Hello, welcome to the Deezer Q1 2023 Revenue Conference. My name is George, I'll be your coordinator for today's event. Please note this conference is being recorded, for the duration of call, you'll be in a 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, you will be connected to an operator. I'll hand the call over to your host today, Mr. Jeronimo Folgueira, CEO. Please go ahead, sir.
Good morning, everyone, thank you for joining Deezer's Q1 2023 revenue conference call. I am Jeronimo, CEO of Deezer, and I'm joined today by Stéphane, Deputy CEO and CFO. I will start with the key highlights of the Q1 , then Stéphane will go into more details about our Q1 revenue performance. After that, we will discuss our 2023 priorities and outlook that we have confirmed and conclude with our Q&A session. Let me start with some key figures on slide 3. We're very happy with our performance in the Q1 of 2023, which was completely in line with our expectations. We generated revenue growth slightly above 7% in our B2C segment, driven by the continued expansion of our subscriber base in France, which is up by almost 10% year-over-year.
France, our home market, is the core of our B2C segment, and we continue to enjoy very positive momentum and great unit economics in that market, thanks to our very strong brand. The growth in France allowed us to offset the decline in the rest of the world subscriber base, while substantially improving marketing unit economics and profitability. The growth in subscribers in France will continue to be the main driver of revenue growth in this segment for the rest of this year, given the expected gradual end of the price increase effect. In addition, we continue our profitable B2B expansion with revenue growth close to 10% year-over-year in this segment. We expect our B2B revenue growth to accelerate further in the second half of this year with a ramp-up of several partnerships, including Sonos, that went live last week.
All in all, our total revenues reached EUR 115 million in the Q1 of 2023, which represents a growth of 6.5% compared to the Q1 of 2022, in line with our expectations. Finally, on the back of the good progress that we saw in the Q1 , we feel confident that we will be able to continue to grow and substantially improve our Adjusted EBITDA in 2023 as per our guidance. Moving on to slide four. Let us spend a few minutes to discuss key business highlights for the Q1 . Regarding our product, we're implementing our new product vision that will drive more differentiation and monetization opportunities in the future. We already launched many new product features in 2022, and in Q1, we have been developing additional features and product improvements that we expect to launch in the coming months.
We also deliver in Q1 a very strong B2C marketing performance with LTV/SAC reaching an all-time high. We also deliver in Q1 a very strong, on the B2B side, we made great progress on expanding our business in large and attractive markets, as reflected by a new long-term partnership with Sonos that was announced in February and that went live last week. The full commercial launch of Zen by Deezer, our new well-being app, is scheduled for June first, 2023. Zen will contribute to accelerate our path to profitability through attractive unit economics and higher margins. This concludes my introduction. I'll pass it on to Stéphane for the financial section.
Yes, thank you, Jeronimo, and good morning, everyone. Moving now to slide 6. As you can see here, we reported revenues of EUR 115.2 million in the Q1 of 2023. That represent an increase of 6.5% compared to the Q1 of 2022, which was, as mentioned by Jeronimo, in line with our expectations. When you look at the revenue performance by segment on the left side, we reported revenue growth of 7.2% in B2C, and that was mainly driven by the continued expansion of our subscriber base in France, which more than offset a decline in the rest of the world in line with our strategy and what we've seen in previous quarters.
In B2B, we continued expanding the business at a dynamic pace with revenue growth close to 10% in the Q1 . This was mainly the result of the good performance of both existing and new deals in France and also in Brazil, as well as the progressive ramp-up of the RTL partnership that we launched in Q3 2022. Other revenues, mainly made up of advertising and ancillary revenues, were down 32% in the Q1 . This change reflects the unfavorable comparison to Q1 2022, which included a one-off revenue from a hardware company partnership. It also reflects lower advertising revenues in the Q1 of 2023 as we decided to shut down our loss-making premium service in long-tail countries.
On the right side, looking briefly at our revenue performance by geography, we recorded a healthy revenue growth of 8.6% in France, driven by the increase in our B2C subscriber base, which increased by 9.8% to reach slightly over 3.5 million subscribers at the end of March 2023. In the rest of the world, our revenues grew 3.3% year-on-year as a double-digit growth in ARPU allowed to more than offset the decline of the subscriber base, resulting from our strategy to focus on selected key markets with more attractive unit economics. Let's move now to slide 7. On the left side, you can see the evolution of our subscriber base. Our B2C subscriber base grew 2.3% year-on-year to reach 5.6 million subscribers at the end of March 2023.
