Spotify Technology SA (SPOT) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Spotify's Q4 2020 Earnings Call. (Operator Instructions) I would now like to hand the call over to your speaker today, Bryan Goldberg, Head of Investor Relations. Thank you. Please go ahead.

Great. Thank you, and welcome to Spotify's Fourth Quarter 2020 Earnings Conference Call. Joining us today will be Daniel Ek, our CEO; and Paul Vogel, our CFO. We'll start with opening comments from Daniel. And after the remarks, Daniel and Paul will be happy to answer your questions.

We'll again be taking questions exclusively through Slido. Questions can be submitted by going to slido.com and using the code #SpotifyEarningsQ420. Analysts can ask questions directly into Slido, and all participants can then vote on the questions they find the most relevant. If you don't have access to Slido, you can e-mail Investor Relations at ir@spotify.com, and we'll add in your question.

Before we begin, let me quickly cover the safe harbor. During the 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 Financials section of our Investor Relations website and also furnished today on Form 6-K.

And with that, I'll turn it over to Daniel.

All right. Thanks, Bryan, and hi, everyone, and thank you so much for joining us. Despite the global uncertainty of 2020, it was a remarkable year for Spotify. Following a strong Q2 and Q3, Q4 met or exceeded our guidance by nearly every metric.

Monthly active users reached 345 million, coming in at the very top of the range, and we now have 155 million subscribers, which surpassed all expectations.

Over the last year, we have demonstrated our ability to pivot quickly, anticipate user trends and adapt to their new behaviors. And it is easy to forget, but 2020 had plenty of uncertainty and puts and calls. Our success really is a testament to the strength of the teams, and I'm confident this experience will serve us well in the future.

Going into 2021, COVID still has the potential to be a headwind as it's difficult to fully gauge its impact. For Spotify, more time at home resulted in more people discovering streaming and turning to our platform, but it also created a disruption in listening habits, consumption hours and the release of new music and podcast. We believe it caused us to pull forward subscribers across the back half of 2020, which makes it really hard to predict if it will drive the same subscriber growth in the year ahead. However, the trend lines are healthy. And long term, the shift from linear to on-demand that COVID accelerated will continue and remains a massive multibillion user opportunity.

Knowing your focus is likely on our outlook for the upcoming year, I want to spend a few minutes addressing how I'm thinking about 2021 and some of the uncertainty and some opportunity it brings. And as a reminder, our approach to forecasting is to only forecast what we have a very high degree of certainty that we will achieve. Given the uncertainty we face today, I suspect that our full year 2021 plan will have a higher variance than prior years.

Therefore, what you see reflected in the forecast is what I believe we will absolutely do. This does not mean that that's what I hope we will achieve as evidenced by our outperformance in 2020.

So I thought it might be worthwhile to outline some of the biggest drivers that may contribute to this variance. For example, while we have seen some pull-forward effects that may slow down subscriber growth in some markets, we are shifting to drive more aggressive revenue growth where we know our pricing power will enable us to increase ARPU. We've long believed that Spotify provides exceptional value, and the positive early data we're seeing from this price increase that we announced in October makes us very optimistic that our users agree.

This week, we implemented price increases across a number of markets, and we will continue to evaluate the future increases carefully based on the broader global economic impact of COVID.

Another important tailwind we will pursue is the continued expansion into new markets. We launched in South Korea on Tuesday morning, tapping into one of the fastest-growing music markets in the world, and there are still millions of creators and billions of listeners who don't yet have access to Spotify. And work is underway to change that, and I will share more in the near future.

The impact from expansion into new markets also creates some uncertainty as we forecast user growth, and it's been really challenging to predict. Take Russia as a prime example. We quickly and significantly surpassed all expectations there. The result of this outperformance is that we saw some additional pull-forward of user demand, again, leading to growth in 2020 that we expected to occur in 2021.

