Hello and welcome to the Deezer H1 2024 results call. My name is Laura, and I will be your coordinator for today's event. Please note this call is being recorded, and for the duration of the call, your lines will be on listen-only mode. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you will be connected to an operator. I will now hand you over to your host, Stu Bergen, to begin today's conference. Thank you.
Good morning. I'm Stu, Interim CEO of Deezer, and I'm joined today by Stéphane, Deputy CEO and CFO, and Carl, who will take over as CFO on the 1st of August. As you know, Stéphane has decided to leave the company to pursue other projects. On behalf of the board of directors, I would like to thank him again for his remarkable accomplishments at Deezer. Also, we just announced that a new CEO, Alexis Lanternier, will take over from me on September 2nd. This is great news for Deezer, and I know that Alexis will lead the company brilliantly. He brings a wealth of global experience in e-commerce and digital businesses, which will be hugely valuable for setting the growth strategy of Deezer in the coming years. I also wanted to express my gratitude for these past months as Interim CEO.
I've really enjoyed this role, and I'm very excited to continue as a board member of this company and be a part of the new chapter of Deezer's future. So I'll start with the key highlights of the first six months of the year, and Stéphane will then go into more detail on our performance. After that, we will discuss our 2024 outlook, and at the end of our presentation, the three of us will answer your questions. We achieved a record performance in H1, both in terms of top-line growth and profitability, reflecting the successful execution of our strategy. We are in line with our top-line expectations for the semester, with strong revenue growth of 14.9% to EUR 267.9 million. This has been driven by the combined effect of steady ARPU increase and the growth of our subscriber base.
We reached 10.5 million subscribers at the end of June 2024, adding 1.3 million subscribers compared to the end of June 2023. This strong revenue growth, combined with gross margin increase due notably to the optimization of our operations against the terms of our agreements with the labels, allowed us to very significantly reduce our adjusted EBITDA loss. In the first half, our adjusted EBITDA was a EUR 5 million loss compared to a EUR 13 million loss for H1 2023. Finally, we delivered a positive free cash flow in the first half. As a result, our cash position remains a very robust EUR 65.1 million. We'll move to slide 5. In light of our accelerated improvement in adjusted EBITDA in the first half, we have decided to raise our adjusted EBITDA target for the year.
We now expect to achieve an adjusted EBITDA better than the EUR 10 million loss in 2024. This compares to the previous target of better than a EUR 15 million loss. Given our strong performance in the first half, we confirm our revenue growth and positive free cash flow target for 2024. This strong set of results confirms that we are on a clear path to achieve profitability in 2024. Seven. Let's spend a few minutes discussing key business highlights for the first semester. During the first six months of the year, we continue to lead the industry in many strategically important initiatives. In connection with our ambition to enhance value for artists, songwriters, and rights holders, we rolled out our Artist Centric model to Merlin, representing another step towards fair remuneration for independent music.
We also renewed our support to eight festivals in France, strengthening our commitment to the live music experience. We continue to roll out our partnership strategy with the launch of Meli+ in Chile in February, following Brazil and Mexico in 2023. We also renewed key partnerships with TIM and Fnac Darty at the beginning of 2024. We also began the licensing of our well-being application, Zen by Deezer, to multiple partners. And lastly, we accelerated our experience services platform approach with the launch of two new exclusive features to boost attractiveness and enhance fans' experiences with Playlist with AI and the Purple Club. On the corporate side, the annual shareholder meeting approved the renewals of all the terms of office of the directors which were submitted, and notably, Iris Knobloch, who was renewed as chairwoman.
As you saw from last week's announcement, Alexis Lanternier has been appointed CEO of Deezer effective September 2nd. Lastly, Carl has been appointed CFO effective on the 1st of August. The liquidity of the stock is a key area of focus for the company and its board of directors. During the semester, we worked on the transfer of Deezer shares to the General Segment of Euronext in Paris. This was effective on July 8th and now allows transactions from all types of investors. This is a first and important step towards improving our liquidity. This concludes my introduction, and now I'll pass it on to Stéphane for the financial section.