More importantly, compared to the end of December 2022, we are quite satisfied that we have been able to stabilize our B2C subscriber base as we continue to enjoy a healthy growth in France while we saw a lower decline in the rest of the world. In 2022, we've gone through the optimization of our subscriber acquisition in the rest of the world, but now we have a stable level of inflow. As a result, we start to see a lower decline of our B2C subscriber base outside of France, and this gives us a more healthy B2C subscriber base to grow upon. In addition, the geo mix improvement has a positive effect on ARPU and unit economics. Looking now at B2B, we had a total of 3.6 million subscribers at the end of March 2023, representing a decline of 8.2% year-on-year.
This reflected a decrease in the rest of the world due to the decline of a legacy hard bundle offer in Brazil, which is not included anymore for new customers of our partner. This decline had a very limited impact on revenues given the low ARPU of this offer. We are quite happy with the continued decrease in ARPU, both in B2C and in B2B. We still benefited from the lagging effect of the price increases, although to a lesser extent compared to previous quarters, given that the main price increase was done in France at the end of January 2022. We continue to see an increase in ARPU coming from improvements in our mix, both in terms of geographies as well as partners and offers, as I mentioned earlier. I will now pass it on to Jeronimo for the outlook section.
Thank you, Stéphane. Moving on to slide 9. As a conclusion, we're pleased with our Q1 performance with the continued expansion of our B2C subscriber base in France, the dynamism of our B2B business, where further growth acceleration is expected as well as maintain ARPU improvements. In 2023, we will continue to execute this as profitable growth strategy based on the following pillars. 1. New feature development in the product to fuel differentiation and further monetization. 2. The acceleration of profitable B2B expansion on the back of recently announced partnerships such as Sonos in the U.S., RTL in Germany, and DAZN in Italy. 3. Ramp up of new verticals to reach break-even as of H2 and drive profitability improvements. 4. Ensure strict management of the cost base to keep a staff and G&A expenses flat year-over-year.
We therefore confirm we expect double-digit revenue growth in excess of 10% in 2023 compared to 2022. As mentioned during our full year 2022 results conference call on first of March, while we expect slower growth in Q1 and Q2 as the benefit of from the price increase made last year is phasing out, we expect growth to accelerate again as of Q3, supported by the ramp-up of recently announced B2B deals as well as with such generated revenues from them. When it comes to profitability, looking at the progress we made in the Q1 across our business, we're confident that we will significantly improve our profitability in 2023 compared to 2022, starting already in H1. Moving on to slide 10. We're also pleased to confirm our long-term outlook.
This year is on a path to generate a positive cash flow in 2024 and achieve a positive Adjusted EBITDA in 2025, while delivering double-digit annual revenue growth over the period. This concludes today's presentation. Stéphane and I will be pleased to respond to your questions.
Thank you very much, sir. Ladies and gentlemen, once again, if you have any questions, please press star one on your telephone keypad to register your question. First question today is coming from Silvia Cuneo, calling from Deutsche Bank. Please go ahead. Your line is open.
Thank you. Good morning, everyone. I would like to ask three questions. My first question is on the B2C performance that continued to be strong in France, thanks to subscribers' growth, while the effect of the price increase is gradually ending since that was implemented in January last year. Can you please share your views regarding the further potential for price increases in France or future drivers of growth for your home market more broadly? Second question, you confirmed guidance for 2023 revenue growth in excess of 10%, mainly driven by further expansion of the B2B segment. Can you please provide some color on the drivers of the acceleration? Would that be more subscribers, thanks to the addition via Sonos, RTL or DAZN or higher ARPU, thanks to mix effect while subscribers continue to decrease in the non-core markets?
Just finally, on Deezer's well being app that is scheduled to launch on the first of June, can you please remind us of the monetization model plans? Wanted to ask a bigger picture question. Regarding the potential benefits or risks of artificial intelligence for this category, do you have any early thoughts to share? Thanks.
Thank you so much, Silvia. This is Jeronimo. I will start with your first question regarding pricing. Overall, we feel that there is further pricing potential in this industry as music continues to be highly undervalued. When we implemented price increases last year, we basically did not have an impact on churn. We are not expecting additional price increases in the short term. In the short term, we do not see a further pricing movement that will drive the B2C segment. The growth of that segment will continue to be subscriber growth in France. In the medium to long term, we still believe that there is a lot of potential when it comes to pricing.
In more of the short and mid-term, where the growth is going to be driven by subscriber growth, what we see is that, as you have seen in our numbers, we have very healthy growth in France, where we have a very strong presence and share. The French market is still in a relatively early stage of penetration. When you look at the penetration of paid subscriptions in France compared to other Western markets, it's one of the lowest. The potential of the French market to continue to add new subscribers every year is still extremely high. That's why we feel very confident that there's plenty of growth potential for us on the B2C segment in France and our home market.
As Stéphane mentioned during the results, we also see that the decline we see in the rest of the world is starting to slow down. As basically the rest of the world finds a new steady state and stops dragging us, that should also help us accelerate the performance of B2C.
