcast space in 2019 with the intent to help modernize and grow this space for all types of creators, we assumed it would challenge and test our teams in new ways. And there's no doubt that the last several weeks have presented a number of learning opportunities. And I hope that you had a chance to read our response that addresses many of the questions we've received from creators, partners, employees, and the medical and scientific communities. There's still work to be done, but I'm pleased that Spotify is already implementing several first-of-its-kind measures to help combat misinformation and provide greater transparency. We believe we have a critical role to play in supporting creator expression while balancing it with the safety of our users. And we will continue to partner with experts and invest heavily in our platform functionality teams and product capabilities to meet this evolving need head-on. Moving on to our results. 2021 was an eventful year for Spotify and the world in general. Throughout the pandemic, businesses have seen an enormous disruption in consumer behavior, causing demand curves to shift. And Spotify, of course, has been no exception to this. In our case, these shifts mostly played to our advantage in 2020, but we did see some headwinds in the first half of 2021. And by the end of Q2, we saw a reversal back to positive momentum. This trend continued throughout Q3 and Q4. Historically, Q4 has been our biggest quarter, and 2021 was no exception. In fact, Q4 was our largest quarter of MAU growth in Spotify's history. A significant MAU driver was our seventh annual Wrapped campaign, which was our most successful to date. With 120 million users, we saw unprecedented engagement, up 29% year-over-year, with the highest levels coming from the Gen Z audience. On launch day, Wrapped was the number one worldwide trending topic on both Twitter and TikTok, proving that it's more of a cultural phenomenon than ever before. Ads continued their remarkable growth trajectory, turning in 40% growth year-over-year. Advertising is showing more proof points of being the second key revenue driver for the overall business, climbing to a record 15% of our total revenues this quarter. And while the ad business is more prone to seasonal blips, I see this momentum continuing in 2022 and beyond. As a result of this strong performance, we will continue to test different windowing strategies for our exclusive podcast partnerships to get the advantage of that broader audience reach. Q4 also saw strong performance across podcast metrics, and we've amassed a highly engaged audience that is listening more than ever. Last quarter, we confirmed that Spotify had become the number one podcast platform U.S. listeners used the most, and we continue to see meaningful market share gains. So overall, I'm feeling very good about 2022. But let's move to the long term, which is where I try to focus my time. We are building a category-defining company, and this takes patience. Some may still describe us as the leading music subscription service. And while this surely reflects where we've been, it doesn't encompass all the advancements we're making in audio. Furthermore, I don't think it properly captures all the future initiatives that we're working on either. As Jim Barkell described, it's constantly about bundling and unbundling on the Internet. So what are we focused on then? The best way to describe it is a subset of the creator economy. People have been talking about the creator economy for some time, and it has taken on many different meanings. For us, the single largest trend to keep track of is the rapid professionalization of creators. I see this as one of the biggest opportunities on the Internet. For all the millions of artists and creators that have leveraged Spotify to date, I think we've only scratched the surface of the creative potential in audio. To become the preferred destination for audio creators, we will accelerate the move from a one-size-fits-all model to a much more dynamic and open platform, granting them greater flexibility and the power to be more entrepreneurial, thereby unlocking the extraordinary potential of their businesses and communities. We will provide greater reach. We will provide tools and access to diverse revenue streams that can be personalized to meet the needs of each creator. I believe this will lead to the creation of millions of jobs within the creator economy. While this is not limited to Spotify, we are building the platform that will enable the entire ecosystem to work together on a global scale. We think that the Spotify ecosystem alone will encompass more than 50 million active creators, which is a significant increase from the current 11 million total we have today. Think of it as 50 million small and medium-sized businesses that we can support by providing the infrastructure and resources to grow. This evolution will take time, but I know some of you may be wondering what this means in the near term. The work is already well underway. This opportunity started to crystallize for me around our acquisition of Anchor, which gained increasing momentum. It was clear from the feedback we received that Anchor creators wanted more flexibility and more options to conduct their businesses. A recent example of this includes the Spotify Open Access platform, which we brought to market last year to enable creators with existing paid content businesses to activate their subscriber base on Spotify. This means those creators, whether they're independent podcasters, major news outlets, audiobook publishers, or creator platforms, can retain full control over their subscription base while leveraging the reach of Spotify to grow their audiences. Based on early success, you should expect us to continue investing in a growing number of tools, resources, and services for a broad range of creators to bring them to market. While many will be competing to seize a piece of this opportunity, I believe that we're uniquely positioned to adapt to this changing environment and deliver for the good of the entire audio creator ecosystem. Now, before we go to Q&A, Paul, I believe you're also going to add a few thoughts. So over to you.

