Earnings Call: Q2 2021

Aug 6, 2021

Hello and welcome to Storey Tel's quarterly report webcast for the quarter Q2 2021. With me, I have our Stortus CFO, Sophie Suttigher and our Chief Commercial Officer, Good morning. And my name is Jonas Telander, CEO and Co Founder of Storetech. 1st of all, as you may have seen before, the clicker doesn't work. So anyway, this morning, we released the Q2 report. And what? Okay. What Storetail is about is to make the world a more creative and empathetic place with great stories to be shared and enjoyed by anyone, anytime, anywhere. And we are totally committed to this mission and we'll keep living this mission and vision for till the end of times basically because we think that stories should be heard, listened to and should be told and it's a universal need that we are here to meet. Looking at the hard numbers, The subscriber growth year on year is 29% in Q2 and the revenue growth is 19% in Q2, 22% with constant exchange rates Swedish kroner has been very strong lately. Some highlights from the report, which we have also released earlier some of these. So streaming sales up 22%. As I said, net turnover, including our books businesses. So we have book publishing businesses in Sweden, Denmark and Finland, up to SEK641 1,000,000 from SEK554 1,000,000 in the year ago quarter 2. We had an annual shareholders meeting on May 4. We signed an agreement to acquire the Finnish publishing house Aula and Company. And we also closed the transaction with acquiring Linden Company on April 1. And then we entered into a partnership where we announced that we will enter into partnership on making Storey Tel's catalog available on Spotify 4 Storey Tel subscribers. So that's something we hope to release before the end of the year together with Spotify. Nineteen. So looking at the net add subscribers and looking at the forecast we just gave. Basically, if you look at the year on year net cumulative net adds, starting on January 1 and ending December 31 this year, you can see that the net adds have been continuously increasing year by year from 2017 to 2018 to 2019 to 2020. And although the 1st 6 months have looked a little bit worse this year than 2020, we can see now that we have excellent pickup during the quarter and expect to go above the net add curve from last year. So I think that's fundamentally a pretty positive sign that we keep adding more net adds, more subscribers year over year. And these are the 2 curves showing basically the Nordic business and the non Nordic business. So the Nordic business is growing at about percent and the non Nordic business, which is really where we have had great hopes to find exponential growth, it's not really performing as strongly as we were hoping earlier this year. It's still growing. It's growing at a healthy pace of 40% to 50%, but it's not as high as we would have expected it. So I hand over to Ingrid to walk us through the markets section. Yes. So very positively, we have passed the 1,000,000 paying subscribers in our Nordic markets. And as Jonas explained, continue to add subscribers and customers and we're happy to deliver positive service for our customers. When it comes to the outside Nordic, We are continuing to do local product market fit to find adaptation and growth in a healthy way. 1,000. We have raised our prices both in the Nordics and outside. And also we have actually adjusted prices downwards in our Spanish market in the 1,000. That's going to be a positive mix for us so that we can elaborate with that. And very positively, we launched the student subscription 1,000,000 right before the summer, which we think is good for the student segment. 1,000 new consumption on our content. And of course, we continue to produce so that we continue to increase our catalog and our offering for our customers. So that's up 40% from last Q2 2020. And we also continue to invest heavily in interesting content and we're very happy to announce the collaboration with Conan Doyle Estate with Sherlock Holmes that's going to be released in the next year. Nineteen. And looking at product platform and partnerships, I think we're tracking well on the rating side in Google and on 1,000,000 App Store approximately as before. The net promoter score also still a strong one, not an outstanding excellent one, but a pretty good one at 30 2, 31. We also keep adding more payment integrations. So payment alternatives actually vary across the world. There is no global standard for So you need to keep adding local versions of payment options. And one of this is checkout.com that we added. In the MENA region, which is starting to grow very nicely. We also announced an Apple Watch app where you can listen basically offline to your books in the Apple Watch. And as I said before, we're expecting to launch a Spotify shipped by the end of the year. So to end up this section, basically, if you look at the people, culture Sustainability part. This is something we've been very focused on for the past 3 years at least. And we have sustainability reports