Good morning, everyone, and welcome to Sleep Cycle Capital Markets Day. My name is Erik Bykowski, and I will moderate the event today. We will go on a journey today through the landscape of sleep technology, and we will introduce you to the strategic developments that position Sleep Cycle at the forefront of this industry. I'm happy to introduce our speakers for the day. First of all, we have Erik Jivmark, who is the CEO of Sleep Cycle. He will go through the fundamentals of the new business strategy, and he will also touch upon the road ahead. Erik has a bit of a sore throat today, so please have patience with him if he sounds a bit strange, but it's nothing dangerous, I promise you. Joining him is Per Andersson, CFO of Sleep Cycle.
He will go through the financial aspects of the new business strategy and comment also on the updated financial targets. Last but not least, we have Mikael Kågebäck, who is the CTO of Sleep Cycle. Mikael has a PhD in AI and machine learning, and his work in advancing the AI-based audio technology that Sleep Cycle uses has positioned the company as a leader in this exciting space. We will end the presentation today with a Q&A session. If you're joining online, please write your questions, and I will be sure to address them, and you will also be able to ask questions here in the room. With that, I will leave the stage to Erik Jivmark.
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Hi, everyone. I promised it's an allergy, so don't worry about it. Welcome to our Capital Markets Day. I'm Erik Jivmark. I am the CEO of Sleep Cycle, and I'm very excited to share with you today what we have in front of us. All of us live our lives with a smartphone. They are the key to many things in life: your bank, your finances, keeping in contact with your loved ones, or even managing your work or your children's schedule. They are the one piece of technology that is in the center of our life. Currently, there are almost 4 billion smartphone users. That is our market. Those are our potential users. We have a patented AI technology platform that is being developed daily. We are constantly training the algorithm with the help of millions of nights of data.
It gives us a competitive edge, and it also makes it possible for us to react quickly to the changes that we see in the market and also from our competitors. Our technology is the constant companion, and we are very proud of the achievements so far. We have 3 billion nights of data collected. We have 1 million daily active users and a platform that is not only wide-reaching but also deeply impactful. Our technology spans across iOS, Android, Huawei, Samsung, and the smartwatches, which makes us a global leader in sleep analysis. We use this technology to help our users to fall asleep easily with our coaching programs and the sound library. We help our users to wake up well-rested thanks to our patented Smart Alarm.
We help our users to analyze and provide insights to their sleep habits, and we use all of this data to coach them to better sleep. Our Chief Technology Officer, Mikael Kågebäck, will tell you more about this and how we make all of this possible a bit later. Why do we do all of this? Well, our mission is to improve global health by getting people to sleep better. It's simple, yet very ambitious. Good sleep is the foundation of good health, and every feature we develop, we do to empower the user to sleep better and to live their life to the fullest. I think that is the key why we believe sleep is so important. It's about helping our users to live their life to their fullest. Let's look at the market. Sleep is part of the mHealth market. It's a large market.
Looking at different ways of sizing it, you could say it's roughly around SEK 700 billion. If we zoom in to the sleep technology market, it's close to SEK 17 billion. It's only 2.5% of the mHealth, and that, to me, indicates a strong potential for growth for this particular segment. We are well-positioned to capture this growth, with the U.S. being our largest market. It's our home market. We have 40% of our sales in the U.S. market, and our top 10 markets are spread out globally. We're a truly global company, and it shows the power in the problem we're solving for the users as well as a testimony to the strong product-market fit that we have. When we look at the emerging markets, markets that we've had the most growth in lately, we see it's the same story here.
We have emerging markets like Brazil and Mexico that have been the largest growing markets the last year, as well as more developed markets like Italy and Switzerland. We are relevant all over the globe. When it comes to health, mental health, fitness, or nutrition, sleep plays a critical role for the users that want to reach their goals. In fact, science claims that if you want to do three things to lose weight, you need to sleep better, you need to eat healthier, and you need to exercise. More and more scientists actually claim you only have to do two of those things. As long as you sleep well and you eat healthier, you will reach your goals. We want to help those users reach their goals, where sleep is a key ingredient, and I don't think that they are necessarily aware of that today.
With our brand, our users, and our product, we believe we can be very attractive partners to many of these companies. The market works in our favor. There is an increase in the focus and the importance of sleep in the society, both on health and wellness. There is also a growing awareness of the importance of sleep, and people are starting to take control over their own health. The adoption of subscription models that I think you all are aware of also works in our favor. All in all, the market is growing. We have a position in this market that many competitors really envy. We have 80% organic user growth. 80%. Imagine the possibilities when we start to fuel that organic growth loop, and that is part of the things that we will talk about today. Let's take a look at 2023.
It was a good year for us. It was a significant growth in net revenue and also our operating profit. We had an EBIT of 24% or 26% adjusted. I believe our financial strength is a true testament of our market relevance and also our operational efficiency. We're not just talking about path to profitability. We are profitable, and we will continue to be profitable while we're adding more growth. We also managed to successfully reverse a negative subscription trend. It demonstrates our resilience, our strategic adaptability. Our earnings streams are robust. It provides a solid foundation for our future growth. We are taking the necessary actions. I will speak a little bit more to them soon. We're gathering the team. We're focusing them. We're getting our house in order, you could say. I'm expecting to see the results of our strategy in the second half of the year.
As I said, we have gathered the team. We're setting ourselves up for accelerated growth. We are consolidating our efforts on what we're doing best. We're removing distraction. We're uniting the team in one place. We're doubling down on the core product. That was one of the reasons why, since I joined, we decided to close down the Kids app. We have almost 20,000 users every day downloading our app for the core product. Let us focus on them. We are also increasing our commercial focus. I will share a little bit more about that in a while. Going forward, we will have equal focus on the market and the segments in product-market fit. We will not lose sight of product. We are a product company, but we will have more focus on the commercial side.