Another area of the business where we're seeing extremely strong results, but where the true payoff of Spotify still in front of us is podcasting. In the last year alone, we tripled the number of podcasts on our platform, moving from about 700,000 in Q4 2019 to 2.2 million podcasts today. And we've also significantly grown the number of podcast users on Spotify. Going forward, I think our investments in original and exclusives are creating more and more reasons for listeners to choose Spotify. And our exclusive programming is already proving to be an essential part of our differentiation. That said, with a small number of these shows on our platform today, but many more in the pipeline, it's very difficult to know exactly when we'll see the compounding effect of these investments, but all early indications are very positive.

Another example is our advertising business. Other platforms have experienced inconsistent ads growth in their early years, and we're no exception to that. And we're putting more resources into developing this business. And in Q4, our ads business accelerated, finishing above forecast.

In our mature markets, our largest issue was that we were inventory-constrained. And while this sounds like a good problem to have, and I guess it is, it is difficult for us to predict how quickly we can open up new inventory. And I expect that as the category of audio ads matures and more radio dollars move to streaming, this area will become much more predictable. But for the next year or 2, it will be a bit more uncertain.

So to conclude, 2021 brings more uncertainty than any normal year. That said, we have a high degree of confidence in our ability to deliver against the guidance we provided. And we were able to overcome unprecedented uncertainty in 2020 and exceed almost all expectations, and I believe that we can do the same in 2021.

I'm also focused on identifying where we can see new opportunities and drive sustained growth in the long term. Just look at what happened to video in 2020. Linear video fell apart as viewers flocked to on-demand. And the companies who were not prepared to take advantage of this disruption faced huge challenges as their business models were upended. A similar shift hasn't happened yet to linear radio, but you've long heard me say that it's coming, and I'm more confident today that that's inevitable. But unlike video, there are only a handful of companies who will be able to take advantage of this disruption in audio, and no other company has the capabilities or is as well positioned as Spotify for this massive opportunity, and that is our eye on the prize.

And with that, I'll turn it back to Bryan.

Great. Thanks, Daniel. Again, if you've got questions, please go to slido.com, #SpotifyEarningsQ420. Once your question is entered, you can edit or withdraw your question by selecting the option in the bottom right. We'll be reading the questions in the order they come in with respect to how people vote up their preferences for questions.

And our first question today is going to come from John Egbert of Stifel. The high end of your 2021 subscriber guidance suggests you'll add fewer net new subs this year versus 2020. You noted churn should decline in 2021, but do you expect the newly announced price increases to represent a material headwind to sub growth in 2021? What other factors should we consider here?

Yes. This is Daniel. Long term, again, this is a multibillion user opportunity, and I'm as confident about that as I've ever been. As I mentioned in my opening remarks, all that said, we are facing a global pandemic and that pandemic has shifted all user behavior in 2020. And as I mentioned also, it did create some pull-forward effect throughout the year. That means that there are more uncertainties throughout the year on what will happen to new subscriber growth. So again, our forecasting means that we do the things that we're only very, very certain that we will deliver upon.

Specific to the price increases, Paul can probably address that to a greater extent, but we've seen very, very positive response from the price increases in October, and we believe that will be the same for the price increases that we've just concluded. Paul, do you want to add anything?

Yes. I would just add a couple of things. I think to echo what Daniel said, I think, in 2020 we obviously had a very, very strong year. Daniel mentioned in his opening comments, we pulled forward the Russia launch. So Russia was a meaningful impact in 2020. We had originally thought that we wouldn't really see meaningful impacts until 2021. So that helped 2020. And in hindsight, we didn't really call out any specific quarter where we thought the benefits of people being at home and the tailwinds to streaming weren't necessarily in any one quarter. But in hindsight, when you look at it, it's a little bit tough to disaggregate how much was just better execution on our part, how much was some pull-forward from kind of the tailwind that streaming had in general in 2020. But we do believe that each quarter probably saw a little bit of pull-forward as well. When you go back and look at where we started 2020 and where we ended, we finished about 4 million, plus or minus, above where we thought we were when we started the year. So definitely some better execution there, probably some pull-forward based on the tailwind that streaming had as well as the pull-forward in Russia.

