Good morning. My name is Julianne, and I will be your conference operator today. At this time, I would like to welcome everyone to Spotify's Q2 2022 earnings call and webcast. All lines have been placed on mute to prevent any background noise. If you require operator assistance at any time, please press star followed by zero. I would now like to turn the call over to Bryan Goldberg, Head of Investor Relations. Mr. Goldberg, you may begin.
Thanks, operator, and welcome to Spotify's Q2 2022 earnings conference call. Joining us today will be Daniel Ek, our CEO, and Paul Vogel, our CFO. We'll start with opening comments from Daniel and Paul, and afterwards we'll be happy to answer your questions. Questions can be submitted by going to Slido.com, S-L-I-D-O.com, and using the code hashtag SpotifyEarningsQ222. Analysts can ask questions directly into Slido, and all participants can then vote on the questions they find the most relevant. We ask that you try to limit yourself to one to two questions, and to the extent you've got follow-ups, we'll be happy to address them time permitting. If for some reason you don't have access to Slido, you can email Investor Relations at ir@spotify.com, and we'll add in your question. Before we begin, let me quickly cover the Safe Harbor.
During this call, we'll be making certain forward-looking statements, including projections or estimates about the future performance of the company. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed on today's call, in our shareholder deck, and in filings with the Securities and Exchange Commission. During this call, we'll also refer to certain non-IFRS financial measures. Reconciliations between our IFRS and non-IFRS financial measures can be found in our shareholder deck, in the financial section of our investor relations website, and also furnished today on Form 6-K. With that, I'll turn it over to Daniel.
All right. Hey, everyone, and thank you for joining us. I hope you had a chance to take a look at our new approach to sharing our earnings results. We would love any feedback you have, because as I mentioned on our Investor Day, we want to improve how we communicate with you. I see this revised format as an important first step, and Paul will speak to this further in a few minutes. With that, let's jump into the quarter. We had another very strong quarter in Q2, building on the momentum and success we've now seen for four consecutive quarters. The acceleration in our user growth continued, and we had a very strong beat on MAU growth, coming in about 5 million users ahead of forecast.
As a reminder, this was one of the weak spots for us in Q2 of 2021, so I'm really glad to see the hard work from our teams has paid off. In addition, our global subscriber growth exceeded expectations by 1 million while revenue was in line. Going forward, while the macro environment continues to present uncertainty, we're currently not seeing any material impact on our expectations for users or subs growth from the economic downturn. In fact, we're seeing several markets trending ahead of our forecasts. That said, in anticipation of a potential slowdown, we already shared that we've proactively reduced our hiring by 25% and instituted a double-down weekly revenue monitoring. I've said this before, I do believe only the paranoid survive, and we're preparing as if things could get worse. It's hard to be anything but optimistic given what I'm currently seeing.
Looking further ahead, recession or not, my confidence in our business and the unique Spotify machine that we're building is really unwavering. Audio is growing and Spotify with it. Hopefully, after last month's Investor Day, this is a term you're all familiar with. For those needing a refresher, we believe the Spotify machine is what differentiates us from other tech platforms. It leverages one consumer experience, powered by three revenue-generating business models, subscriptions, ads, and marketplace. As I detailed last month, we're confident in our ambitions to get to 1 billion users by 2030, while at the same time, we are also focused on improving our gross margins and continuing to generate positive free cash flow. This rinse and repeat approach and the machine behind it that bundles multiple business models with multiple verticals into one user experience is what we will continue to invest in.
Not only will this investment benefit Spotify and its shareholder, but it also creates tremendous upside for listeners, artists, songwriters, creators, and advertisers. For those who want to learn more, I'd really encourage you to go to our investor site to catch a replay of our recent event. We highlight the big bets we're making, the incredible opportunity on the horizon, and detail how we're measuring success. With that, I'll hand it over to Paul to go deeper into the numbers, and then Bryan will open it up to the Q&A.