Today, I'm excited to share the new business strategy, and also a bit later, Per Andersson, our CFO, will share our financial goals and deep dive into them. Let's talk about the new business strategy. I believe we're introducing a focused strategy that will lead us to scale and make a real difference in terms of our impact. It will be a very clear, very targeted approach, and I believe it will set us up for long-term success. We have three pillars. These are our strategic focus areas. It's user acquisition. It's user engagement. Those two buckets, they're all about us doubling down on the core product. This is where the majority of our focus will be. This is ours to win. We also have, as you can see, data and platform. I would like you to see those as future bets.
I'm very excited when I start to think about the possibilities that we have here. We also have some ideas that we believe in, but I think it's too early to start to calculate and say that this is part of our future revenue stream. We believe in it, and we will go after it. I said it before. With 80% organic growth, we are in a situation that many companies would dream about. That means that we have a very solid and consistent baseline that we can build upon. Now we need to supercharge this organic growth loop. We need to grow the visibility and the presence in earned media channels. Basically, we need to increase the upper funnel. We will achieve this through a number of different initiatives, all of them aiming at improving the upper funnel. It includes using PR to build brand for us.
We're not going to spend marketing dollars on building brand. We're going to leverage PR and the rich data we have to help us to reach a broader awareness. The same with the segments I spoke about before. Sleep is a key component for many other use cases, many other goals that people have in their life. We're going to leverage that. We're going to go after partners, and we're going to be an attractive partner to them and thereby broaden out our segments. We shouldn't forget that we have a very strong brand in this industry. We will leverage that when we speak to new partners, and we believe that this will help not only us but also our partners in reaching their goals for the service that they deliver.
If it's about weight loss, or if it's about being a better partner, or if it's about health or mental health, all of those, sleep is a key component. Another thing that we have seen clearly in the product is that a lot of users take screenshots today. It's not so surprising, to be honest, because people want to share with their loved ones or their, maybe even colleagues, how they slept, because it says something about where you are that day. We see thousands of people taking these screenshots every day. We need to make it easier for them to share. The users already want to do it. They're doing it. Let's help them. This will also help us to reach broader audiences. If we can make our users promote us, that is the best. That is word of mouth.
In general, we will also, of course, continue to focus on cost-efficient user acquisition. We will talk a little bit more about that later when we come to the financial targets. On top of this, then, leveraging the fact that we have this organic growth loop and build on the trends that we see for sleep and health. We will also continue to invest in technology and the product to increase user value. We are working with a habit-forming product. We're basically trying to help people to form new habits. There are a lot of tricks in the books for doing that. I think we can improve that further. If it's badges or if it's strikes or streaks or whatever it might be, we're going to look into that.
Because to us, retention, it's critical, and for a subscription-based model, it's key, but it's also a clear indicator of true customer value. We're committed to evolving the technology in the app to improve the data accuracy and to earn the user's trust. We know that the perceived lack of data accuracy is a main reason for churn. We're going to address that. We're also going to improve the user experience. We know a lot about the users. The users tell us a lot of things. Let's make the experience more personalized. Help them with notification. We're going to make the UX simpler to use. Much clearer core loop. Again, we will be the companion for the users to form the habits that they want. We will also focus on difficult areas like snoring and breathing detection, things that differentiate us a lot from our competitors.
The fact that we can do that is because we own our own technology. We're not building on some SDKs from Apple or Google. This is our proprietary technology. It's a key competitive advantage. We will leverage that. We are the pioneers within Smart Alarm. We even have the patent for it. It's the most stickiest thing we have in the product. It's our killer feature, you could say. We're going to spend some time with it. We're going to make it even better. With improved reliability and improved audio detection that our CTO will speak about a bit later, we will make some serious attempts to making it even better than it is today. What about monetization of data and platform? Well, our product allows us to collect a vast amount of aggregated and anonymized data in real time.
This means that we can make continuous improvements on the product to ensure a high-value user experience. It also means that we come across things that maybe not necessarily were part of the core use case. A feature we recently launched was Cough Radar. Of course, if you cough a lot during sleep, it's not good for your sleep, so it makes sense. We started to realize that maybe we can leverage this data in different ways that we don't do today. Mikael will speak a bit more about it later as well. Our new strategy, it basically explores a new way of leveraging data, mainly through monetizing the data.
We're also curious to see if this platform that we have, which is probably the world-leading platform when it comes to using smartphones to detect audio, if we can have some value from that in terms of selling SDKs or the platform. This would mark a new revenue stream for us if we succeed. This would move us away from only speaking about subscriber as a driver for revenue. I want you to see these two areas as a future potential, an option in the future, not the current valuation. The majority of the focus in the company will be on the core product, and these two areas are a bit more exploratory that I would love to speak more to you about going forward. With that, I will hand over to Per , who will take us through the financials. Per , welcome up.
Thank you, Erik. My name is Per Andersson. I'm the CFO of Sleep Cycle. Today, I will present our updated financial targets. I will talk about the strategy from a financial perspective, and I will describe the actions and initiatives we take as part of the new strategy in order to move our KPIs to reach our targets. Starting with our updated growth target, our new revenue growth target is to double revenues in the mid-term. That means about 3-4 years of time. Our previous goal was a 30% annual growth rate. We did not deliver on that. It's been a challenging market, and we came from a peak during COVID when the target was set. Still, compared to lots of our peers, we've done it recently quite well.
We delivered about 10%-20% annual growth, and during the second half of last year, we also again saw growth in the subscriber base. With the new strategy, we deploy a set of clear initiatives that will help us gear up and increase the growth rate going forward. Our new profitability target is an EBIT margin of around 25% on annual basis. Previously, our target was 20% EBIT margin, and during last year, we delivered an adjusted EBIT margin of around 26%, and for some periods, it was even above 30%. That really showed that we have a strong business model with an underlying profitability, and we showed that we can operate on a high margin. What we do now is that we create some space for increased investments. That is, investments that will support our increased growth rate.