added to our annual report, which I you should read. What we did now most recently is to actually instill a sustainability committee, which is linked to the Board of Directors just the same way SE Audit Committee. And the purpose of this committee is to oversee strategic sustainability work and support the Board in fulfilling its responsibility 2 specifically addressed climate and environmental matters, human rights, labor standards and anti corruption practices. So more of that in the future. With that, I hand over to Sophie to walk us through the numbers. Yes. Thank you, Jonas. So looking at the streaming top line and profitability, we continue to grow our revenues quarter by quarter amounting to NOK545,000,000 1, around NOK 423,000,000 coming from the Nordic segment and NOK 122,000,000 coming from outside of the Nordics. Subscriber base averaged more than 980,000 subscribers in the Nordic segment. And As Ingrid mentioned, we surpassed the SEK1 1,000,000 mark in the Nordic segment, which is very promising and a big milestone for SOREL. We continue also to have a very high ARPU in the Nordics, up from SEK140,000,000 to SEK143,000,000 during the quarter and also with very high profitability. So contribution margin 30% in the Nordic segment, positively impacted by the acquisition of Linden Company, but also somewhat offset by increased content cost in some markets compared to the same period prior year, but Very stable at 30%. And then in the non Nordic segment, subscriber base averaged 643,000 subscribers, ARPA down slightly, but going up again in the Q3 guidance. Nineteen. We continue to have healthy gross margins in the non Nordic segment as well. But since we increase Marketing investments and continue to invest in many markets. The contribution margin is negative at 17%, pretty much in line with Q1. And taking a glance at the Q3 forecast, We expect streaming revenue to come in at SEK586 1,000,000 and the subscriber base at SEK 1,723,000 subscribers with a continued ARPU or similar ARPU as Q2, so SEK113. And if we go to the final slide, given the performance we have seen now in the first half year and also the Q3 guidance that we give this quarter, we revised our forecast for 2021 downwards. 1,000,000. We expect streaming revenues to amount to SEK2.25 billion to SEK2.3 billion equaling 20% to 2 percent revenue growth. And although we do expect revenue growth year on year to go up in Q4, it will not compensate For the 1st 3 quarter, but we still think it's very promising that it's going up in Q4. Subscriber base expected to come in at around 2,000,000 subscribers, which is also, of course, a big milestone for us. And yes, the reasoning why we think that the year on year growth will significantly increase in Q4 is that we are increasing marketing investments in some of our top performing markets where we see that the unaided awareness is still fairly low and the metrics looks good. So we feel confident in increasing those marketing investments in the Nordics and also in Poland and the Netherlands to name a few. So that will have an impact on the EBITDA margin for 2021 given the revenue growth. So we revised it to 6% to 8% Negative EBITDA margin from 0% to 5%. And yes, what else to say here? So we could just Take a quick glance also at the 2023, so the midterm targets. We still see that I mean, the audiobook Market is growing. It's growing exponentially outside or in the total audiobook market and we have a very strong position to gain ground and we expect our revenue growth 2 increase in the next coming years. So that's why we feel confident that we will still be able to pass 30% revenue growth with with the organic growth that we see today and then adding new market launches, more partnerships and also possible M and A. And we continue to prioritize growth over profitability, although, of course, it is important for us to also show streaming profitability on a local level. That's why we keep the goal to reach that within 5 years from launch. Nineteen. So let us see if there's any questions from the analysts. I see Some hands raising from Joakim from DNB. Do you want to go first? Yes, please. Good morning. I hope you both Can you hear me? So can you perhaps comment a bit here on how we should think about Slightly lower, I mean, subscriber intake guidance here with relation to the higher marketing spend. How much of the weakness with you referred to LatAm and Spain is a function of, call it pandemic, pull forward, etcetera versus a function of, I mean, pricing, competition or saturation for that matter? Nineteen. I mean, we think that looking at the LatAm markets, I think looking back 1 year and what we expected to see from those markets, I think if they had grown as we expected, we would have added a couple of percent to our overall growth rate. 1, that's not what's happening now. They've been totally flat. We think that a lot is due to the economic conditions rather than the specific audiobook market or competition is still incredibly in mature markets. And I think that's On the