Paul Vogel, CFO

Thanks, Daniel, and thanks, everyone, for joining us. While Daniel touched on most of our key KPIs, I wanted to add a bit of color on our gross margin, which finished at 26.5% in Q4, above the top end of our guidance range. Relative to our forecast, our gross margin was helped by a shift in investment costs that were originally targeted for Q4. That benefit was partially offset by an unforeseen expense related to our ads business. Taken together, our gross margin still would have finished above the top end of the range. Some of the investment costs in Q4 that didn't materialize are now reflected in our Q1 gross margin guidance. Looking at our full-year 2021 margin of 26.8%, we made meaningful progress relative to the 25.6% we reported in 2020. Full-year 2021 did benefit from close to 50 basis points of favorable royalty adjustments. However, even excluding them, gross margin was still an improvement year-on-year. Looking into 2022, we expect a continuation of the favorable gross margin trend you saw in 2021 for our underlying business as we grow advertising and drive further growth in Marketplace contribution. We also expect improvement in our core podcast margins, both on the O&E front as well as on Megaphone. Given the encouraging traction we're seeing, we do plan to invest in incremental content and music initiatives in 2022 with an eye towards our long-term goals of 1 billion users, 20% plus revenue CAGR, and 30% to 40% gross margins. While these investments may slightly alter the progress we've seen in consolidated gross margin over the past two years, it is exactly this progress that has given us the conviction to increase our investments in certain areas and gives us confidence that we are on the right path over the long term. Finally, I want to expand upon our approach to guidance. As we said in our shareholder letter, we no longer plan to provide yearly targets. We will continue to share quarterly guidance as a way to update investors on the current trends in the business, and we will simplify our approach by providing a single estimate for each metric instead of a range of outcomes. We are aligning our guidance practices with how we run the business as most of our investments are multiyear in nature and the exact timing of any specific launch may vary within a given year. With that being said, we do not anticipate any material changes in the trajectory for net growth in MAUs and subs in 2022 when compared to the net growth we experienced in 2021. For Q1, we're expecting total MAUs of $418 million and 183 million subscribers. We anticipate that total revenues will come in at $2.6 billion, benefiting from approximately 360 basis points of tailwinds from foreign exchange. We're expecting gross margin to be 25%, primarily due to the costs that didn't materialize in Q4 hitting in Q1. With respect to the subscriber net adds in Q1, please keep in mind that we expect a different level of seasonality for this metric over the course of 2022 due to anticipated promotional campaign activity and other initiatives. We're also excited to announce that we plan to host an Investor Day during Q2, where we'll talk about the big drivers of our business, the investments we are making, and the financial results we expect over the long term. Stay tuned for more info. And with that, I'll hand things back over to Bryan.

Bryan Goldberg, Head of Investor Relations

Thanks, Paul. Our first question today is from Rich Greenfield regarding Joe Rogan. The question is about your changed public stance in response to artist feedback on his content. Is there a risk of censoring content on the platform, and have any advertisers withdrawn from Spotify in response?

Daniel Ek, CEO

Right. I'll take this one. I know this issue has been top of mind this week, but I think it's important to take a step back. We're trying to balance creative expression with the safety of our users. Of course, this is a very complicated issue, as I noted in my opening. But I'm really proud of the steps we took following the concerns raised by the medical and scientific communities. It's worth noting that both the content advisories and the COVID-19 content on our platform include content from physicians and health experts, which I discussed in my post, as well as push policies for creators that have already begun to roll out. The important part here is that we don't change our policies based on one creator, nor do we change it based on any media cycle or calls from anyone else. Our policies have been carefully written with input from numerous internal and external experts in this space. I do believe they are right for our platform. While Joe has a massive audience, he's actually the number one podcast in more than 90 markets. He also has to abide by those policies. When you think about that and consider the ads business, I have a tremendous amount of confidence in that. Of course, we're hearing from our partners, but Spotify has a broad range of content on our platform, so there really is something for everyone here, and for advertisers to appreciate as well.