Still, we will apply good cost control, and we will make sure to get ROI on our investments, and therefore, our dividend policy is unchanged. On the next page, I will go through the strategy from a financial perspective. In general, we will continue to focus on cost-efficient user acquisition. We will leverage the organic traffic we have and the positive market trends that we see within the health and sleep segments. Our new business strategy mainly focuses on finding new ways to reach new users and to monetize our taken data. In addition to that, we will also invest more in our product with the main goal to increase the engagement and increase the retention rate, reducing the churn. There are three focus areas in the new strategy. First, user acquisition.
We want to take control of the upper funnel traffic, meaning we want to be able to control the amount of new users that are coming in and that are exposed to Sleep Cycle. We will invest in some new initiatives to control that. Secondly, it's about user engagement and the product experience. Our investments in that area will go to increase conversion rates, increase engagement, create a better experience for our users with a higher value that will reduce churn and increase retention. Those two areas go with what we call our core product revenue streams. On top of that, we'll try to add a new layer of revenues coming from monetization of data and technology. We have a unique data. We have a unique real-time data, and we have a patented technology for audio analysis.
I believe there's value in that, and in this new strategy, we will allocate resources in order to create something out of that, something we can derive new revenue streams from. I will now go through how the business strategy will move our KPIs and how that will help us reach our targets. Starting with installs, user acquisition. We have a very good product. We have very good ratings, very good visibility in Apple App Store and Google Play. Historically, we've been a bit spoiled. We have taken this for granted, and we have leveraged that high traffic, which has provided us with a growth rate. What we've seen in the recent years is that it's been a decline in number of installs, going from about 10 million per year to about 7.5 million installs last year.
What we do now with this new strategy is that we really want to take control of the inflow and want to manage how many potential users that are exposed to Sleep Cycle. We do that with investments in PR to create awareness, both around sleep but also for Sleep Cycle. We will invest more and put more efforts into partnerships. A partnership for us is a way to reach a new user through a partner's platform or channel. We've done that to some extent before. We have experience. We have the blueprint. Now, we will try to invest more and put more focus in that area. As Erik mentioned before, we will also work on the product and create features that allow us to expose Sleep Cycle to new users. Those features can, for instance, be sharing features. We believe that our best ambassadors are our current users.
We want to use them to attract new users. We will continue to invest in marketing, and we will try to do that in a different way than before that will provide us with more traffic and more new users. Overall, we target about 8-9 million installs on an annual basis, up from 7.5 million in last year. Then, it's about conversion. We've done pretty well with conversions recently. We have focused on that the last two years, I would say. We've seen a very positive development in the conversion rate. We've seen an uplift from about 5%-7% conversion rate, talking about install-to-premium subscriber conversion rate. Still, there's much more that can be done. We do see some differences between cohorts. We see differences between platforms.
We have a fairly good picture of what we can do in order to make new users convert to a higher extent. That's mainly working with the onboarding process, the process from when you install the app until you decide to go for the premium offer or the freemium offer. What we will do there is that we really want to provide a better experience, an onboarding experience. We want to provide a dynamic experience that really shows the value of Sleep Cycle to our users, and basically creating good reasons for the users to convert to premium. Our target in that area is to come up to about 8% conversion rate. Just to put these two KPIs in perspective, last year we had about 7.5 million installs. We had a 7% conversion rate.
If we manage to increase to 8 million installs and 8% conversion rate, that's more than 100,000 new users on an annual basis. Then, we have retention. A good and appreciated product is really the foundation of cost-efficient growth and high profitability. We showed very stable renewal rates in the previous years. There has been between 44%-49%, depending on periods and depending on cohorts and so on. Compared to peers, this is a really good number. For some, it might sound high. You have 50% churn, yes. But compared to our peers in the app industry, this is a good number. What's even more impressive, actually, is that given the recent economic climate, we know that consumers are looking after their subscription services and so on, we haven't seen any impact from that. Our renewal rate has been very stable.
With the new strategy, what we actually would do now is that when it comes to product development and our investments in that area, we will do that with the main goal of increasing the engagement among the user base. Erik touched on that. He mentioned that, for instance, how reliability in our data creates more reliability in the product and so on. Those are features that we can further develop. We also need to make sure that we give the user a good long-term experience, which will then increase retention and reduce churn. Our goal in that area is to increase the retention rate with 2-3 percentage points. Looking at ARPU, we've seen a very good development in that area recently, mainly coming from the price increases we implemented about two years ago.
Still, we only increased prices in about half of the markets, meaning that there's still lots of potential for price increases. On top of that, we now have a new CCO coming in. One of his tasks will be to actively work with revenue management, how we can work with discounts, with differentiated prices, and so on, and also with different types of subscription optimization in order to increase the ARPU. Taking a look at the timing and when this new strategy will be materialized into increased revenues. We believe it's a gradual revenue growth that we're going to see. Some of the initiatives will take some time to deliver on, but there are also some initiatives that will materialize quite quickly. One of those is the conversion rate. We have been successful in that.
We are working with that actively now, and I believe we will continue to see an increased conversion rate already this year. When it comes to the upper funnel, we're already starting with some initiatives in that area. We have hired PR persons, and we have laid out a strategy to work with the awareness around the product. Our new CCO will put full speed into the partnership area, and as I said before, we have already a couple of partnerships, meaning that we know quite well now what's working, what's not working, and so on. I believe that area will materialize quite quickly and potentially be one of the first drivers of the increased revenue growth. Looking in the medium to long term, first, it's the investments in the product, as I talked about, and mainly increasing engagement, increasing retention. That normally takes some time.