And then when you look at 2021, I would say, as Daniel mentioned, I think there is a higher degree of uncertainty than we normally have. There's lots of initiatives. I would say uncertainty isn't always a bad thing. There's lots of things that could break positively, and there are some things that could be more challenging. But there's just probably more of them in 2021 than we've experienced in years past, and that's all baked into the forecast. And then as Daniel mentioned, with respect to the forecast, we've always said to you guys we will give you guidance based on what we actually think we're going to do. And that is what we've done this year as well. But that being the case, it really is a base-case model of what we have a high degree of confidence that we will achieve. And it doesn't necessarily assume that we're going to have the upside in some of the initiatives or uncertainties, where if they break positively, we could be better. So again, we've given you a best-case forecast and one that we feel we have a high degree of confidence that we'll be able to achieve.

All right. Our next question comes from Eric Sheridan of UBS. How should we think about the progress made against previously discussed investments in the podcast opportunity? Is there an update about the puts and takes in terms of upside to the business compared to global investments needed to scale over the coming years?

Yes. Overall, we're very pleased with what we're seeing. But just as a reminder, the primary opportunity, as we think about the long term here is clearly the radio -- linear radio experience that are moving online into on-demand. That is the eye on the prize, the one that we are chasing, and that's still what we're kind of looking at.

As we look at that universe, though, the primary thing that we've been focusing on as we got into this audio-first strategy was we already have a massive user base on Spotify today. How can we turn them into podcast listeners and extending our platform into becoming the de facto podcast player for a lot of these users as well. And as evident, I think, from this quarter compared to even last, we keep on expanding the number of users on our platform that are using podcast on the platform to now 1/4 of them that are podcast users.

I think as we start getting on the upper end of those user ranges, you will see us going outside and trying to convert more and more of the outside users who are not yet Spotify listeners to come on to the platform. And I think exclusives will be a material part of that strategy. And even there, I would say it's very encouraging to see the early results of the exclusivity strategy that we have. But we're in the early days in the sense that there are many, many more exclusives that we have in the pipeline for 2021 that we're excited about.

The hard thing is to forecast what the compounding effect is of all of those when they happen and when you bring it to Spotify. There will be more and more reasons to come to Spotify. That's one thing for sure, but it's sort of a near-term uncertainty in terms of the effect of that.

The one thing I would add as well, I think if you go back about over a year ago, I think we mentioned in one of our shareholder letters that we believe that podcast and podcast usage was highly correlated with improvements in retention and user growth, but we, at that point, couldn't really prove out the causality.

I think you noticed in the shareholder letter that we did mention that we now feel reasonably confident that we can prove out the causality of having podcast and the benefit that it's having on user growth and retention, and then having podcast as a positive contributor to LTV per subscriber. So we're still going to continue to obviously work and monitor that and test that. But we do feel good about sort of the incremental knowledge we have in terms of the positive impact that podcast is having on our platform.

Okay. Our next question is from [Alan Howell of Howell & Company]. When will Spotify add a social element of the overall experience like Tencent Music. Apps like Clubhouse could have an interesting entry to audio, and Tencent Music could be a good way to follow up in some regard.

Yes, we're very interested and, obviously, pay close attention to everything that's happening in markets around the world and new developments in audio. I've said this many times before, but I think we're in the early innings of the innovation of the audio formats. And creator-to-fan interactivity is definitely one of those things that we're paying attention to and looking at. And we are conducting experiments on it already, but I don't have any sort of specific here to announce, but there are plenty more things to come in the coming months and this year as well when it comes to sort of creator-to-fan engagements as well.

Okay. Next question from Richard Kramer of Arete. In entering markets like South Korea, what is your strategy for building a subscriber base given that the market has 6 very well-established players?

Yes, we always take a large amount of time to try to analyze the markets, and South Korea is certainly not an exception to that rule. So some would even say that we're late to the party in some markets. Russia was kind of the same dialogue, but we've been studying the market for many, many years, and we're well aware that South Korea is a mature market and that it will take time for us to establish ourselves.