Bryan Goldberg, Head of Investor Relations

All right. We're going to go to our next question from Richard Kramer. Nearly four years after your direct listing and facing the renegotiation of publishing rights post-2022, do you see material opportunities to raise gross margins in the music business given the role of labels and publishers?

Daniel Ek, CEO

Well, I alluded to this in my opening remarks, but I think the number one misconception I see people making is that they think everything is an outcome based on negotiations with the industry and these renewals that we constantly engage in. This is true, by the way; we renew our label and publishing licenses pretty much every year. There's always one big upcoming renewal that we're constantly working on. But everyone thinks that it's really a function of that and that alone. The reality is that as we build this creative platform, it will not solely depend on those licenses. It will increasingly be based on these tools and services that we're developing for creators. A good example is the Marketplace efforts that we've been building on and shared in prior quarters and also this quarter, the success that is having. All of those things, although we don't break them out, are positively impacting gross margins and have been over the year. It's important to say that going into 2021, our expectation for gross margin was far surpassed, and we did much better. The tools and services we've built are part of that story.

Bryan Goldberg, Head of Investor Relations

All right. Next question from Mario Lu on subscriber net add trends. Average 27 million net subscriber adds annually for the past few years; is that still a benchmark to use for 2022? Are there any variables that could cause divergence from historical patterns?

Paul Vogel, CFO

Yes. Thanks, Mario. First, I'll just reiterate what I said in my opening comments: although we're not giving full-year guidance anymore, if you look at the net additions we achieved for both users and subscribers in 2021, we don't see any material change in that trajectory into 2022. That's sort of how we're thinking about the 2022 numbers at a high level. When you look at Q1 in particular, different seasonal trends and patterns emerge each year. In the last couple of years, Q1 has become increasingly less important for our yearly growth. Last year, in particular, we changed the cadence of some of our promotional activity, implementing three campaigns for subscribers at varying, shorter lengths but more frequently, which altered the seasonality throughout last year, making it more heavily weighted into Q2, Q3, and Q4. We are likely to see similar types of seasonality again in 2022.

Bryan Goldberg, Head of Investor Relations

All right. Another question from Rich Greenfield on the advertising opportunity. Discuss advertising becoming 20% of revenues, if not 30% to 40% longer term. While you're no longer giving full-year guidance, how do you think about the trajectory of getting to 20%? What are the key factors involved?

Daniel Ek, CEO

Thanks, Rich. Obviously, it's hard to predict long term exactly how it will play out. When you look at platforms overall in this space and the mix between different options, I have alluded to this in the past. I don't think many of these content platforms in the future are going to be single revenue streams. Instead, I believe there will be multiple revenue streams, and it's really about the mix. We started from paid and are obviously growing into both advertising and paid. Some platforms start with advertising and then add more paid content. I think it's a combination of subscription, ala carte, and advertising that will define the long-term revenue mix. Now, speaking specifically to advertising, what are the primary factors to consider? At this moment, it comes down to two things primarily: one is inventory. We see an enormous amount of demand from advertisers, and the number one thing we're stretched for at the moment is more inventory. That's why you see us introducing things like SPAN and other offerings. Secondly, long-term, it's about international markets. Many platforms begin by monetizing the U.S. and U.K. effectively, but it takes more time to monetize the international markets. I don't believe we will be an exception. However, there are positive signals in those markets as well. I remember a debate 10 to 15 years ago regarding whether advertising was a viable model in the Chinese market. Now, we've seen gigantic companies emerging with advertising as their primary source. This bodes well for regions like India, Indonesia, and others where Spotify has had substantial success. The investments we are making may not be large today, but I am absolutely confident that by establishing ourselves as the number one audio platform there, it will be a very worthwhile position to own in the long term.