Our subscriptions are mainly one-year subscriptions, meaning that it takes some time before we see impact of what we do. When it comes to data, monetization, and technology sales, this is a really exciting area, and I believe it's a great opportunity in this area. Still, now we are allocating resources. We will try to monetize this area, but I believe we have to wait until the second part of this period until we will see some impact coming from this area. Basically, what we do is that we're trying to ramp up the sales, which also makes it possible for us to control our investments and make sure that we actually get return on investments. Looking into the profitability and cost, our new EBIT target margin target is around 25%.
Considering that we have been operating around 30% in the past quarters, that means that we are creating some extra space for investments. Given that we expect revenues to increase, that means that we will have about SEK 10 -SEK 25 million additionally to spend each year. We will allocate that to PR, to marketing, to technology, and to people. Our aim is to double our revenues during this period. But actually, we want to grow even more. What we really want to do is, as I've been talking about, take control of the upper funnel and the inflow of new potential users. If we are successful in that area, we really would like to invest more in that. At the end of the day, it's about boosting LTV, basically. We will be prudent and apply good cost control, but on the other hand, we have a very cash-generative business.
After dividend is paid out later this year, we will have more than SEK 100 million in cash. I see that as dry powder. It's dry powder that we can use to act on opportunities that may arise. If we see opportunities that will help us to take us towards our goal, we will use that money. Just to sum up and tell you what I would like you to take away from this presentation... First, we've taken really good steps in 2023. We have improved conversion rates. We have improved profitability, and we have increased efficiency. We have a solid position and a good product on an expanding market. That's good things that we will continue to build on in the new strategy.
We will continue to leverage our organic growth, but we will also try to take control of the upper funnel and really try to impact the inflow on new users. The business strategy is very much linked to our key KPIs, and with just some small changes to those, that actually means quite a significant growth rate. Then, on top of this, what I'm quite excited about is that we now allocate resources to the monetization of data and technology. It's very early to say how that would play out, but I believe it's a very good opportunity that could be a large revenue driver going forward. With that, I hand over to Mikael.
Thank you very much. As I speak here today, more than 300,000 people are using our proprietary, AI-powered algorithms to analyze their sleep. That's about 100,000 hours, or 71 TB of information that we will sift through to find coughings, sleep talking, snoring movements, respiratory rate, and so on. To put that into some context, meaning in a crowd like this, you know about ChatGPT, of course, and you know it's been trained on all the world's knowledge. In fact, it's so much information that many say that only the big tech companies like Google and Facebook and OpenAI can do this. However, at Sleep Cycle, in our massively parallel compute cluster of phones around the world, we actually process a comparable amount every 10 minutes. That's one millennium of sleep audio every day. That's quite an unfair advantage, I would say.
That is what we have used to build this great product that our customers love, and it's also a unique position. It's something that we now are trying to leverage to see if we can create new value for our users or for new customers. I will talk a bit about that in just a few minutes. My name is Mikael Kågebäck. I'm the CTO of Sleep Cycle. I have a Ph.D. in machine learning, and I've been doing machine learning for well above a decade now. Well before it was cool, let's put it that way. Starting at the core product. We have a comprehensive sleep platform for tracking, for insights, and for improvement. As Erik mentioned, we have now tracked more than 3 billion nights using our own proprietary machine learning, and that's important. But what do we track?
We track things like your time in bed, your sleep regularity, that's very important for your cardiovascular health, your sleep efficiency, your snoring. We actually, just a few months ago, got an approved patent from the European Patent Office for differentiating different people's snoring, so we know if it's you or your partner that is snoring. Now, in 2023, we released robust respiratory rate tracking. It's a non-contact, audio-based respiratory rate tracking, and we are completely unique on this. No one else in the world can do that, and we can now use this to improve our sleep tracking. If you think about your partner falling asleep beside you, you can kind of hear on their breathing when it starts becoming a little bit more regular.
We can now use that to get more accurate at the same level as contact type of sleep tracking, sleep onset latency, and we can also do some sleep staging. That's something that we're going to release this year. On the health side, we do things like detecting breathing disruptions, and we detect coughs, and I'll come back to that. Insights, you can show the user that there have been some changes in their sleep statistics. Let's say their sleep regularity is drifting, then we can show them a card saying you need to become more regular. Or maybe they have a noisy sleep environment, and then we can tell them about that. For improvements, we have this nice tool, our super sticky Smart Alarm that helps you wake up in the right moment so you feel super bright when you wake up. It's patented, right? That's very good.
We have sleep aids to help you fall asleep, and we also have 30+ science-backed sleep programs that you can read to learn more about sleep. We have our own sleep expert, Professor Michael Gradisar, who helped building these. He's a renowned sleep researcher. We own each part of this puzzle, and that's important because that makes it possible for us to create network effects to drive our growth. We have about 2.1 million monthly active users, and they use Sleep Cycle to get value in their life, but they also create value for us in unique data on a massive scale. We can use that, again, to train our own proprietary algorithms for improved accuracy, and we can use this so Mike Gradisar can look at this data and understand more about sleep and help us improve the product.
This is what drives further user acquisition and more efficient user acquisition for us. Our competitors, who are using, as Erik mentioned, off-the-shelf, let's say, dead machine learning models, they're breaking this circle so they won't get that. They won't get that organic extra growth. They break the loop. We wanted to create something new, some new value for our customers. We sat down with the team, and we thought about, "Okay, so what do we have?" We realized we have this massive AI-powered sensor network with real-time, and it's on a global scale. How can we leverage this to help with our mission of improving global sleep? Global health, and what we came up with was something we call Cough Radar. What Cough Radar does is using the same AI as we use for sleep tracking to detect coughs around the world in real-time.