Yeah. Silvia, when it comes to B2B and the drivers for the acceleration of growth, we started signing up larger partnerships in the course of 2022, and it started with the launch of RTL in the Q3 . We've added Sonos. DAZN is a smaller partnership, of course. It always takes a little bit of time for these partnerships to ramp up and more importantly, to make an impact and make a difference to the overall number of subscribers or to the overall amount of revenue in terms of growth. That's why we don't see that acceleration coming right after the launch of any given partnership.
We'll start to see the impact of Sonos in the course of Q2, but it will be, of course, moderate at the beginning. In Q3, we'll start adding up a number of impact of those new partnerships and same in Q4. That comes, of course, on top of other negotiations that we have and that are going on. That's why this impact is gradual. The drivers are both subscriber. We are adding new subscribers related to these partnerships. Again, in the overall number of subscribers that we have for B2B, at the beginning, they make a very limited impact, and then they can be offset by some other legacy partnerships which are going down or have a cleanup of their offers or those type of situations.
For sure, there will be and there is subscriber impact that we know and that we see. You're right, there is also an ARPU impact because we are signing up most of these partnerships in higher ARPU markets, and therefore we add subscribers that generate a higher ARPU compared to the average ARPU. That's also a positive mix effect. It's really the sum of the two. Yes. On Zen. A couple of responses on the monetization model. First on the economic model, I think we already shared that a few times. We have incurred most of the content costs and production costs as well as the development needed for that platform. They were expensed in the P&L largely in 2022.
Which means now that when we will sell and generate revenues, they will flow to a very large extent to the Gross Profit and to the bottom line. Number two, as we have indicated, we want and we think on this type of application, we can minimize the marketing cost, and we can therefore monetize to some extent through cross-selling and largely through B2B. We know there are many industries and type of partners that are interested in wellbeing. You can think of the insurance industry as an example. That's true also for other industries that go beyond the typical partners that we've had in the last few years. This is what we are discussing as we speak. Of course, as soon as we will get a first deal, we will announce it.
That's really the monetization model, which goes first through partners, and then to some extent there could be also cross-selling. Of course, the app is available on the, on the various app stores, but we are not making any large marketing on the, on the B2C front.
Lastly, on your question about AI, and risk and benefits, I think for platforms like these, there are probably more benefits and opportunities than risks. However, we obviously need to deal with the issue of AI, as a source of a massive amount of new music creation or new content creation.
We want to give a high quality experience to our customers and relevant content. Obviously getting AI to flood our catalog is not something that we're super keen on, and we're working on that. For us, we do not currently as a distributor, we currently do not see AI posing any threat to Deezer or our business model.
Thanks. Really not very clear.
Thank you very much, ma'am. Our next question today is gonna be coming from Nicolas Cote-Colisson calling from HSBC. Please go ahead.
Well, hi, everyone. first question is, if you could elaborate a bit on the risk of taxes of streaming platforms in France to finance the domestic musical industry. Let's say this goes ahead with a 1%-2% tax on revenue. I'm just wondering how it would change the amount of cash you would be redistributing to labels and artists or how it would be impacting your margin. I would have a follow-up question after that. Thank you.
Nicolas, I can take this question. We've been quite vocal about the fact that we are already funding to a large extent the music industry and more generally taxes through VAT, which is at a 20% level. Now, we have been vocal as well on the fact that we don't believe that there should be any additional tax on streaming platforms. If there were a tax on streaming platforms, we would put that directly to the end user price. We don't think this is. Of course, that would not flow back to the labels.
It would just be a tax that we have, we would have to pay to the authorities. We don't think that's the interest of the music ecosystem to go for that tax, and there are a number of alternatives. No, no particular impact, and we're talking about something that's relatively limited in terms of amount, and I'm referring here to your comment around cash and cash flow. That wouldn't be, that wouldn't be a concern. We just believe that's not the right way to fund the overall music industry in France.
You're saying that if any tax was to be added, it would be reflected into prices, you don't think the likelihood of such a tax is very high. Is that correct?
That's correct. In any case, we would reflect that in the end user price, as you mentioned. Of course, that would not be the basis for sharing with the, with the, with the right holders. It would be something a little bit like VAT that goes directly to the, to the authorities.
Okay. Yeah. Thank you. My follow-up question is, obviously you're just reporting revenue now, but in terms of staff and G&A expenses, are you still confident to deliver a flat number for 2023? I know the guidance was set only two months ago, but just checking if you had any positive or negative incremental surprises on that side of things.
No, those line of expenses are very much under control, we are looking at that very carefully. Cost management, as we indicated in our guidance for 23, is essential. We've seen a very good performance in the Q1 . We haven't given any specific guidance on staff and G&A. We gave a guidance on the significant improvement that we would do on the Adjusted EBITDA, we stick to that, everything that we have seen in the Q1 makes us comfortable about that.
Okay. That's great. Thank you.