I think the key is the same thing that we do in pretty much every single market. We deeply try to understand the content that we have in many of the domestic markets. We try to bring an international flare to it and bring the creative talent that we have from all of our creators around the world to that platform. I think we can definitely do a good job there. I think our strength in personalization will certainly play incredibly well in South Korea.

And specific to the South Korean market, we obviously have a lot of partnerships, for instance, with Samsung, which is a major player in South Korea. So that and the 2,000 other devices that Spotify is on is a major contributing factor, I think, to why the user experience is better and why I think South Korean consumers are very excited about Spotify.

Okay. Our next question comes from Brian Russo of Credit Suisse. Do you think customers would be willing to pay specifically for podcasts? And if so, will the margin profile of that podcast revenue look different than your existing premium service?

I think we're in the early days of seeing the long-term evolvement of how we can monetize audio on the Internet. I said this before, but I don't believe that it's a one size fits all. I believe, in fact, that we will have all business models, and that's the future for all media companies, that you will have ads-supported subscription and a la carte sort of in the same space of all media companies in the future. And you should definitely expect Spotify to follow that strategy and that pattern. So I think it's early days, though, to specifically kind of look at how that could play out. But obviously, if that were to be the case, that revenue profile would be different than how we do music.

Okay. Next question from Mike Morris of Guggenheim. Did the meaningful audience uptick for The Joe Rogan Experience come from new or existing Spotify users? How does the premium-to-free mix of heavier podcast users compare to the overall base? And can you share the churn difference between podcast users and non or light users?

Paul, do you want to take this one?

Yes, I'm not going to be overly specific, but obviously, we do believe that Rogan has contributed positively to user growth on the platform. We haven't broken out how much of the usage has come from existing users or new users. But if you sort of take a giant step back, part of the strategy when you bring someone like that on the platform is it's going to have a couple of different effects, one is to bring new people on to the platform and another is to create a better experience for those already on the platform, whereby their retention increases or their churn goes down. And so all of that is still what we believe to be the case and will happen. We haven't really given the split between free and paid podcasts users. But as I said earlier in my commentary, we are increasingly comfortable that podcasting are having a positive effect on LTV for subscribers. And so that's where the continued investment comes from.

Okay. Another question in the queue from Eric Sheridan at UBS. How does the team think about strategies around tiering the product by format or content over the long term? I just lost that question. There we go.

Daniel, you can take that one.

Yes. I mean I can try to answer it. Anyway, so again, I think we're currently in the evolution stage. And I think you can see this in other media formats as well, where it's pretty much been a -- in the early stages of adoption, you try to go for simplicity. So you have a one size fits all in order to have an easy consumer proposition that consumers understand. In our case, we had a free tier and a paid for tier. We've evolved that model to having a free and paid family and students.

I think as you get to the next level of growth and even more local markets as we expand, you're going to see many more configurations than the ones that are currently there, and it's going to be a mix between subscription and advertising and a la carte that will play a role into the Spotify future.

Okay. Next question from Matt Thornton at Truist Securities. As it relates to price increases, could we see a family plan price increase in 2021 in the U.S.? Further, does guidance assume any impact to retention, conversion, gross adds from the planned price increases?

You want to take it? I'll take it. So on the price increases, as we've talked about, we launched 7 markets a little while ago and then 25 more markets most recently. We are not going to specifically talk about what markets may or may not come in the future. So we'll just have to see.

I mean there's obviously a number of factors that will go into price increases and where we launch them and the magnitude and the number of factors, some of them are the maturity of the market, both in streaming in general, our penetration rate there, how we feel about each individual market. And so from pricing, that's kind of how we think about it.

And then the impact on the model, as I've said, we have assumed the price increases in the model where we know we're going to launch them and when we're going to launch them. So again, just to reiterate how we think and plan throughout the year is baked into our guidance. That being said, as I go back to my earlier comments, we sort of give you the base case of what's going to happen. So we have some assumed positive or negatives to churn or retention based on price increases, and we'll see how the year rolls out.