Then we model the population, so it's completely anonymous. We're never going to give any data about the specific person out, but we model it in such a way that it's differentially private. It's high precision. When we launched this, we were actually contacted by a guy from the UK Health Security Agency. He's a Sleep Cycle user, and he saw this new feature, and he was really excited because he could see that this corresponds really well to their data. "It makes sense," he said. Why? Because the data that they had used to get this early warning, like Google searches, is very noisy. If you start writing about the flu in the papers, well then people start Googling about flu, so it doesn't really work well. However, this actually measures the underlying biological phenomena of coughing. It's very accurate, and it's early warning.
You actually usually can see some coughing before even you yourself know that you are getting sick. The real-time aspect of it, this is Tokyo over a year. You can see that in the summer months it's pretty clear. During the winter, and especially Christmas, there's a lot of coughing going on. This is a seasonal pattern that we can see a lot in the northern hemisphere. But I want you to focus on the left now because it's something interesting there. We did a study where we compared our data with the data from a COVID wave in the United States to see if it corresponded well. Not only did we predict it, but as you can see in that plot, we actually predicted it about two weeks in advance.
Again, going back to this guy from the UK Health Security Agency, that is exactly what he expected because that's the amount of time it takes for you to contact your health provider and for them for doing the tests and then reporting the results. About two weeks. We're much faster. You can zoom in to look at local differences. Maybe you're interested in a certain part of Tokyo. You can zoom into your local area. As long as there's a significant population there, we can show you the data. You can look at where you work or maybe where you're going on your next vacation. We cover the world. Sleep Cycle is a global company. We're in over 150 different countries around the world. These trends that you see here and all of these maps, they're computed on demand.
You can put your viewport on any area of the world and we will show you the trends in that area. It's always the latest data, always up until today. Did you notice it's an interesting pattern? If you look at Australia, you can see that the seasonal pattern is inverted. It makes sense. They're on the other side of the world. In our summer, that's when they're coughing the most. However, going to the 26th of December, you had a sharp increase in Sydney as well. That's Christmas. When they're meeting their loved ones, I'm sorry to say, they're getting the flu. In summary, we have a strong position, and we will continue to invest where we stand in the core product. That's where we're making most of our revenue, so it's important to stay there. We have proprietary and patented technology.
We are the world's leading company on AI-powered sound event detection. We have patents for Smart Alarm, we have patents for Snore Attribution, and we have unique data that we can use to fuel innovation at Sleep Cycle. I want us to leverage that to create new value and revenue on top of the current business model that we have for our users and for us while protecting our users' privacy, always. I believe Cough Radar is a truly disruptive technology. It solves an important pain, and it does it faster and more accurate. It's hard to copy, and we are the first movers on this. Thank you.
Thank you. Thank you, everyone, for listening. I hope you share our excitement for the next coming years. We have a very solid business plan in place, and we have a team that is ready to start executing upon it. Sleep is ours to win. Me and the team, we're happy to take any questions that you might have or that we have online. We'll start with questions in the room here.
Hello.
Sorry, we have to use the mic so that the online listeners can.
Thank you. My first question, you said you had many tricks in the book to increase retention. Could you give us some examples of what you plan to do?
One of the things that we have spoken about is basically we see the opportunity for us to reward the user more for forming the habits that they want. Today, the user set goals, for instance. We know what the user wants to achieve, but I think we need to be better at reinforcing when they are achieving what they have set out to do. That's one example, for instance.
I'm going to take two more questions and then pass on the mic. Could you comment also on the decline in installs and what you've seen there and that trend?
It's a general trend, I would say, in the app industry that there is a decline overall. I'm not too worried about it, though, because you also see some apps that manage to grow a lot in terms of installs. I think that we just need to, as Per said, have a bit more focus on it. You used the word spoil. I don't know if that's the right word or not, but I can just conclude that it's time for us to focus on the upper funnel again, and we will do that.
You also said that perceived notion of inaccurate data is a main reason for churn. How can you address that?
There are things we're doing now improving the underlying technology. That's one thing that we're addressing. But it's also the way that we present the data for the users. I think it's a combination of improving the way that we track the data, but I think more of it is actually how we package it up. There are some things that are very easy for the user to control. Then we need to make sure that we are also 100% accurate in that case.
I can just add on the question about the installs. We've seen a decline in trend, but we've also seen this step, for instance, during last year. That decline has decreased. That also comes from, for instance, our cooperation with Apple, for instance. When we have released new features, we make sure that we get a good exposure. We have already started working more actively with how we can impact the installs coming in.
You mentioned that this new strategy includes a number of investments. Will this lead to a lower margin short term?
The full year, we will be within the 25% range that we guided. We will not guide on quarter by quarter.
Thank you.
Yes, a question within the same subject. Because you said you had dry powder of SEK 100 million, and you were ready to use that and the right opportunity arise. But wouldn't that then you're ready to make losses for a short while if you see the right growth opportunities. Is that correctly understood?
Yeah, obviously. If you use that over the P&L, that will lead to increased cost and a lower margin. But if we do that, we obviously need to communicate about that and the reasons for doing that. As Erik said, we will focus on a 25% margin on an annual basis. But again, if we see good opportunities, we like to invest more.
I would like to see it more as that we will have the opportunity due to the strong cash that we have and the strong cash flow. But we are firm on the 25% target. That's what we're guiding. If we see something that will require more investment, we will for sure speak about that well ahead.
Thank you. One more question. Historically, you raised the prices. If I understood that correctly, that was partly to be able to focus on the more paid advertising and increase that part of the user intake. Have it been hard historically to find that opportunities, or why didn't that come historically with the price increase?
I cannot comment historically, but I can talk about the future, and then you can talk a little bit about the history. For me, we're not going to use this extra money and just put them into marketing, just to be 100% clear. We're going to use partnerships, we're going to use brand friends, and we're going to use PR to build our upper funnel. Then we're going to use performance marketing to convert those people. We need to get more people together on our street that come into our store or go past our store that we can convert. That's what we're going to use the marketing money on. I'm not saying that we will spend enormous amounts of marketing money.