audiobook side, I think that's basically the I think if I try to look back at how we have expanded in the past couple of years. We can still see if we look at the numbers that the Nordics and a couple of more markets have really been the locomotive of driving store growth. And then we are investing a lot in catalog and maybe a little bit too much in some markets in marketing, given how long it will take to actually help people understand what the audiobook is about. So we're now starting to realize that those markets will take a little bit of time, in particular with the economic turmoil after COVID in the LatAm and Spanish markets, we think that we just have to bide our time and wait until the economic market climate picks up there. But other than that, I think what we are doing right now, what Sophie explained, which is basically going to Netherlands, going to Finland, going to Poland and ensure that we raise our unmet need awareness is, I think, really the right way to go. You can see a very strong correlation between the Underutil awareness and the penetration levels of 5% that we reached in the Nordic market. Nineteen. Thank you. Derek, please go ahead. Thank you very much. So I was wondering a bit, I mean, given the lower growth we've seen this year and some of the deceleration in subscriber growth in general 1,000,000,000,000 in the Nordics markets, it seems like you're now referring more to a midterm target up 2023 of a 30% to 35% growth rate, which if you're being picked yet, Luz, is somewhat below the roughly 35% market you gave targeted at the Capital Markets Day last year. So should we view this as sort of a slight change to the midterm guidance? Nineteen. And in general, what's reasonable to expect of the year? So if you can give any flavor or comments on that would be very helpful. Thanks. I mean, if you look at it for the long term, we believe that the audiobook market worldwide will grow from SEK 40,000,000,000 to SEK 200,000,000,000 until 2,030, and we should have a 15% share of that at least, which is SEK 30,000,000,000 compared to SEK 2,000,000,000 today. To get to that, we need to grow at an average of somewhere between 25% 30% annually. And if that's going to happen right now or it's going to happen in a couple of years from now, percent. I think the average for this time period needs to be the 25% to 30%. And yes, you're right, we have revised 35%, moved it down a little bit to 30% to 35 1,000. And I think that's just a way of us saying that, listen, we understand that we're not delivering on our promises right now. If you look at nineteen. The growth, the revenue growth at Storetail has been 20% now for, I think, 5 quarters. So that's no change. The question is just why can't we deliver this increased growth rate that we were expecting and jump from 20% to 30% and we're not seeing that right now. I think that Probably we have not the right mix of markets that can contribute to that totally, because we're very heavily tilted towards the Nordic region with 78% of the sales there. And we need to add these non Nordic markets to a greater extent, which they are going to be that's going to contribute this additional 15% growth. We're not entirely clear on today, but we think that 25% growth end of year is what we can deliver until 2023. We should be able to up that a couple of notches to 30% at least with possibly additional markets, maybe more mature markets, possibly with M and A as well and also with an intense focus I think on partnerships. We don't know what a partnership with a Spotify or any other big play can entail, but we think that it's a good path to pursue and we're going to do that. It's very clear. Thanks. Stefan from Pareto. We can't see your picture, but I believe you have a question, right? I can't really hear you. So Joakim, please go ahead with your next question. Yes. Thank you for that, Sperry. So I think that I mean, with regard to your 2021 revised guidance, I mean, As I understand, it's fully organic. It does not include what the potential upside you might see from the Spotify Partnership or M and A for that matter. But on the medium term target, is that also entirely organic? Or does that entail more, I mean, strategic, I mean, investments or for that matter also M and A. And in order to deliver on the, I mean, 30%, 35% growth rates. Can you talk a bit about what I mean, what's the investment need 1,000. Would it take them to achieve that as opposed to what you have done already through the past couple of quarters? Yes. I mean, looking at M and A, as you say, I mean, we haven't done a lot of streaming we We haven't done any streaming M and As that are adding significant additions to our streaming revenue growth. I mean, if we were to do one that would add maybe, I don't know, SEK 100,000,000 SEK 200,000,000 to our top line then, that would be a one off effect and wouldn't help us kind of in the following years. I think what we have done, I think that's what Sophie explained is to really go through our allocation nineteen Investments and ensure