Yes, thank you, Stu, and good morning, everyone. So moving on to slide 10, let me first put our H1 performance into a more global context. Our revenue growth reached 14.9%, and we benefited from strong tailwinds of all the achievements that we've done in 2023. As you can see in the first half, our revenues reached a new all-time high of EUR 268 million for the semester. Moving now to slide 11, our subscriber base reached 10.5 million at the end of the semester. Compared to a year ago, we added 1.3 million subscribers, which is a 13.7% growth year-over-year. Partnership subscribers reached 5 million, 37% increase year-over-year, and this is a new record as we expanded our global footprint.
Our direct Rest of the World subscriber base declined by 9.8% year-on-year, in line with our strategy, while direct subscriber base in France continued to progress at +3.2%. At the same time, we also improved our ARPU in both of our segments, with direct ARPU growing by 7% since Q2 2023, and partnership ARPU growing by 4.7% year-on-year, mainly driven by the price increases that we have applied throughout our subscriber base. Moving now to slide 12, looking at the performance by segment on the left-hand side of this slide, you can see that our partnership segment grew at +39%, now representing close to one-third of our total revenues.
This reflects the continued ramp-up of our recent partnerships, in particular RTL+ and also Mercado Libre, which drove the acquisition of new subscribers at +1.4 million new subs year-on-year for this segment. This underlines the success of our partnership growth strategy, as we were able to sign and to grow deals in new geographies and also in new verticals. Our ARPU for partnership also increased by 3.5%, driven by the price increases and also by an improved geo mix. We also reported revenue growth of +4.6% in the direct segment, driven by the continued expansion of our subscriber base in France, which grew +3.2%, and by a further increase in ARPU, mainly as a result of the price increases that are now applied to more than 80% of our subscriber base.
Other revenues, which mainly consist of advertising and ancillary revenues, increased by +38.8% compared to the first half of 2023, with the contribution of the launch of a new content licensing deal for Zen. Looking at our revenue performance by geography on the right-hand side of the page, we recorded solid revenue growth of +8.5% in France, driven by subscriber growth on direct and also increase in ARPU. In the Rest of the World, revenues were up +24.8%, thanks to the strong performance of our partnership business, slightly offset by the decline of the direct subscriber base outside of France. Let's look now at slide 13. Our adjusted gross profit amounted to EUR 64.5 million in the first half of 2024.
This represents a very significant increase of plus close to plus 25% compared to H1 2023, and led to a higher adjusted gross margin at 24.1% in 2024, which is up 190 basis points compared to H1 2023. This reflects the higher level of activity and the increased revenue that we saw in the first half, but also the very positive impact of the optimization of our operations against the terms of our agreement with the labels that we have achieved in 2023 and 2024. Also, the launch of our content licensing deals for Zen contributed to the improvement in adjusted gross profit during the first half. Looking at the details by segment, we were able to increase our adjusted gross profit and margin in each of our verticals.
Our direct adjusted gross profit was up 13% year-over-year, reflecting higher revenues and also the improved terms with labels and a more favorable offer mix compared to last year. This led to an increase in our direct adjusted gross margin at 25.7% in the first half of 2024, which is up 190 basis points compared to H1 2023. Looking now at partnership, the adjusted gross profit was up +47% year-over-year, driven by the very significant increase in revenues and also a more favorable offer mix. This resulted in an increase of 120 basis points year-over-year on the adjusted gross margin for partnerships, which reached 22.1% in the first half of 2024. Finally, the other segment delivered a gross profit of EUR 1 million compared to zero in the first half of 2023. Let's look now at slide 14.
In order to achieve our profitability target, it is very important that we continue to increase our gross profit while strictly controlling our operating expenses and continuing to efficiently invest in customer acquisition and our brand in order to fuel supply and growth moving forward. On the left side of the page, you can see that we have increased our marketing investment by EUR 5 million compared to the first half of 2023 in order to attract new customers and strengthen our brand. These investments are focused on selected key markets for direct subscription, mainly in France, where we see the best return, and we continue to grow our subscriber base in a profitable way.