Instead, the money that we are freeing up will be more in terms of pursuing the opportunity areas that we have seen, both in terms of technology and also the commercial opportunities, closing those partnerships and starting to investigate the data monetization, for instance. Do you want to add something, Per?
No, but I can just add that when we raised the prices, that obviously had an impact in new users coming in. That was negatively compensated by increased marketing investment, as was the plan when we increased the prices. But as you said, we have such a big part of our users coming organically, and the cost for that is almost zero. For every krona or dollar we spend in performance marketing, we like to see return on that. That's basically why we've been very prudent in that area. We don't consider it a sustainable business just to pour money into performance marketing.
Thank you.
Hi. A couple of questions on price hikes and how we should think about ARPU going forward. In order to reach the target of SEK 300, do you think you will do more price hikes, or can you achieve it with the current price hikes you made?
As of today, we have two price points, basically. $29 and $39. Meaning that we take in new users on about or above 300 SEK. Then we have our renewed users that renew on the prices they had when they sign up for the subscription. We have continuously seen an increase in the blended ARPU. Last year, it was at 272 SEK. We continue to see some increases, but I believe that we will try to increase prices in a few markets, but we will also try to work more with differentiated prices and also different types of subscriptions to make sure that the ARPU increases.
I think that's a good point. I think the last price thing, that was a price hike. I think we need to work much more efficiently and always with price. In my experience, price is something you work with every day, and we will start doing that.
Some price hikes as well. Then, do you have any initial take from your customers on the Cough Radar? I know you launched it a couple of months ago.
We see very good in terms of getting awareness and upper funnel attraction, and I think that was part of the reason why we launched it. We haven't put it behind any paywall or anything, so we're not using it to drive revenue right now. We're using it to drive new users that we will convert, and then they will drive revenue, but not as an own revenue stream. But we see a lot of interest from media. We had some coverage already in the U.S. around it, and we see some new users coming in thanks to it.
Final question. How should we think about your EBIT margin kind of long term? Could you see that you could increase the margin target long term, and we should think as the 25% kind of like a near-term target?
I see the 25% as the medium-term target, and then we will evaluate as we move forward.
Thank you.
A follow-up. You talked about the partnerships. What is working and what is not working on the partnership side today?
We have a very successful partnership with Gympass. Gympass, it's a way to get access to, well, I think it's obvious, to gyms. What I like with that is, first of all, it's validated the hypothesis that people that want to maximize the performance or the outcome of their training, sleep matters. But it also means that Gympass was very active in the South American and Latin American markets. It's not necessarily a market where we have been big in the past, but I don't know if you noticed, but there were quite a few flags on the world map in terms of where we have the highest growth right now. We're not only growing through Gympass. Gympass is also increasing our share of voice on that market, so we also get users coming from outside of Gympass.
That's the kind of partners that I would like to see more of. In terms of less successful partners, I don't know, Per. Do we have any? We don't have that many.
No, but we like to talk about the successful ones. But obviously, we've had a few that we've tried to establish, but they haven't developed into what was expected, and I believe that's totally natural when you launch something new. But just to add to what Erik said, what is successful, and I think what we can see is that, as Erik said, what's been successful from our side is that we can actually reach users we didn't reach before, like in new markets or in new segments and so on. What's also been very clear here is that Sleep Cycle could be a real asset for our partner.
We know that what we hear from our partners is that what they like is that Sleep Cycle creates a lot of engagement around their users, meaning their users see the value of being part of this Gympass or a loyalty program or what it is. There is really a win-win from both sides here, and that's what we learn and that's what we will try to exploit further. On the upper funnel, are you going to target new segments like nutrition, exercise, magazines, and so on, and try to be more around these areas?
PR, yes. PR will definitely help us to get into those kinds of news outlets. Then partners, yes as well. I think we need to. There's basically multiple things going on here. One is that we use PR and the rich data we have, which we see. We're just dipping our toes into this. We used to, the first couple of months this year, starting to validate our hypothesis. Is there an interest in this data, or is it just us that have fallen in love with it? We can see that we get anything from the local CNBC news station that want to pull up the data and do something in their local state in the U.S., to more covering GQ magazine writing about the data that we have and quoting us. That gave us some encouragement.
The other one is, again, the partnerships where we will have them as brand friends or have them as a way to actually convert customers depending on the relationship.
Any more questions? Okay, switching to online questions. We have received several questions here, and I will start with this one. Apple recently aligned to the European Digital Markets Act. Will this affect your fees in the App Store, and if so, by how much?
It's obviously something that is ongoing, the DMA discussion, the Digital Markets Act. What we've seen, given the size of our app, there is a Core Technology Fee attached to it. It doesn't really make sense for us. Also, we have a very good relationship with Apple, and right now, that works very well for us. But we will, of course, keep an eye on how it will develop over time, but as of now, we are happy with the contract that we have.
Next question. Since you've already tried several things to boost paid traffic since IPO, how do you make sure that you don't do the same mistakes again?
Yeah, I think here we're going to be much more focused on conversion in terms of let PR partnership do the job to get people in, then we can act and convert them. It also makes it much easier for us to track ROI on the conversion. It's quite a simple calculation, the CAC and the LTV, so we will keep an eye on that.
Can you compare and contrast your technology to Whoop? I understand your disclosure to users on the sleep phases is weaker. Is that true? If a user has a low REM sleep phase, how does your technology help them improve it? Maybe if Michael?