now that we allocate those to the markets where we feel that we have best payoff in the near term and where we have possibly underinvested historically. So those are a couple of our basically our top 8, top 9 markets where we now see that we should intensify our focus because these markets are nowhere mature yet. There's still a lot of room for growth. On the partnership side, we have some local partnerships in different markets, but I think we are now in a position in the audiobook world where we can go out and sign a good interesting agreement where we can work with some of the bigger players either on the telco side 1,000,000 on the streaming side or in other ways. So I think that's what we're now realizing. We should have done this a earlier and now we're going to be very aggressive in that front as well. Well, thanks for taking the follow-up. Thank you. So let's do every other question, I guess. So Derek, do you have another question? Absolutely. Thank you. So just to continue on the cost path here. I think that given your estimate now for the 3rd quarter quarter and also the lower guidance for the full year. This still implies clearly a rather hefty acceleration in the Q4. Could you comment a bit on which markets you expect will contribute here? And also why this increase or acceleration would come at this particular point in time? Is it about the marketing investments that you're putting in now in the Q3 and also the upcoming in Q4? Or are there also other parameters here in terms of the timing? Ingrid will great question. Ingrid will respond to that. Thank you. So yes, I think we will see basically 2 effects. One of them is our Year long investments in new subscription models to really be much better at the local product market fit. We have so far enjoyed a very loyal subscriber base in many of the newer markets that are the 1st curve or the 1st movers basically in the consumer segments in audiobooks. And I think with the light product that we have launched as well as the select product, we have now an opportunity also reach much wider audience. So that's why we feel more secure that the Q4 will take off. And I think especially we can mention a couple of countries like Turkey, India and continuously good efforts in Russia. And then the second one is, of course, the marketing investment, which is also something that then this year looks worse On the EBITDA side. But we do quite a lot of large investments in countries where we feel that we have good traction, but maybe we have Diverted our marketing efforts to every country rather to the countries where it would bear most fruit. So talking about what Sophie said about continuous investments in the Nordics and especially in Northern Europe. Nineteen. Thank you. So Joakim, please go ahead. Nineteen. Thank you. And perhaps coming back to the Nordic markets, which is obviously despite having reached the 1,000. Not perhaps mature, but a mature stage, but still being able to grow at quite attractive level. What you have seen in the first couple of quarters, if anything, is a slight contraction on the contribution margin 5, although you have, I mean, initiated some price increases, which I would have thought would have come down strictly on the contribution profit side. So Can you talk a bit about what is driving the incremental margin here in the Nordics? And I mean, if it's competition or if anything? Thank you. Yes. So I can answer that question. So What we have seen as Ingrid showed in one of the slides is that, I mean, the consumption continued to increase and it increased Quite hefty in Q1. And given some I mean, we can't comment on specific agreements, but we do we have seen that the Content costs in some of the Nordic markets have increased in Q1 and Q2 compared to The same quarter last year, but we expect of course to come back to the levels where we were in 2020. Nineteen. And then we saw, as I said, a positive effect also from Linde and Company, which came into the group in 1st of April. And we continue to have a good internal share of consumption, which is an important metric for us. And then, of course, I mean, we have 4 out of 5 markets being Profitable in the Nordic segment, but then we have Finland, which is still on the path to reach profitability. And they have a lower Contribution margin, of course, given the marketing investments, so that also has an effect on the total contribution margin in the Nordics. Understood. Just to follow-up on that, can you talk about, I mean, what is driving the slightly higher content in Norway and Finland, given that, I mean, is this a function of, I mean, higher royalties or renegotiated Realty agreements and what can we expect here for the coming, say, year? Yes. I mean, as the audiobook market 1st, of course, the different incumbents and ourselves are having discussions on what reasonable levels of payments can be. And we had this situation in Sweden a couple of years ago with Bonnier, where we didn't get direct we had the conflict basically for a couple of months and then we solved it. And I think that we have Going discussions like this on a couple of the markets where the audiobook market starts to become interesting as an alternative to the physical book market. And therefore, temporarily, I think that this worsened margins can happen. Yes, it's constant costs right now and we're just working to find a good balance there. 