On the right side of this page, you can see that we managed to keep our staff and our G&A expenses under very strict control, flat in absolute value, and down 140 basis points year-on-year as a percentage of revenues. Without the impact of the streaming tax in France, which we booked in our P&L in the first half, the performance would have been even better, and that illustrates our ability to generate operating leverage as we grow our business and therefore improve our profit. Moving on to slide 15. As mentioned by Stu, we significantly accelerated the pace of improvement of our adjusted EBITDA loss, which was just shy of EUR 5 million in the first half of 2024. As you know, this is a very significant reduction compared to the first half of 2023.
We had incurred losses of -EUR 13 million last year, and that is an improvement of EUR 8 million. As you can see on the bridge, the year-on-year change in adjusted EBITDA loss has been driven by, number one, the positive impact of the increase in our gross profit by EUR 13 million. This is the higher level of activity, but also the higher adjusted gross margin in percentage. This was partially offset by our decision to invest in a significant way in marketing, which had a -EUR 5 million impact year-on-year. And finally, as mentioned earlier, we kept staff and G&A under strict control, and they remained flat in absolute terms and decreased as a percentage of revenues. As a result, our adjusted EBITDA margin improved from -5.6% of revenues in the first half of 2023 to -1.9% in the first half of 2024.
Of course, that gives us great confidence in our ability to reach a positive adjusted EBITDA next year. Finally, on slide 16, we ended the semester with a very strong cash position at EUR 65 million at the end of June 2024, which is stable or slightly up compared to the end of December 2023. As you can see on the bridge, the main component of the change in our cash position compared to last year is that we achieved positive free cash flow generation in the first semester. This is a very important achievement for the company. This is part of our guidance for the whole year, and we are very happy to achieve it in the first semester. This is driven by the improvement in our profitability and the positive working capital that is coming from our revenue growth.
It also reflects our structurally low CapEx model, as well as a low level of levers and net interest. We had a few exceptional one-offs, which are not related to our normal cost of business. They amounted to EUR 7 million, and they included mostly tax regularization in certain markets. Last, the deconsolidation of Driift impacted our cash by EUR 2 million, and we continued to repay the government-backed loans that we raised during COVID. Our cash position of EUR 65 million at the end of the semester is strong and gives us a lot of flexibility for the coming quarter. Let me now turn the call over to Stu in order to discuss the 2024 financial outlook.
Thank you, Stéphane. Moving on to slide 18. In conclusion, the performance in the first semester of the year confirms that, as highlighted in previous slides, Deezer is in a very strong position to achieve its 2024 financial targets. We've delivered strong growth in H1, giving the group confidence in the ability to achieve its 10% revenue growth target for 2024, taking into account the strong comparative base of H2 2023. As highlighted before, the significant reduction of adjusted EBITDA loss for this semester allows us to increase our adjusted EBITDA target for the year, now expected to be better than a EUR 10 million loss in 2024, versus a previous expectation of better than a EUR 15 million loss.
This will represent a very significant reduction from the EUR 29 million loss in 2023 or the EUR 56 million loss in 2022, and we'll continue to pave the way to positive adjusted EBITDA in 2025. Finally, given the strong profitability improvements already achieved and positive free cash flow generation in H1 2024, we confirm our ambition to achieve positive free cash flow in 2024. Thank you. Stéphane, Carl, and I will now open the discussion for questions.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We will now take our first question from Silvia Cuneo of Deutsche Bank. Your line is open. Please go ahead.
Thank you. Good morning, everyone. I would like to ask three questions. The first is on subscriber strength. Can you discuss any more details about the drivers of subscriber growth? For example, in France, did you grow by taking market share from competitors, or is there still much growth potential from increased market penetration that you see? And then also in partnership more broadly, if you could talk about the rollout potential from existing deals during the rest of the year for subscribers. Then second question on Zen. Good to see the start of licensing of your well-being content and the growth in the other segment. I wanted to ask if you could talk about your ambitions for this product and share any early thoughts as to whether the Zen users are also music subscribers or vice versa.