Thank you very much, sir. We'll now go to Christophe Cherblanc calling from Societe Generale. Please go ahead, sir.
Yes. Good morning. Thanks for taking my question. First on B2C, I was looking at the ARPU, which is slightly down quarter-on-quarter from EUR 4.9 to EUR 4.8, which is a bit counterintuitive given the remarks Stéphane was making on the mix. That's my first question mark. Still on B2C, Jeronimo, you were stressing the under-penetration of France, is it realistic to expect the same order of magnitude of subscriber addition in 2023, i.e., EUR 0.3 million for the full year? The next question was on B2B. Just to be very clear, was there any revenue related to the RTL+ agreement in Q1? I'm not too clear on the subject.
Also, I do remember that the Orange contract was meant to be renewed at the end of last year. Was it renewed on the same terms? Is there any change? Very last question was on the share sale agreement you announced. Is it just a way to avoid potential problem, or is it because to your knowledge we should expect some share sale by some of the key shareholder over the next 12 months? Thank you.
Thank you for your question. Starting with the, with your first question about B2C ARPU, and the sequential evolution, we think it's partly seasonal, but also, kind of normal in terms of the mix we have in particular in France, when it comes to different offer mixes. In terms of promotion, subscribers or the share of family accounts, and all of those things, can affect slightly the ARPU, quarter-over-quarter, year-over-year, but nothing basically that makes us think that there's a reversing trend, in any shape or form.
I will add also you can have some effects impact, and the effects was a bit more unfavorable for the B2C outside of France compared to Q4. All these play a little bit, and then you can end up slightly over or slightly below, and it makes you turn from 4.9 to 4.8. It's mostly rounding. On B2B, to your question, yes, we had revenues from RTL+. We had additional subscribers and increase or meaningfully increase in revenues from RTL in the Q1 compared to the Q4 . Yes, we see that in our, in our books, we see that in our number of subscribers. Of course, we don't and we cannot disclose those numbers. Yes, we totally see that.
On the average contract renewal, it's almost done. It took a little bit more time, but we are still operating with Orange. We've just extended the previous contract by a few months, and it's pretty much done. We are at the appendix level, and there is no major change in terms. We'll elaborate on that maybe once it's concluded. That one is, yes, well, I think it's a question of days or weeks. On the coordinated sales agreement. Of course, there was an important date in terms of the end of the lockup on the fifth of April.
we didn't want that, on the market, there is any perception that there is an overhang or there could be a large amount of paper flowing into the market. All our shareholders are very sensitive to that, especially as we have limited volumes, as we all know. This is why they made those decisions that if any of them, wanted or was willing to sell, that would be done in an organized manner, hence the signature of that coordinated sales agreement. It was not because we had any sense that some of those shareholders were willing to sell. It was more to make sure that we can anticipate if that happens, that it is done in an organized manner, given the low level of liquidity and volume that we have.
Okay. Just to come back on my first question on the volume addition in France for 2023, adding 0.3 million subs, you think that's a realistic target in line with 2022 or is it too early to say?
I don't think we give targets for our subscriber count. What we see is that the trends are pretty strong and have been quite consistent over the last quarters, and we have no reason to think that anything will change in the next in the next quarters.
Okay. Thank you.
Thank you very much, Mr. Cherblanc. Ladies and gentlemen, once again, if you have any questions or follow-up questions, do press star one at this time. Thank you. We'll now go to Mourad Lahmidi, colleague from BNP Paribas. Please go ahead, sir.
Yes, thank you very much. Most of my questions have been answered. I would add a follow-up one. Is there any business model that you can develop around AI generated music where you could basically take a higher share of revenues relative to your current business model? Thank you.
On that one in particular, we're currently not in the business of creating content, and we get the content distributed from the labels. That is more of a wider discussion that we will have with the labels. Our intention at the moment is not to get ourselves involved in the creation of music or content through AI. Having said that, we do see the benefits of AI in terms of generating some kind of content, especially at very low cost. We have actually used AI to generate content for Zen.
Zen, our new wellbeing app, some of the content has been generated by AI at a very, very low cost, and in a model where basically we own the content and don't have to pay for that anymore, we have to pay very, very little. We have actually used the benefits of AI to create a super profitable model when it comes to Zen by Deezer. We have not explored taking that in any shape or form into our music core business as yet, currently it's not our intention.
Okay, thank you very much.
Thank you, Mr. Lahmidi. Ladies and gentlemen, as we have no further questions at this time, I'd like to turn the call back over to speakers for the additional or closing remarks. Thank you.
Thank you everyone for attending this conference call. Stéphane and myself are at your disposal in case you may have any further questions. In the meantime, wish you a very good day.
Thank you, sir. Ladies and gentlemen, that will conclude today's conference. Thank you for your attendance. You may disconnect. Have a good day.