Paul Vogel, CFO

Yes. I would just add a couple of points. If you look at this year, we finished at 12% of revenue, which was 15% in Q4, up from 9% of revenue last year. We saw significant growth in the advertising business coming out of 2021, which we continue to see at the start of 2022. I would also echo what Daniel said about international markets. We discussed last quarter our investment push to expand our advertising presence outside the U.S. We've had a successful blueprint in the U.S., which has shown in our growth on both the music side and the podcasting side. We expect that this investment throughout 2022 will drive significant improvements in advertising monetization outside of North America.

Bryan Goldberg, Head of Investor Relations

Next question comes from Batya Levi on premium ARPU. How should we think about premium ARPU trends in 2022? Can your recent price increases offset the pressure from growth in lower ARPU regions?

Paul Vogel, CFO

Yes. Taking a step back, we saw nice growth in ARPU throughout the year, finishing Q4 up 3% and up 1% on a constant currency basis. We feel good about the trajectory in ARPU. Some of those price increases will continue in the first half of the year, which will help. In general, we expect ARPU to be flat to slightly up in 2022.

Bryan Goldberg, Head of Investor Relations

A question from Matthew Thornton on advertising. You've talked about being supply-constrained in this part of your business. Can you update us on supply-demand conditions and the key drivers of supply in 2022?

Paul Vogel, CFO

Yes. On the demand-supply side, I would say we've grown in podcasting as well as music overall as a percent. We're seeing engagement increasing across the platform, particularly in podcasting. We're seeing consumption rise, leading to more inventory, which is encouraging. We're seeing more publishers in SPAN, up double digits quarter-over-quarter, allowing us to see more inventory. With SPAN, we're also able to monetize effectively, and as we're providing good returns, more publishers are opting in more inventory for us to sell. When we have more inventory to sell, we attract even more advertisers who want to invest and engage with a larger platform. We're experiencing this nice flywheel effect where the performance of SPAN is strong. Opening SPAN up to Anchor will also be potentially strong for next year, along with various other initiatives.

Daniel Ek, CEO

Yes. The only addition is that it's really about combining efforts: expanding the audience and also the number of creators. The more creators we have, the more inventory we have to place against it. Naturally, the more users will come as a function of the increased number of creators. This plays a key part in this dynamic, and you've alluded to some of that in your question with audiobooks.

Bryan Goldberg, Head of Investor Relations

All right. We've got another question for Matt. Do we have any update on the hi-fi tier? What's been the delay? And does your guidance contemplate any price increases in 2022?

Daniel Ek, CEO

All right, so I'll start with the question and then Paul can speak to the guidance. Yes, many of the features we discuss, especially those related to music, involve licensing. I can't announce any specifics on this, other than to say we're in constant dialogue with our partners to bring this to market.

Paul Vogel, CFO

Regarding price increases, we haven't commented on anything at this point in time. Earlier in the year, when we did implement some price increases, we felt confident about the churn characteristics; there wasn't anything material, as well as gross intake where there were no significant changes. We feel good about those we've already implemented, but there are no comments or updates on any additional pricing increases moving forward.

Bryan Goldberg, Head of Investor Relations

The next question is from Deepak on premium subs. Can you provide some color on your premium sub guidance of 183 million? Is there any impact from changes in promotions or incremental churn that's affecting sub growth for the first quarter?

Paul Vogel, CFO

Yes. I addressed this earlier, but let me provide additional context. It's really all about the promotional cadence and the seasonality throughout the year. Looking back a couple of years, we always conducted promotional campaigns in Q2 and Q3. There's always some seasonality between Q1 and Q3 relative to Q2 and Q4. Last year, we tested an additional campaign in Q3. Instead of two campaigns, we had three campaigns, which were shorter in length and altered the seasonality in 2021. This trend will likely continue to influence seasonality in 2022. Furthermore, Q4 is becoming increasingly significant for us. You saw both the seasonal campaign's success in Q4, as well as the Wrapped campaign, which drives substantial traffic to Spotify. Consequently, Q1 is evolving to become a smaller component of our overall subscriber picture each year, which is partly due to the follow-through from how robust Q4 tends to be, as well as how we've adjusted our promotional cadence throughout the rest of the year. Although we typically don't provide churn guidance, our core churn for monthly subscribers continues to decline year-on-year, and we feel positive about the trajectory.