Finally, on the adjusted gross margin that improved meaningfully in H1, partly thanks to these improved labels conditions that you mentioned, just wanted to ask your expectations for this margin given the contract with the labels are typically mid-term and to what extent the improvement was associated to the move to Artist Centric? Thank you.
Okay. So on the first question relating to the subscriber growth that we're seeing, so commenting on the various segments, on partnership, our subscriber base continued to increase sequentially. We continue to add a meaningful number of subscribers, notably through Meli and RTL, and this was partly offset by the negative impact of legacy hard bundled deals that were transitioning to new offers. Over time, we expect that this will lead to higher ARPU on the direct business in France. So our subscriber base in France grew slightly sequentially, and it grew by 3.2% year-over-year. Sequentially, that growth reflects the benefits of the brand investment we've made and the good churn performance. However, this was somewhat offset by the mix during the quarter.
Year over year, that slight growth is due to the same mix effect and the comparison effect with last year on our discount base, where we had pushed more promos in March 2023, which we did not fully replicate this year in March 2024, in line with our focus on profitability. On Zen, so I think you had two questions, which was first, the ambition that we have and whether those subscribers are music subscribers. So the revenue we booked for Zen is content licensing as opposed to direct subscription to our Zen app. So that they are not direct subscribers. We are selling that content to partners. When it comes to our ambition, of course, we want to do more of those deals going forward.
We now have a product that is full and a very good product with a lot of content, and we intend to continue to sell it to partners in the future. Your first question, I think, was on the gross margin and the impact of improved label conditions and ACPS. So this is not related to ACPS. It's really related to the fact that we've been able to renew those contracts on better terms than we had in the past. We don't provide any guidance for the future. You will see that we'll develop in H2 and also next year. Having said that, what we can say is that the performance for our gross margin is due to the improved label conditions, but also to the fact that we've been able to optimize our paywalls and the transaction fees that we pay as well.
Thank you.
Thank you. We'll now take our next question from Christophe Cherblanc of Bernstein. Your line is open. Please go ahead.
Thank you. Good morning. So a few from my side. First one, coming back to what Silvia was asking about the state of the market, I'm sure you know that Universal Music has made comments about Spotify, YouTube being fine, but Apple and Amazon by implicitly being weaker. So do you believe we are reaching a stage in the streaming market where pure specialists like Spotify or Deezer are going to take share? And does that imply that you're going to have to continue stepping up marketing as you seem to have done in H1? That's the first question. The second question is on the segmentation of demand. There again, Spotify has mentioned they were looking at a premium tier, which would cost more per month. Is that something you're looking at? And just for us, from the outside, it's very difficult.
Is it something that would be more costly or difficult to implement from a technical or cost standpoint? And the third question also on the market, on pricing. In the past, Deezer has been a leader, so they were raising prices before the bigger platform. What's the room for further price increases, and what's your best estimate of when that might happen? And then maybe I'll jump back into the queue for other numbers question. Thank you.
Yeah, sure. So on the market, obviously, we do not comment on other companies' earnings release. Now, looking at our own numbers, we've been able to add 1.3 million subscribers since the end of June 2023, which we consider to be a solid achievement. Actually, there will always be variability quarter to quarter, and I think we should look at the business over the long term, looking at the low penetration, notably in France, which is close to 25%, and Brazil, which is still very low. We believe that the long-term opportunity remains very attractive. Now, to your questions on whether pure specialists can take share from other players, that's something that we obviously will continue to monitor. We are on our path, and indeed, as you've mentioned, we've increased our marketing expense in the first half.
We aim to continue on that track in the second half, and therefore, we expect our subscriber growth to continue to increase. I'll take the first question first on the pricing and the room for further increase. We've made the decision in the past to increase our prices because we think there's a lot of value in the product that we offer, and we still think that there is a lot of value that is offered to the consumer and the various tiers that we are promoting. We might, in the future, decide to increase prices again. Right now, that's not what we're considering. So we'll get back to you for more details on that topic. There's no timeline on that specific point. All you should think about is that we still believe there's a lot of value in that product to be further materialized.