Great. Thanks, Daniel, and thanks everyone for joining us. As Daniel mentioned, we have moved away from our shareholder letter, transitioning to a slide-based presentation. Our goal is to make our performance as easy to understand as possible, and we hope this new format resonates with the investment community. Please reach out to me or the IR team with any feedback. Now, turning to the quarter, I'd like to add a bit more color on our strong operating performance and what we're seeing with respect to the macro environment and then touch upon our outlook. Let's first start with our strong user performance. Total monthly active users grew to 433 million in Q2. This result was 5 million ahead of our guidance and was the largest Q2 net additions in our history after adjusting for our exit from Russia and the March outage, which we discussed prior.
Moving to Premium, we finished the quarter with 188 million subscribers, 1 million ahead of guidance. Thanks in part to broad-based strength across regions, particularly in Europe and Latin America, where upside was helped by an extra week of promotional activity and traction in our multi-user products like Premium Family and Premium Duo.
Revenue finished ahead of guidance, which was helped by currency movements, and we saw another strong quarter in advertising, which grew 31% year-over-year. With respect to gross margin, on a reported basis, Q2 finished below guidance, but gross margin was modestly ahead of our expectations when adjusting for one-time charge related to our decision to stop manufacturing Car Thing, as well as the positive net royalty impact we saw from prior period accrual adjustments. Looking specifically at Car Thing, our decision to stop manufacturing the device was made based on a few factors. First, we tested a number of price points, and we frankly haven't seen the volume at the higher prices that would make the current product financially viable.
Second, rising inflation and component costs, coupled with the expanded lead time needed to order parts, has significantly altered the risk/reward of continuing to lean into further product development. Our decision resulted in a one-time charge of EUR 31 million, impacting gross margin by 109 basis points in this quarter. Our decision will minimize further gross margin impact and cash flow expenditures moving forward. As we discussed during our recent Investor Day, much of our operating expense growth we saw in Q2 was a result of decisions we made toward the end of 2021, mainly to expand our global sales team, invest in our platform, and increase marketing to drive user growth. We've also added incremental costs associated with our acquisitions of Podsights, Chartable, and Whooshkaa.
Lastly, while we did forecast higher growth, a significant portion of our operating expenses are in US dollar denominated and foreign exchange movements added nearly 1,000 basis points of growth in expenses, and this was more than expected. Despite the increase in operating expense, we generated our ninth straight quarter of positive free cash flow. We're looking at our free cash flow growth on a trailing twelve-month basis, which smooths out seasonality. It shows a very consistent trend. We have averaged over EUR 200 million of free cash flow for the past three years. We believe this is really key way of looking at our business and also smooths out the lumpiness that we see quarter- to- quarter.
Looking at Q3 and beyond, as Daniel said, we continue to monitor the global macro outlook, but to date have seen no real impact on our user or subscriber outlook. Specifically, we expect to see another quarter of accelerating MAU net adds and expect subscriber net additions similar to Q3 of last year. On the premium side, which is still the majority of our revenue, we expect ARPU to be up in the mid-single digits. For advertising, we did see some softening in trends over the last two weeks of June. With that as context, we still expect solid growth in Q3, albeit slower than we might have forecast earlier in the year.
Our gross margin outlook of 25.2% for Q3 is in line with our full year commentary and reflects our expectation for continued core operating improvements across our music and podcasting business, offset by select growth initiatives. We anticipate elevated operating expense growth consistent with Q2's run rate for the next few quarters, with the benefits of our previously announced 25% slowdown in new headcount additions showing up later in the year. Currency will continue to be a negative drag on OpEx as well. In closing, despite an uncertain macroeconomic environment, we continue to be highly encouraged by the trends we have seen year-to-date. With that, I'll hand things back over to Bryan for Q&A.
All right. Thanks, Paul. Again, if you've got any questions, please go to Slido.com, hashtag SpotifyEarningsQ222. Once your question's entered, you can edit or withdraw it by selecting the option in the bottom right. We'll be reading the questions in the order they appear in the queue with respect to how people vote up their preference for questions. Our first question today is going to come from Matt Thornton on premium subscribers. Can you provide some color on what you're seeing in terms of gross intake and churn, and what impact the extra week of promotion had on Q2 and the Q3 outlook?