And I think as Daniel mentioned earlier, there's still a tremendous amount of uncertainty throughout the year, COVID being one and the impact that it has on the global economy. I will say now that we're past 2020, we had expected to experiment with more price increases in 2020 than we did. We pulled back on that because of the pandemic and because of the uncertainty and because of not wanting to raise that with consumers given all that was going on.

And so when we talk about the unknowns into 2021, that's another unknown, which is how confident do we feel in certain markets and the timing and a lot of that is still TBD.

Okay. Next question from -- another one from Richard Kramer. Artists lost their main source of income during the pandemic, live performance. Is Spotify in a position to support live streaming performances whereby artists would get directly -- excuse me, directly paid by the platform?

Yes. This has been a very, very rocky year, of course, for a lot of artists around the world, and they've seen sort of their lives upended based on COVID and their livelihood. We have responded in a number of ways, including Artist Picks, the COVID Relief Fund, et cetera. And one of those happens also that traditionally on the Spotify artist pages, we have had concert listings. We have now evolved those to include also live performances as well. Those do not happen through Spotify directly, but it's facilitated so that artists can point consumers to that. And I know that there's been a number of artists that have been experimenting with those types of performances, and some have been quite successful in doing so. So we absolutely offer the opportunity, but it's not something that we are principal of today. But we, of course, look very carefully about how it's going and what works better than what doesn't evolve. And again, long term, our strategy, as I said, it's to allow those creators-to-fan engagements to happen on the platform in an even greater extent than what it currently does today.

Okay. Next question from Rich Greenfield of LightShed Partners. We've seen Amazon buy Wondery to integrate podcast into Amazon Music, and Apple appears to be gearing up to launch some form of subscription podcast product. While this is clear strategy validation, curious how you expect it to impact Spotify and the ability to make acquisitions in the category.

Yes. I mean what I would say is I definitely do believe that -- and we're not surprised that something like audio that interests billions of consumers around the world also will catch the attention of the big companies because there are very few spaces that have hours of most consumers' time of day and reach billions of people at the same time. So we're not surprised that this is happening. And we also do look at it as a validation that we're heading in the right direction. Again, we did expect this. Hence, why we've also been very aggressive previously with the acquisitions.

Most of our strategy going forward, while we don't exclude any further acquisitions, it is about ramping the ability of our own production capabilities that we now have through all the studios that we have acquired. And just to put that in a finer point because I think this is kind of one of the internal points that I had used to our team most of the time, I believe, about 3 years ago, there were fewer than 30 people at Spotify that were actively producing content that ended up on our service in one way or the other. And that number now is, I would say, certainly, during '21, it will be closer to 1,000 people. So it's really a tremendous kind of shift as a company and even our skill sets that we have. And we're looking to use some of those muscles that we've added to our roster throughout the last 2 years and create even more amazing content for our users to experience.

Again, another question from Richard Kramer. Is there any reason to believe you can change the terms of deals with the labels to carve out time for podcasts and reduce the value of payouts to labels for the pool of listening?

While I can't comment specifically on how our label deal terms looks like, we have said this before, but podcast is a separate category and does not involve how we pay out for music royalties. I don't know, Paul, if you wanted to add something to that.

No. As we said, we carved out the advertising on podcasting. So as that grows, we'll continue to get the benefit of the advertising revenue on top of podcast. And then to Daniel's point, how the relationships evolve over time, we don't really get into the specifics. They always change.

Okay. Next question from Steven Cahall. The implied 2021 incremental operating margin looks like it's approximately 3%. Is 2021 indicative of the operating leverage of the business on OI? Or are there other factors ahead that should be -- that should drive more meaningful margin expansion?

Yes. I don't necessarily want to get into a full modeling discussion on this call, but I guess I'll give some high-level thoughts on kind of operating margins over time. I'd say one is you have to take into consideration year-over-year and the impact that social charges have on reported numbers, but we can sort of take that aside. And we're happy to have those conversations off-line.