Your third question on the tier offering. So yes, indeed, we saw that Spotify alluded to the super premium tier. We are working on our own on a number of initiatives to extend our tiers and potentially have new offers. Right now, we are not considering launching that tier, but we'll come back to you with any details in due time.
Okay. Thank you. I'll jump back into the queue.
Thank you. Once again, as a reminder, if you would like to ask a question via audio, please press star one on your telephone keypad. Thank you. We have no further questions in the queue currently for audio. Handing it back for webcast question.
Okay. So reading the question that we have on the web, so the first question is, after a first strong semester, why the revenue growth is expected to decrease in H2? So I think that one I will take it. As we explained in our financial communication this quarter, our performance in H1 is in line with our expectation, and notably due to higher comparison bases in H2. This does not change our perspective for overall growth in 2024. We saw a sharp acceleration of revenue growth in Q3 and especially Q4 2023 on the back of the Meli deal and price increases. We are benefiting from this acceleration in H1 2024, and we know the comparison base is going to be higher in H2 2024, which is why that revenue growth is expected to decrease. The second question, what will Mr. Lanternier bring to the company?
What will be his key focus?
I'll take that. I think we're very excited for Alexis to join the company and lead the next chapter. He brings a wealth of experience in the consumer-focused digital businesses, and I think that our expectation is that he'll work with the team in continuing our path towards profitable growth. I think that we'll give him a moment to outline a more refined strategy in the coming months.
The next question: Are you satisfied with the number of new customers in France? What could you do to improve recruitment? So, I think we partially answered that one initially. What we can add on that point is that for direct in France, we are starting to see a positive impact from the new brand vision on the top of our funnel. And as these leads start to convert and given our churn performance, we think this should help to accelerate growth in the coming quarters. Next question is: What could we expect in terms of free cash flow in H2? So, on free cash flow relating to H2, we may be able to deliver a positive free cash flow in the second semester. Now, I think the most important thing is that we confirm our target for the year, which is to be free cash flow positive.
Next question, which is, how could you reduce the discount in valuation compared to Spotify? On that one, I think there are a number of distinctions to be made. The first one is obviously that's dependent on macro and the way investors are investing in tech companies in France. That's the first point. Clearly, our stock liquidity would help reduce the discount compared to Spotify. As you may have seen, we took the first step during the semester by transferring to the General Segment of Euronext. We think it's a very positive sign. We think it will help drive our liquidity further. Now, of course, we know that the most important thing is to continue to deliver a strong set of results and deliver on our targets. And we think those will be the catalysts that will help reduce the discount with Spotify.
Next question is, could you launch a share buyback in the coming quarters? So as you may have seen this morning, we just announced that we are launching a share buyback. We announced that we would acquire 300,000 shares on the market for that share buyback. In line with what was approved during our AGM, those shares will be acquired in order to grant them for the future employee vesting plans.
We don't have any questions from the web. I've got a follow-up question from Christophe Cherblanc of Bernstein. Your line is open. Please go ahead.
Yes, thank you. Two quick follow-ups. First one is on working cap, which was very strong. The inflow was very strong in H1. So is it fair to expect most of the working cap improvement has been done in H1 and it will be much lesser or even normalized in H2? That's the first one. And the second one, I was scanning the report and there was a mention in the report of EUR 4.6 million non-recurring provision. Is that related to the tax regularization that I think Stéphane was mentioning, or is it related to something else? Thank you.
I'll start with the first one on tax regularization. Indeed, those one-offs are mostly related to the tax regularization. On your first question on working cap, as you may have seen at the end of last year, we had a strong push on our receivable due to the fact that we had a lot of growth in the partnership business. That materialized into a higher working cap impact in H1. We don't give any guidance for H2, of course, but overall, what you should think is that as we get it, we will be free cash flow positive for the year, which should give you a hint as to how our working cap dynamic is going to work out in H2.
Okay. Merci.
There are no further questions from the audio as well. This concludes today's call. Thank you for joining today's call. You may now.