Bryan Goldberg, Head of Investor Relations

Okay. Next question comes from Andrew Marok on gross margin. To what extent do content investments influence the first quarter gross margin guidance? Is there anything notable driving the year-on-year decline?

Paul Vogel, CFO

Yes. There are a few factors in Q1. One is, as I mentioned, an initiative we planned to test in Q4 that got postponed to Q1. So there's some incremental impact. Additionally, some costs associated with the first year of lyrics will slightly affect us. There are also investments. As demonstrated in the U.S., we’ve achieved notable success in recent quarters, leading to increased content spending focused on both U.S. growth and innovative strategies in international markets. Lastly, we're still operating under current CRB rates, impacting the publishing side in the U.S. Overall, we remain optimistic about gross margins and their progress over the last two years. We witnessed increases in '20 and '21. The core gross margins reflect our positive trajectory and the advances made regarding what we're implementing year-on-year, especially regarding O&E podcasting and benefits in Marketplace and advertising. Thus, our confidence for 2022 lies in the foundational improvements we've achieved leading to greater long-term gross margins.

Bryan Goldberg, Head of Investor Relations

All right. Next question from Justin Patterson on the 1 billion user opportunity. Daniel, last year at the StreamOn event, you spoke about the 1 billion user opportunity growing in the coming years. What are the key investments required to achieve this, given that it implies a significant step-up from the current MAU base?

Daniel Ek, CEO

Yes, I referred to some of this in my opening remarks, but our primary focus is going from the current 11 million total creators to 15 million active creators on Spotify in the coming years. This increase in content will drive significantly higher engagement with the tools we're developing for both creators and consumers. You will see both consumers and creators expand their engagement in entirely new ways, which will define the next generation of audio. However, I want to conclude by saying that you'll hear more from us about this during our Investor Day. I genuinely hope to welcome all of you to learn more about our upcoming plans in this area.

Bryan Goldberg, Head of Investor Relations

Next question from Ben Swinburne. A couple of questions here: Does the first quarter premium guide reflect elevated churn from the recent Joe Rogan controversy? What additional steps are you planning to take to contain potential fallout? Additionally, can you provide context for the audiobooks opportunity?

Daniel Ek, CEO

Yes, so, for the first time, I’ll address a guidance question. The answer is no; we don’t reflect any churn from the recent JRE issue. Generally, it's too early to ascertain the impact. When we have controversies in the past, they tend to be measured in months, not days, but I feel confident in our current strategy and performance. Top line trends remain healthy. Regarding the measures we've implemented, as outlined, the most significant steps we've undertaken this past Sunday in my blog post are three-fold: First, we are clarifying and publishing our policies; regrettably, this should have been accomplished sooner, and I take responsibility for that. Second, we are introducing content advisory notices for COVID-19 episodes, tagging them to provide accompanied messaging from health experts, including organizations like the CDC and WHO. This measure will be visible at the top of relevant episodes, further reflecting our proactive stance. Lastly, concerning audiobooks, there are two modalities in audio that are somewhat simplified: podcasting, which we primarily discuss, and paid audio, which mainly comprises audiobooks today. I’m excited about enabling various audio formats on our platform. In our view, audiobooks present an essential creator group, authors, which is promising for our future trajectory. Observing innovations, for example, in China, has highlighted the unrealized potential for similar innovations in Western markets.

Bryan Goldberg, Head of Investor Relations

Great. Next question is from Eric Sheridan. Coming off the content investments of the last few years, can you provide an update on management's longer-term thoughts around the gross margin trajectory and the mix of headwinds or tailwinds in the coming years?

Paul Vogel, CFO

Yes, at a high level, nothing has changed regarding the long-term guidance we've outlined for gross margins, aiming for the range of 30% to 40%. As Daniel mentioned, we hope to unpack this further at the Investor Day in Q2. Regarding headwinds and tailwinds, we perceive favorable leverage emerging from several initiatives we've undertaken. Observing the content's performance for over a year, we see revenue per listening hour growing at a faster pace than cost per listening hour, demonstrating this leverage. The reason for our increased investments is our confidence that these efforts will lead to even more significant long-term gross margin benefits in the future.