1,000. Thank you. So I had a question on I think it was during the quarter here, the publishing house Egmont the Store Term Norway business with and we've also seen Bonnjer acquiring a majority, I think it was in the Strawberry Publishing Company. I was wondering What's your view on this and sort of the dynamics of, I guess, the Norwegian audiobook market going forward in light of this? And is this in any way affecting Your sort of ability to acquire content such as Strawberry, which I assume have some pretty attractive content in the country? I mean, Storetel's good question. So Storetel's market position in Norway is very strong, 1,000,000 of a very high market share there and keep growing. Looks like we will have an amazing summer there. And we also raised prices recently. So basically looking at the content side of things, I mean, we have a joint venture with Keppel and Lamb, which is the by far biggest Norwegian book publishing house with I think a 40% market share. And we've had that since 8 years back, 7 years back. It's a great collaboration where we've been equally interested investing in the audiobook market. They are producing the content basically and we're providing the platform and the service and are working jointly on the Board. So I think that what changes now is that the ownership of Kaplan Dam changes from being both Bonnier and Egmont fifty-fifty to being only Egmont now. And it's not something that directly affects the collaboration there. So we just need to ensure that we have a good working order on the Board there and then also Are well connected, of course, and talk to Egmond's management team and have a shared view of the future. So, yes. So it doesn't affect our since we don't do any books more or less in Norway, it doesn't really affect us as such. Got you. Thank you. Yes, Joakim. Please go ahead. 1,000. Yes. So can you say anything more? I mean, it's been a couple of months now since we first percent. Presented or announced the partnership here with Spotify. So is there any more, I mean, incremental information that you Can provide in terms of I fully understand that, okay, you can't perhaps elaborate too much on the economic details of the arrangement. But how this will really, I mean, allow you to fuel growth perhaps even above the targeted midterm growth rates here. Is this to be seen as a way for you to drive or accelerate growth at a very, Say low subscription acquisition cost or perhaps if there's anything more to it that you want to delve further into? You can think of it as, I think Spotify's vision with their open platform is to become, what I think they call it, a singular audio platform. 4. And basically, I think you can view it as, I don't know, App Store for audio or a Google for audio and that we will have a place there, hopefully a prominent place with a good collaboration, but that's too too soon to say is that the target is still to announce or to release this to customers by the end of the year. And the focus is entirely on making sure that we have a great user experience in terms of discovering the content on Spotify and then feeling attracted enough to start listening to the content and using a Storetail subscription or signing up for Storetail subscription to do it. And in terms of When we could expect, I mean, any further details on this? You mentioned that, okay, later this year, but is that more tilted towards the Q4? Or Is there anything, I mean, in terms of when this open access platform with you on it will actually launch? Yes. I think the teams are working towards the deadline sometimes in Q4, but I can't be more specific than that. Thank you. Derek, do you have another question? I do. So I have a question on I think it seems like you've been a bit more active with price adjustments or rather price increase 7 in your different markets of late. So I wonder if you just give a general So idea of the different rationales behind this, if it's a better capital or a loyal customer base Or what it might be and yes, just that and sort of the outcome and effects of this so far would be really interesting to hear. Thanks. I can start and then Ingrid can fill in. But basically, yes, we have seen over the years that as we keep investing in a much, much better service and content catalog, we see that people get improved access to very strong audiobooks and are more than willing to pay for that. I mean, you have to compare to the rest of the book market, which where books are typically priced even higher. So in the Nordic region, I think there's a big appetite for great stories written by amazing authors. And what we do is just ensure that I think that's priced adequately and we can see that from