Yes. In general, really positive trends. We haven't seen any change at all in the trajectory of gross intake, or churn. We don't give out specific churn numbers, but I can tell you churn was in line with expectations and down on a year-over-year basis. No impact on either of those. The extra week, it definitely helped a little bit in the quarter. I would say some of the outperformance came from the extra week, but not all of it. We see that carrying through into Q3. The Q3 number, the expected growth in Q3, is the same that we thought heading into Q3 as it is heading into Q3. Sorry, heading into Q2 as it is heading into Q3. The outperformance was strong in Q2, and we also see strong growth in Q3 as well.
All right. We've got another question here in the queue from Matt Thornton. This one's on our live initiatives. What's been the early uptake and reaction from artists or content creators? How are we driving awareness, and what's been the early willingness of artists and fans to want to sell and buy live experiences via Spotify?
Yes. I would just really say it's early days on experimentation on our live initiatives, both the physical and digital ones. We've been experimenting quite a bit during the pandemic. Obviously, it's been hard to do that with physical live events, but we did a bunch of them on the digital side. I think the reality is much of those learnings are inconclusive because much of the world that we're in now, in a post-pandemic world, if you can call it that, it's just very different from the experiences that people were willing to pay for and experience during the pandemic. We're in the early days of learning and iterating.
What gives me optimism is really looking at how prevalent this format is in many Asian markets, however. There you see a great bunch of everything from live shopping to formats where you see NFTs, you see consumers wanting to participate in the live stream with their favorite creators. There's a lot of innovation that's going on in Asian markets in the space. That's where we're looking to for inspiration, but it's not something that you should expect to be a rapid improvement in the near quarters, but this is a multi-year effort from us.
Okay. Next question from Rich Greenfield on new verticals. At your investor day, you talked about new categories, having closed on your audiobooks acquisition. How should we think about the impact of this new category in the back half of 2022? W hen should we expect to hear more about the other categories you teased at the Investor Day?
We're very pleased with closing Findaway. Happy to do that integration work now and starting to work with the team. You should see us quite imminently get something to market. Think early coming months, coming weeks, something to the market, and then rapidly improve and iterate upon that proposition. The reality is you'll probably see more of the full extent in the first half of 2023 of the audiobook efforts, and it's really first half of 2023 to second half of 2023. You start seeing some of our work in some of the other categories that we're doing as well. There's nothing that I can announce at this point about what those will be or what kind of investments we're doing in those categories at this moment. We're experimenting with them. We do plenty of experiments and bets internally, and 2023 will be a very big year for Spotify.
Okay. Our next question will be from Maria Ripps on the ads business. Your music advertising business saw double-digit growth in CPMs and a mid-single digit increase in impressions. Can you share your thoughts on opening up more ad impressions, and can that be an additional growth driver? Where's your ad load today versus where you'd like it to be?
Yes. I'd say if you take a step back and look at advertising in general, I think there's a number of factors that we think will grow the ads business. I think for us, we're focused on a couple things. One is just growing overall free users and free user growth. Two is actually on the engagement side. One of the best ways to actually get increased inventory is to increase engagement.
We're constantly improving and testing products within the free offering, and you'll continue to see more innovation on the free side to drive more usage and more engagement because we think that's actually the best way to increase impressions, is actually to have people come back more often and to actually see both the engagement up and the DAU to MAU ratio improve from that standpoint. We don't really talk about ad loads. We think there's probably some room to expand it over time. A lot of it will depend on the product and the person and how we dynamically serve ads to different people at different times and at different amounts. You'll see us continue to innovate on how and when we sell ads to individuals.
All right. Next question from Justin Patterson on our gross margin and advertising business. Paul, in the wake of the CRB ruling and in an uncertain advertising market, how should we think about the puts and takes toward gross margin ahead? Th en, related to advertising, what gives you confidence that podcasting is not viewed as an experimental channel for advertisers?
Yes. With respect to the CRB ruling, at a high level, we have been accruing at the rates that were reaffirmed. There's really no major change to anything from a forecasting perspective or from a modeling perspective. There was some modest benefits to us both retroactively and prospectively based on some of the nuances within the language. That's a little bit of what you saw in the positive accruals that we accounted for in Q2. There'll be a minor small benefit to gross margin moving forward, but it's pretty minor. For the most part, the ruling has a pretty minimal impact on our numbers or our forecasts. With respect to advertising and podcasts not being experimental, I'll start.