Yeah, I can answer to that. The current iteration of our sleep tracking is mostly moment-based. That's what's out now. What we are releasing this year will be using this new respiratory rate tracking. Whoop is using exactly that. That is, almost all wearables are using pulse, and from pulse, you can get respiration. Not as accurate as us, but they can get it. That's how they do this sleep staging. We will be releasing it over this year, and then we'll be on a similar level as Whoop when it comes to sleep tracking.
Also, for Mikael, I think, what does your patent position allow you to do that none of your competitors can do?
When it comes to the Smart Alarm, we have the patent for using audio to find the right moment in time to wake someone up so they feel refreshed. That's how it's written. I think that's the most important patent. The other one is about attributing a certain snore to a certain person. We have technology where we can actually listen to the snore, not only recognize that it is a snore, but we can say that is your snore or Erik's snore or Per's. That is what we got a patent on now a few months ago.
Can you provide some color on the breakdown of that future growth target? That is, how much of that do you believe will come from pricing, new subscribers, and new products?
No, not really. First of all, also, I think, as Per said, there's something that we will do short term. That's a more commercially focused. We will start to look into pricing. We have a chief commercial officer coming in. He's very excited about starting with that. We started with PR already. Product development takes more time. I think that's how we look at it being faced right now.
I can just add that how we see growth in this new strategy is really that we would like to impact these main KPIs. But we don't break it down as that. We see it as we can move a little bit here, a little bit there, and then what will the outcome be? That goes with, for instance, with pricing. In terms of subscription versus pricing, it goes with how we price an offer to get people to convert, and also as well as to renew their subscriptions. It's more of a combination of things that we look for.
Thanks. For Erik or maybe Per also, have you thought about the potential to repurchase shares or change listing to get additional liquidity in the traded stock?
Well, the question about share repurchase and those questions is obviously for the board. I know it's a topic they discuss. This year, we decided to pay a dividend of SEK 1.30 and then extraordinary dividend of SEK 1. But I'm sure that, obviously, that is a question that is being discussed.
How are you managing the existing cash on the balance sheet during the time before further investments or M&A is executed?
We normally invest it in short-term interest rates.
Thanks. Given the recent organizational changes regarding employees and the shutdown of the Stockholm office, how are you managing employee well-being and incentivization?
I think we have a lot of feedback on people appreciating coming together more. That was one of the things we wanted to achieve, that we felt that we were too spread out. We saw that when we did employee survey or when I came in and I saw that. I'm looking forward to gather everyone at the same place. Now, with a clear strategy, it also helps. In my experience, you get more motivated when you have clarity on what you're going to achieve, and we have that now.
Thanks. Can you expand some more on partnerships? Is there anything within breathing, for example?
I think the partners we will be looking for, at this time, we don't exclude anything, really. That doesn't mean that we don't have some targets that we are going after. I think, for me, we've had some success in the Gympass experiences, et cetera. I think we should build on those successes. We also know that we resonate well in the weight loss or nutrition industry. I think we will start there. In terms of breathing, we haven't specifically discussed that area.
Thank you. What's the business value proposition behind the cough data?
The business value proposition? Right now, it's just an Upper Funnel play. It's to increase awareness. As I said, we haven't put it behind a paywall as of now. Might change that. But as of now, it's available for also our free users. We will continue to monitor it.
Thanks. As you can see in public data, some of your competitors have increased marketing and downloads the last couple of quarters. How has that affected your organic traffic?
Not so much. Organic traffic is pretty stable. As we shared before, we had the slide down, and I think some competitors have absolutely grown thanks to paid marketing. We've seen that historically as well. There comes in a player, sometimes VC-funded, and they come in and they go quite aggressively with paid, and then after a while, they tend to disappear, and some of them stick around. It's nothing new, and we've been in this industry for quite a while, so it doesn't keep us awake. We have a very strong core loop, a very strong product-market fit with a big organic intake.
What we also see is that when someone comes in, puts a lot of money into marketing, for instance, that helps grow in the total market. I wouldn't say it's obviously a competitor to us, but it also supports the interest for the segment.
This one you sort of have answered already, but are you expected to reach 25% EBIT margin in 2024, or will it take longer time?
No, we will reach 25% this year.
How do you see the risk of Apple, for example, developing their own more advanced sleep tracking?
From a commercial point of view, first of all, we are quite a big business. The App Store is quite a big business for Apple, quite good margins. They already have a cut on our revenue. I think it would be a strange strategy if they decide to actually compete with themselves in a way. Secondly, what we've seen is that when they move into a segment similar to what Per described about the paid marketing scenario from competitors, when they decide to move into an industry, which they did with running for a while ago, you see that the apps in that segment actually grow a lot. Strava is a good example. They took off when Apple started to double down on running. We believe that we are in a good position either or. I don't know, Michael, if you want to add anything?
Yeah, I can add a technical perspective to that. First of all, what Google or Apple in this instance does is usually either with a smartwatch, so it's not non-contact. What we're doing is non-contact, and we have a much higher availability to more customers using the phones only. They have developed something called Google Nest where you can do sleep tracking, and that was released about 2021. It's radar-based. Did not really have an impact on us either. I think doing audio in the way we do, it's not that easy. For instance, Samsung, they are using our. I mean, this is an SDK that we delivered to them that they have inside of Samsung Health to do their snore tracking. I think we're in a pretty good position.
Thanks. You wrote in one of the slides you had done price increases during 2023. Previous communication was that the last one was done during 2022. Can we expect price increases for new users during the coming one to two years to reach the 300 SEK, or will it be done by existing users churning and new ones coming in at higher prices done from 2022?
Both, I would say. Again, we're going to work with price, but less dramatic maybe than we've done in the past where we've really brought up the price 30%. Let's work on it market by market instead and do it in a different way. But again, as the person who asked the question also points out, the renewal rate will. When we churn in users and get new users in, that will be at a higher price point. The renewal rate is still the same for the user, just to make that clear. The price you came in on, that's the price you're staying on. That's how the App Store is set up.