the churn numbers and the loyalty that typically entails our price increases that this is the right thing to do. It's good for the author community. It's good for the publisher community. And the customer gets a very good experience and good value for money. I I think we can maybe complement with the fact that we also have adopted our subscription models. So that in some of the markets we also launched a light product which is Consumption up to a specific figure of number of hours. So that ensures that the people who are just new to the service or are not such a high consuming segment yet can still enjoy the service at a reasonable price. Nineteen. So that's how we elaborate also with that in those markets that we try to increase the current prices and to ensure exactly what Jonas said, A healthy contribution to the publishing market and of course the authors and creators. Sounds good. Okay. Joakim, back to you. Yes. Just a final one for me. So when it comes to the free tier or the recently launched offering in Brazil, I mean, obviously, it's your comment here that the subscriber or the number of customers that have enrolled is quite sizable to say the But still there has been slight low conversion here. The numbers you mentioned in conjunction with the Q1 results eighteen. We're slightly more encouraging than your commentary as of now. So and since you are talking about elaborating this Here also in other markets, perhaps what do you need to be seen to get further confidence in this model? And when nineteen. Would you perhaps believe it is fair to actually start, I mean, including this, I mean, subscriber PIN in your subscriber numbers for the quarter, I think. Yes. Thank you. Good that you pointed that out in terms of how the subscriber of the free product is going in Brazil. So what we have done is really to launch in a very immature audiobook industry in Brazil. And together with the publishing community we have actually launched a product that would entail that people would find this product and Start listening to books. It's been quite interesting to see how the free community have listened to different So our free subscribers are finding content which are much more well known and kind of old stories, whereas the community that are paying for the service is finding much more newer content. So I think what we're doing here is really to Try to understand how these different subscriber basis or consumer basis and be willing to pay for it. So this is what we will continue to elaborate with together with our Brazilian team and possibly also launch it in maybe one more pilot market to see how that could add to the flavor or bouquet of different subscription services that we have or models. Nineteen. Thank you, Ingelib. Okay. Derek, did you have a final question perhaps? 1,000. Yeah. I have a final one and it was just on the sort of marketing activity 1,000,000 currently and for the upcoming quarter. You mentioned also the Poland and Netherlands, then in more markets 1,000. So you would be heavily tilted against them. And also if you could say something about like how much of this spend is related to And more general brand awareness and how much is more of a sort of direct conversion character? Thank you. Yes, over the year, we've actually worked very closely with our online partners in terms of nineteen. Marketing efforts to implement the center of excellence for performance marketing. So I think that has Sort of tilted our efforts a little bit more against the performance marketing, bouquet of marketing. And of course, that needs to be a balance between the Performance marketing versus brand building. And what we have in the plans now is to refocus a little bit of those effort or strengthening the efforts to also continuously build the brand long term because we see that that's important. People know about audiobooks. They know about storytell. Eighteen. But we also have been increasingly focused on talking about the content in our performance marketing, whereas Maybe we also need to divert some of the investments to build the continuous Storetel brand to help the unaided awareness. Nineteen. Thank you. Good. So thank you so much for tuning in. This, of course, has been a 1, a hard webcast for us. We're not super happy ourselves that we can't meet the future guidance that we set up before. 1st. On the positive note, we are performing as we have been in the past and we actually think that the Q4 performance will increase from 20% to 25% top line growth. That's our target at least. We haven't added any M and A. And frankly, in our 35% long term guidance. Of course, M and A is a part of that equation and could possibly come up going forward. 1,000. But we do look at the business now and see how can we create some short- to mid term growth and not only have a focus on these very long term immature audiobook markets. There needs to be a balance and our target is to ensure that, that balance results in the 30% to 35% top line growth. Nineteen. So thank you for tuning in and till next time.