I don't know if Daniel will have any comments on this. We've seen strong continued growth on the podcasting side. S ignificant year-over-year growth. Again, we're seeing increased number of advertisers, increased demand. We've just seen really strong growth. We think it's becoming a core buy for people. It's always tough to know, but we're really encouraged with the trajectory and the year-over-year growth we saw again in Q2.
Yes. My only addition is, if you think about it broader and not just around podcasting, but think about audio more as a category, one of the very unique things about audio and the properties around audio is really how differentiated it is from all the other media that's out there. T o take that into consideration, there's no other media format that can reach consumers in the car. The car is a massive use case, in particular in North America. Radio usage is going down, digital consumption of content is going up. It's quite obvious that audio ads is going to be a very dominant driver for reaching people as they're in the car.
Similarly, when you think about, as people are walking around outside, more and more of us with our headphones and earbuds , there's a huge opportunity in local advertising too. I believe that audio is the primary beneficiary of that. As you think about it from a structural standpoint, and more from a first principles standpoint, I think it's obvious that audio and audio advertising is going to be a massive category in and of itself because it reaches people at times where no other media reach them, and it has certain properties that other media don't have.
You have, in addition to that, lots of qualitative factors when you see host-read ads, when you see it adjacent to the first-party data about the topics that we're seeing people engage with. You're seeing great response for advertisers in addition to that. We are seeing, despite a very dire macro environment, advertisers uptake of the format really, really well. I think that's a testament to the product actually working. We had talked about this before, but the retention of the advertisers that we have is also going up, and that clearly shows that the format is working for them.
Okay. Next question from Rich Greenfield. You're generating cash and you're sitting on nearly EUR 3 billion of cash on the balance sheet with investors continuing to dislike your stock because you are investing to win audio long- term. How do you think about share repurchases given where your stock's trading here?
Yes. Not surprisingly, we talk about c ash and capital allocation all the time. G iven the uncertainty on the one hand and also given some of the acquisitions we made and the pipeline we've had or knew was coming from an acquisition, we've been comfortable with the cash we've had on hand. Obviously, with interest rates rising and some of the uncertainty, it's always safer to have a little more cash on hand and not ever need to go back to the market for anything we wanted to do either internal investments, which obviously we're making a lot, or continue to M&A which we've done as well. We think about it all the time.
We obviously are fully aware of where our stock price is and fully believe in the opportunity of how big this opportunity is in front of us. It's something we weigh all the time. We do have an authorization in place, and we're always just looking to maximize the capital allocation the way we think is best to run the business.
My only addition to that would be, if you think about it, there's three ways we can utilize our cash. One is obviously invest in our business, the second is to do share buybacks, and the third is to do dividends in that order. Every now and then, we see more opportunities to continue to invest in the business than we do in share buybacks or dividends, and this is one of those moments. For all of those reasons, we're investing in the business, and we feel really good about it with the expansion of the formats that we're going into with the podcast investments we've been making, et c. We feel the more prudent thing is to keep investing in the business rather than doing share buybacks or anything else.
Okay. Next question from Matt Thornton. On advertising, what are the key drivers of ad growth through second half 2022? For example, international, recent measurement acquisitions, political, World Cup, or anything else?
Why don't I start and then you, Paul, can chime in. I think the primary thing, and we've said this before, is that, and we talked a little bit about this during our Investor Day too. The number one part is still that a lot of our inventory just isn't available to advertisers just yet. We're expanding the amount of inventory that's available. That's going to be by far the single biggest contributor to the growth of the ad business. In addition to that, you mentioned some one-time events that typically are very strong for ad businesses like elections and sporting events, etc .
Those are obviously going to be impactful for Spotify too, but I think in essence, it's really about increasing the inventory available for advertisers and increasing the targeting so that they can drive even better results. Those are the top ones. I don't know, Paul, if you wanted to add anything.