Thanks. From the prospectus, it's stated that you had approximately 50% market share in your space. Is this still the case? Why is the market so small, and what will drive the total market upwards?
I don't think we have 50% market share.
I believe it depends a bit on how you define the market. I believe, in the prospectus, it was purely sleep tracking apps, I would say. Coming back to the, can you repeat the rest of the question?
Sure. Why is the market so small, and what will drive the total market upwards?
I think, in general, just the fact that we start to speak more about sleep right now. I think that will help to grow the market, and that's also where we want to insert ourselves in those conversations. That's usually the most powerful way to do it, not to stand there and shout about something that no one really cares about. But we see in society right now, there is a shift. There is a movement in terms of the benefits of sleep. That goes into the many things we've already spoken about today, if it's about performance enhancement or it's about being a better partner or even better at work.
Even in the Swedish press, there was an article not too long ago, and I think it was Dagens Industri, about the importance of sleep for you to elevate your career. I think we're moving away from this old-fashioned bragging rights with not sleeping and people starting to wake up a little bit.
I think, as the person asking the question said, why is the market so small? I believe what's happened the last years is that the market has really grown. You see all these wearables like Oura, Whoop, and so on, and you have all the smartwatches. I believe the market is growing. Maybe our market share is changing, but the total market is growing, and that's because the interest for sleep and the importance of sleep is becoming more a top-of-mind topic.
Thanks. What are the main reasons for why users churn? Do you get this feedback from users?
Yes. As I said, one of the key things that we see is the perception of data reliability. It's one of the things that we will address. We also see that we've been adding a lot of things into the app, so I think it's time for us to take a stand back and really scratch our head and figure out what is the core loop here, and maybe start to clean up the UX a little bit. That's also a feedback that we see. Then, as always, in any company I ever been to, price is always the top reason to churn, of course.
Thanks. What are your point of view on buybacks? I think we had the question before. It's a topic for the board of directors, obviously. I'm not sure how that resonates, but the free float, obviously, is a question that is discussed as well and how we should manage that.
But it's a board question.
Thanks. Of the 80% organic new users, how much of that is with push of Apple in App Store promoting you? A ballpark figure works, this person says.
Thanks. No, but it's a big part of our organic traffic, but honestly, word of mouth is also up there. We have a very strong word of mouth. That's also something we see now with the Cough Radar. Maybe if some of you have used it, you probably feel it yourself. It's a pretty nice thing that you want to show your friends or your family. We even see people post it online. We had a post, I think it was in Japan, that got 3 million views on X, for instance, with the coughing data. It's a mix.
It's also worth mentioning that we have been around for quite some time, and we know, for instance, when people go to bed in the night, they start Googling on how to wake up rested, for instance. We are there, and I believe we have been there for such a long time. It's not like all our users just come from people browsing App Store. We source them from lots of different places, and I believe that since we've been here for so long, we have also been building positions where it's good to be.
Thanks. Next question. Why have you not increased prices in all countries yet?
When we started to increase prices, we did that, also taking into consideration, obviously, how our subscriber base was affected. We saw a small decline in subscribers, and that's why we were a bit cautious around that. Obviously, there are also differences between markets in the purchasing power. What we did was that we deployed that for our largest markets, like the U.S., and that we worked on increasing the subscriber base again. Now we're back in subscription growth. Now is probably the time to evaluate if we can work more with pricing in other markets as well.
Thanks. I think that's to what we spoke about before. This is, to me, about willingness to pay. We cannot just do blanket raises in prices in all markets. That's not, in my experience, how effective pricing strategies work. We need to understand what is the willingness to pay in the different markets, and we need to work smart with that.
Thanks. Of the SEK 10-SEK 25 million increased investments, how much of that is FTE increase?
We will be very prudent in hiring people. I have learned through experience that if you want to slow things down really fast, then you hire a lot of people at the same time. We're going to use the people that we have, very talented and motivated people, and we're going to focus them on this strategy. Then when we start to feel the pain that we can't really do the things we want to do, but we see the opportunity, that's when we will hire someone to help us. But this is not 2020, 2021, where you just hire a bunch of people and see that as a key metric. Those days are gone.
Thanks. Next question. Will you start to disclose marketing costs in your quarterly filings again, as you did until Q1 2023?
No, we don't have any plans for that. The background to why we started to disclose that was basically because previously we didn't spend that much on marketing, and then we started to work with performance marketing, which made it difficult to compare the margin between the years. When it comes to the reporting regulation, we had an alternative performance measure that disclosed how much was spent in marketing, and we decided to remove that because the rules are as you should be a bit prudent when it comes to these APMs. Now it's no big difference between the years, so it doesn't make really sense from a comparison reason to disclose that.
Thanks. Next question. A few funds have lately sold approximately 6% of total shares outstanding in a short time period. I assume you have had discussions with them. What investor feedback have you received in general that would potentially entail this?
Can you repeat that? I didn't get the first part.
A few funds have lately sold around 6% of total shares outstanding in a short time period, a few funds. I assume you have had discussions with them. What investor feedback have you received in general that would potentially entail this?
I can just say, in general, we went a little bit out of sight and out of mind after the IPO, and this is the start of us changing that. We will be much clearer on where we're going. We will have more events like this going forward, so you feel that you are updated on the thoughts we have and the success we have. I think that will be a change. I don't know if this is exactly the reason for the numbers that were mentioned. I can just speak in general. That's how we will do things going forward, and it starts today.
I also believe some of the reasons were because of this liquidity in the funds as well. It could also be for other reasons, so to say.
Next question. Is it reasonable to expect higher growth in 2024 compared to 2023?
Yes.
Thanks. Do you have any more questions in the room? Okay, I think we're satisfied with this.
I really liked the questions. Thank you. Thank you very much.
Thank you.