When you look at sort of the big components on the operating -- the impacts to the operating margin after the gross profit, when you think about R&D, we've been pretty consistent and steady about talking about that we're going to continue to invest heavily in the business, that we're going to -- that's an area of our financial model that you probably won't see a lot of leveraging. But if we could, we'd probably even spend more there in order to continue to grow the business. And then when you look at sort of sales and marketing, I think there are areas over time that we could be more efficient there, potentially on the marketing side we'll see them and also on the sales side as we add more automation into the ecosystem and more self-serve products and those types of things.

And in the G&A side as well. I mean it's a heavy lift first to go and be prepared to be a public company. And then as you continue to launch more and more markets, what you need to do from an infrastructure standpoint, obviously, there's some build-out there. But you can imagine over time, once we're in more markets where we want to be and where it is sufficient scale, you'll start to see leverage on the G&A side as well.

Just maybe want to add one more perspective, too. We are very much still in the investment phase of Spotify. And it's not just the investment phase in music that we're pursuing. Because clearly, there, we could show a lot more operating margin improvements as well by, for instance, of lowering the sales and marketing costs and some of those things that Paul mentioned.

But we're going after billions of consumers around the world, and we're going broadly after the category called audio. And even more so, I think the future of that audio platform is one where you will have millions of creators that are interacting with consumers in a social fashion and to allow us to be that platform where they can grow their audience, they can engage with their audience and they can monetize them in a number of different ways, those are all the capabilities that we're investing behind. And these are multiyear investments. Plus, of course, adding to the fact that we're producing our own content. We're pursuing exclusives. We're going into categories. We're going into new markets. Those are all the things that you're seeing in the P&L coming through that we are doing.

And in many cases, on a company of our size, many of the investments we're even making now are years in the making and many of the things you see flow through from the goodness are also things that we did years ago. So we're very, very bullish on the long term, and we're still investing behind that bullishness, and that's what you should be expecting. And I think, at a mature state, that business will look very different than the growth stage that we're investing behind now.

Okay. Next question from Mario Lu at Barclays. Currently, in Korea, it launched only with the Premium Individual and Duo plans with no option of either the Family Plan or freemium model which should help drive ARPU. That being said, can you speak a bit as to why you came to that decision and if we will eventually see both plans in Korea?

Yes. Just quickly, this is not very uncommon practice for us. We typically launch, as I mentioned, with a very simple proposition in markets and then over time build on. And that's something that's been incredibly successful for us to do. And if you go back to almost all market launches, it kind of follows the same pattern. Go in with a very clear proposition to a very clear audience and then broaden that proposition over time, both with more local content, with more local nuances. And as you mentioned, more plans and pricing.

Just to mention one example, like prepaid planning is something that we've been experimenting within Southeast Asia. That's just one example of us innovating to local nuances.

Okay. Next question from Rich Greenfield. There was a recent article about podcasters being disappointed in Anchor's ability to deliver sponsorship with ads often for Anchor/Spotify. What happened? And does this tie into why you bought Megaphone?

Well, what I would generally say is we're early on in our podcast platform monetization efforts. So most of the focus so far has been how do we get more great content on the service. And the vast majority of podcasters on the service today are self-monetized. We have been experimenting with various forms of monetization, including, of course, the ability of, one, for podcasters to monetize themselves, but then the Anchor monetization effort that you mentioned and now also with Megaphone as part of that. We are very bullish on the opportunity to provide a meaningful way for podcasters to monetize through the platform efforts. And I hope to be able to talk a little bit more about what our plans are in the near future on that. But again, lots of experimentation, but you should feel comfortable that there is a lot in our capabilities and portfolio that I think we can bring to the amazing creators that are doing podcasts on the platform today.

Okay. Another question in the queue from Mario Lu. Can you remind us how price increases flow through to costs? In other words, do labels receive the same share of the price increase? Or is there a min/max threshold for pass-throughs?