Daniel Ek, CEO

One additional point to make is about our earlier expectations for 2020 and 2021 regarding gross margins, which assumed a decline due to extensive content investments. However, when examining the actual results, we have greatly exceeded those expectations. Our investments in areas like Marketplace, advertising, and O&E content have led to promising results. We feel encouraged by this, and our investments should be viewed through this positive lens.

Bryan Goldberg, Head of Investor Relations

All right. Next question from Mike Morris on Marketplace. How has the two-sided Marketplace driven mutual benefits for both Spotify and your label partners during the current contract period? Has it been a win-win situation? And do you anticipate extending the terms going forward? How could this impact your gross margin progression?

Daniel Ek, CEO

Yes, I'll handle this. The two-sided Marketplace pertains minimally to our current contract period, as mentioned previously. It's more an addition to whatever the contract stipulates. You should view this as a platform supported by various licensing agreements. Concurrently, we have many tools and services on top of our licensed content business. Understanding the gross margin progression involves recognizing that each dollar generated by these tools and services generally yields high gross margin dollars, whereas Spotify operates at a lower gross margin overall. This can add up quickly.

Paul Vogel, CFO

The only point I would add regarding Marketplace is that we view it more as a marketing initiative in practice—with its benefits evident on the gross margin side, despite being primarily a marketing type of event. We previously indicated a figure of $30 million contribution in 2019; although we did not provide a specific number for 2020, you might assume it was close to double that amount. We observed a sizable increase again in 2021 regarding Marketplace's contribution to our product.

Bryan Goldberg, Head of Investor Relations

All right. Another question from Richard Kramer regarding engagement. If you're back to the same level of overall hours of listening but with a far larger subscriber base, what does this imply for engagement? Does that rely on reopening and commute times?

Paul Vogel, CFO

I'm not sure I fully understand the question, as it may be lacking context. However, listening hours per user have actually increased, indicating strong engagement. For instance, this year, we've observed growth in daily active users to monthly active users, implying the overall daily actives on the platform have increased. Furthermore, listening hours per user have also risen. Hence, engagement remains robust and healthy across the platform.

Bryan Goldberg, Head of Investor Relations

Okay. A question from Steven Cahall regarding gross margin outlook. While we realize you're no longer providing annual guidance, do you expect 2022 to be a year of operating leverage at the gross and operating lines? Or should we view it more as an investment year concerning margin expansion?

Paul Vogel, CFO

Yes. There are definitely some variances to consider, which is partly why I provided earlier commentary. I see, as Daniel mentioned, that the core gross margins have progressed well—surpassing our expectations. Therefore, while we continue to invest, we have experienced improvements at a faster pace than anticipated over the previous couple of years. In terms of gross margins for this year, we will maintain our investment trajectory. However, I believe we will witness improvements in certain areas sooner than we previously considered. So, while there are considerations to weigh, we feel optimistic about how we emerged from 2021 and where we're heading.

Bryan Goldberg, Head of Investor Relations

Okay. Another question from Deepak focusing on label relations. Can you refresh us regarding the timeline for the next round of label negotiations? What priorities you’re targeting in this forthcoming round?

Daniel Ek, CEO

Certainly. The timeline for the next round of label negotiations is essentially perpetual. We are continuously engaged in negotiations or renegotiations and extensions throughout the year. I don't see 2022 being an exemption from that practice. Our key priorities center around enhancing platform flexibility. We firmly believe that the more we act as a genuine platform for creators to engage directly with their audiences, transitioning casual listeners into fans and then into superfans, this will unlock the next wave of growth in the music economy. Historically, a significant part of Spotify's journey centered on combating piracy, and we believe we have done exceptionally well in that regard. The next step was transitioning individuals towards paying for streaming. Currently, more than half of the entire music economy globally relies on streaming subscriptions, indicating their dominance. However, again, I believe we are still largely monetizing our users under a one-size-fits-all paradigm. While we do implement free and paid subscriptions, the evolution here revolves around tapping into the superfan segment, where the real revenue potential lies. Unlocking this segment will capitalize on growth opportunities in the music economy. Therefore, our primary focus remains on establishing more flexibility for creators and providing diverse uses for their assets, ultimately enhancing engagement and converting casual listeners into superfans, thereby facilitating new revenue models.

Bryan Goldberg, Head of Investor Relations

All right. Another question from Ben Swinburne. Despite being your most penetrated and competitive region, North America remains your fastest-growing premium base. Does this suggest that the international growth potential for premium subscribers is still considerable, or is the willingness to pay a challenge internationally?

Paul Vogel, CFO

We believe there is significant growth potential in both regions. In many cases, established markets experience rapid early growth before monetization follows. New markets reach critical mass, and monetization occurs subsequently. Healthy growth is observed in both users and subscribers across regions. In recent quarters, we’ve experienced MAU growth emerging from the Rest of World and Latin America, including some new markets. Our forecast indicates substantial growth potential continuing, with revenues likely following suit.

Daniel Ek, CEO

I want to make one more comment regarding emerging markets, as mentioned earlier. A decade ago, it was widely assumed that advertising could not succeed in various emerging markets. As it turns out, this wasn’t the case. Regarding paid subscriptions, many skeptics claim that paid subscriptions cannot survive in these markets. We believe that narrative will also prove to be inaccurate in the following years, which is why we’re making investments here. However, we do recognize local nuances in approaching these customers and their payment methods. We are implementing numerous innovations, including weekly payments, prepaid transactions, and even collecting cash subscriptions through mobile units. It's incredibly impressive and eye-opening to see the diverse ways Spotify engages with users worldwide.

Bryan Goldberg, Head of Investor Relations

All right. We have time for a couple more questions. We'll take one from Mark Mahaney on Marketplace. The two-sided Marketplace exceeded your expectations in 2021. What are your growth projections for it moving forward? Are there any benchmarks that indicate how large this segment could become?

Daniel Ek, CEO

I am very pleased with the results of the two-sided Marketplace. While it’s in the early innings in terms of available tools, you can imagine it serving as an umbrella for all the various tools related to superfan monetization and alternative audio types, like audiobooks. The goal is to allow more flexibility for creators and consumers. Long-term potential for the Marketplace remains vast. However, our growth is contingent upon increasing the number of creators utilizing the existing tools and our capability to innovate products that resonate with the market. So far, responses from creators and consumers highlight there are new ways to monetize relationships; this is a massive trend on the Internet.

Paul Vogel, CFO

We remain optimistic about the Marketplace's impact on gross margins; we've mentioned previously that our gross profit dollars have increased significantly. The marketing tools and services are evidently effective and have positively influenced our P&L results.

Bryan Goldberg, Head of Investor Relations

Okay, great. We have a question from Hamilton Faber. Can you provide an update on the performance of the new markets launched in 2021 and how they performed relative to expectations?

Daniel Ek, CEO

Yes, while we won't disclose details on specific markets, I'll make an exception today. When we launch new markets, it's rarely what we initially envision. For instance, Venezuela has turned out to be one of our most successful new markets, which wasn’t on our radar as such. Reflecting on previous launches, Mexico faced challenges early in its launch, while Argentina's early growth was distinctly strong. Yet over time, Brazil emerged as a leading growth driver. As we adapt to market conditions, initial contributions might remain small, but I’m confident these new markets will positively impact Spotify's results in the future.

Bryan Goldberg, Head of Investor Relations

Okay, great. That will wrap up the Q&A portion of today's earnings call. I would now like to turn it back over to Daniel for closing remarks.

Daniel Ek, CEO

Thank you, Bryan, for that. I also want to thank all of you for joining the call. I genuinely hope you're as excited about the business as we are. We feel as though we're just getting started. We intend to accelerate our work and pace of innovation as we pursue, in our view, one of the biggest opportunities on the Internet, namely the creator economy, and our role in broadening that accessibility for more creators. I look forward to sharing more details at the Investor Day. Before that, I will discuss the quarter on our podcast, For The Record, which will be available on our platform tomorrow. I truly hope you’ll tune in. Thank you once more.

Bryan Goldberg, Head of Investor Relations

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