Yes. As we said in the past, we're never going to give you specifics of how any of our table deals work. That being said, any time we're raising prices, I think the labels are happy with that. But in terms of how it flows through, we don't get into any specifics.

And another question from Richard Kramer. What's the total investment you've made in acquisitions and commitments to content owners in the podcast space? And how do you measure the payback on that investment? Will it be in ad sales, conversion to premium or separate subscriptions?

Paul, do you want to take that one?

Yes. So look, I think from a payback, there's a -- it is a holistic approach, and I think you mentioned a number of them in the question itself. And so when we look about -- when we look at the investment in podcast, whether it's something to develop on our own or license or buy, the model that we build out has all of those factors into it. So there's an expectation of potential new users that may come to the platform based on having this content. There's increasing -- we're starting to be able to measure what we think the retention benefits would be from having that on the platform as well. And then over time, it's how much can we grow advertising ads through it. .

There's a lot of nuance in there. Obviously, there are certain points and inflection points where you have enough content on certain type of content or a certain genre or a certain demo where you could have an inflection point on the advertising side, where once you get that threshold, you can even have a faster growth because you have that critical mass. And so that will weigh into it as well.

So we look at all of those factors to measure it. And I would say, additionally, as I said earlier, for us, it's really spending the time to understand how much value different pieces of content have on our platform, understanding what we should be paying for different pieces of content on the platform and then understanding sort of the causality between having it and then how much it benefits LTV. So we're looking at all of that. We're modeling all of it out.

And I think when you look at, as Daniel mentioned, we continue to invest and be in investment mode. If you go back in the past, we've said, you continue to see us invest in podcast and podcast content, it's because we are seeing the benefits within our ecosystem. And the more we invest, the more you can have some confidence that the goodness we're seeing throughout Spotify and the benefits we're seeing, we're going to continue to invest against. So I apologize if I got cut off too much. I'm happy to restate anything I missed.

We've got a related question in the queue from Josh Le, Covenant Capital. You expect 2021 gross margin to be lower than the current level while seeing premium ARPU improvement. Can you elaborate on content cost and podcast investments in 2021?

Yes. Let me address a couple of that. So with respect to ARPU, I think what we said is improvements in ARPU, not necessarily up year-on-year. When you look at it on an FX-neutral basis, I think for the full year, ARPU will probably be roughly flattish. Currency is still a pretty big impact on our business. It's pretty material in Q1, as I think we wrote in the shareholder letter. So it will still be down a little bit in the first half of the year. We do expect ARPU to increase sequentially throughout the year. But again, because of currency, it probably will still be slightly negative from a reported basis.

The second part of the question was just on gross margin in general. Yes. I mean, I think there's always lots of puts and takes in gross margin. If you look over the last couple of years, we've sort of hovered between 25%, 25.5% gross margin. We do have some control on our investment and how much we want to spend and what we feel comfortable with, with respect to where we are on the growth curve, where we want to continue to double down on spending.

And so there is a continued increase in podcast spending in 2021. The revenue against podcasting is growing very, very nicely as well. So we are seeing that. We're not quite at the point yet where the revenue is outpacing the continued investment. We are very optimistic that over time we will get there. But as Daniel mentioned, we're going to continue to invest. And that investing has a compounding effect and a compounding benefit on the business. And so that's where we're headed.

Okay. Another question from Rich Greenfield at LightShed. It appears Apple is going to enable direct monetization for podcasters akin to Patreon compared to an aggregated subscription the way Spotify does. Can you explain why your model is superior for podcasters?

Yes, sure. So first and foremost, while I can't speak to what anyone potentially may do. I think I alluded to this in some of my prior remarks. I don't view the future of Spotify to be a one size fits all. And even today, if you are a podcaster, there are plenty of ways for you to monetize through Spotify. So again, you can come in as a consumer, as a free user, you can come in as a paid subscriber. And long term, I believe that we will allow for all 3 models, which is both advertising, subscription and a la carte as the future for creators.

Okay. Another question from Richard Kramer. Given that your podcast engagement definition is now seeing content for more than 0 milliseconds, can you provide us with a more useful metric on podcasting, for example, time spent relative to music?

Yes. It's not a measure we've given out in the past. We've talked about that 25% of our MAU engage with podcasts. That's where we are now, which is up from 22% in Q3. Clearly, music is still the dominant mode on Spotify, but the podcast listening has continued to move up materially every quarter, and it was up again in Q4, so.

All right. Great. We've got time for one more question, and that's going to come from Ben Swinburne of Morgan Stanley. Daniel, is the growth strategy shifting from focused on users to a balance of price and users? If so, why does that make sense to do now? Does it suggest user growth has peaked? And then a follow-up for Paul, does the premium user guide for first quarter '21 assume any additional churn from the price increases?

Why don't I start and then you can take the second part of the question, Paul? Yes. So from my side, I think we've talked about this a number of different times, including when Barry was there. There is 3 legs to the stool of how we can grow. One, we can improve our product proposition. Two, we can launch new markets. And three, we can raise prices.

Up until now, you haven't really seen us flex the third muscle because we've been focused on improving our product proposition and launching new markets. And that is still the majority of what we're doing.

But take my home country, Sweden, as a great example. That is a clear case where we are tapping out of -- in an addressable population, hence, raising prices in Sweden probably makes sense in order to grow, which then obviously not only compensates, Spotify, but compensates all the amazing creators we have on the platform and allows us to strengthen the proposition to them as well.

So we're trying to optimize for growth, and there's 3 ways to grow, and we're now adding the third part of the stool here as well. But I don't think you should read into that, that the growth has peaked. It is more that we're now sort of flexing our muscles and adding that third part, too.

And we have experimented with it for quite some time, I should say as well, like we started 2 years ago. So it's not something that we've done just in a rush. We did it in Norway 2 years ago. We've done it since in Argentina, Australia, and in many, many other markets throughout the time. But this is the time maybe where you're seeing it's actually becoming a real part of the strategy, mostly, in fact, because of all the positive response that we have been seeing of just the value that we're providing already to consumers. So we feel we have this opportunity and that it will benefit both Spotify and the -- all the amazing creators on the platform.

Yes, Ben. And then with respect to Q1 in particular, I would call out a couple of things. One is last year, in Q1, we had an exceptionally strong Q1. We had, as we often do, experiment with different marketing plans and different plans. And so we had some of our promotional activity, which normally ends at the end of the year continue on through into February of Q1 2020, which we think obviously benefited Q1 of last year. We don't have a similar promotion running in Q1 of this year. So the comp between a promotion last year and no promotion this year will definitely impact growth in Q1.

And I would say, secondarily, we obviously had a very, very strong Q4. We think there's potentially -- we pulled forward some of what we would normally get in Q1 into Q4, given the upside there. So again, we feel really good about kind of where we're headed in 2021, but Q1 does have some pretty challenging comps relative to the promotional activity we had last year and the lack thereof in Q1 of this year.

Okay. We're out of time for the question-and-answer session. I will turn it back over to Daniel for some closing remarks.

Great. Well, thanks, Bryan. I'm very encouraged by the progress we made on our path to becoming the world's #1 audio platform. And I want to thank all the Spotify employees who stayed focused on our creators, fans and partners around the world this year and for executing at such a high level.

While it's still early days, it's clear to us that our strategy is working. Looking ahead, we will continue to enhance the user experience, expand into new markets and develop and acquire unique content for both new and established creators. We're planning to share more details about these innovations as well as what's next for Spotify during our Stream On event later this month. I hope you'll join us for this virtual event as it will shed more light on what the coming months and years will bring. I'll be talking more about it and our earnings report on our podcast, Spotify for the Record, which will go live on our platform tomorrow. Thanks again for joining us.

Okay. 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.

Thank you, everyone. This will conclude today's conference call. You may now disconnect.