Yes. J ust to touch on the specific questions. I think a lot of the investments we're making international will really bear fruit in 2023. M aybe some of the tail end of this year, but definitely more from that standpoint. The political is new for us. We've just entered back in there. We're doing it in a targeted, smaller way, so we'll see how impactful that is. Actually, at this point, we honestly don't know. And as Daniel said, I think on the measurement side, that's definitely been a help, and we'll continue to lean into improving measurement and tracking and attribution and all the things that advertisers are looking for. T hat's actually been a driver of growth for us.
Okay, we've got a question from Mario Lu on operating expenses. Historically, we've seen operating income dollars improve sequentially from Q2 to Q3 and Q3 guidance calls for negative sequential growth. Outside of FX, are there incremental investments, content or OpEx to call out that would cause this decline?
Yes. F or starters, it's hard to not include FX. FX is going to have a pretty significant impact on Q3. It's about an $80 million headwind in Q3 or higher expense growth just based on FX. Just as a refresher, most people know this, but we report in euro, and pretty much every currency that we operate in, particularly the U.S. dollar has appreciated relative to the euro. We definitely see some benefit on the revenue side from currency, but we see an even bigger drag on the OpEx side from currency. We've got, if you look at revenue and gross margin, they're fairly matched up from a revenue and cost perspective.
Not perfectly, but fairly matched up. They're not matched up on a revenue and OpEx side, and so we do have a disproportionate amount of our operating expense denominated in US dollar relative to revenue, and that is hurting us and will hurt us more than we expected in Q3 based on how much currency and FX has moved. O utside of that, it's the same things I'd mentioned. We had already planned over probably six months ago to continue to grow that our global sales force and as well as increase marketing to grow users, particularly in some of our newer markets and that hasn't changed. Those would be the three factors that are impacting OpEx in Q3.
Okay, next question from Justin Patterson on subscriber conversion opportunities. Daniel, MAU growth in the rest of the world continues to be a bright spot, but sub conversion is still in the early innings. What do you need to do from a pricing and plan perspective to convert those MAU into more subs?
I think the first piece of context I just want to give everyone, because I think it's very important, is what generally happens is what we call the bandwagon effect at Spotify. One likes to believe that there's a one-to-one analogous part where both of these two trends have been linear of user growth and then subscriber growth. What actually happens is we typically have gone between a flip-flop of focus on each. In some points of the Spotify history, we focus more on user growth. In some part of the history, we focus more on conversion because that became a bigger priority.
The trend line that we've seen now, as indicated since really our launch in 2008, is once we go through these growth spurts in MAU, it always leads to better subscriber numbers over time. It's really just a bandwagon effect. It just takes time. Depending on where those customers come from, we then have to figure out, okay, well, how do we best convert them? The team gets focused on that, and it usually lags about a year from when we get them until we start seeing material improvement here. I look at this as I don't know what the specific pricing and plans will be, if it might even be a more of a marketing challenge in some of these markets, et c.
I think the general recipe is the team's been very much focused for the past year in growing users. I'm very, very proud of their work, and I'm very, very pleased with the results we're seeing of that effort, as you can see about the re-acceleration of MAUs. At our scale, to re-accelerate MAUs, it's very, very difficult to do, and it's not very many platforms that do that. We're doing that right now, and we're very, very positive over the impact that that will have for the remainder of the year, as you can see in our guidance too. That's probably the number one takeaway you should take from this entire earnings call.
What will happen subsequently is, as this trend line now keeps going, now the team's going back to, "Okay, well, how do we convert more of these people into paying customers?" That's what the team will be working on now too. If history is any indicator of the future, what will happen is roughly a year from now, you'll start seeing probably an acceleration in subscriber growth, as evident from that. That's what happened in the past. I believe that's what's going to happen now too. Exactly how that will happen, I don't know and I've never known that in the history. We just have figured out various pricing plans and/or different payment methods. The team's very resourceful when it comes to stuff like that.
Okay. Our next question is going to come from Deepak on marketing. With the Barcelona partnership kicking off in July, can you talk about your expectations for subscribers and MAUs from it in the second half of the year? C an you also help us size the incremental impact on OpEx from the partnership for the second half?
All right, I'll do the first part, and Paul can do the second part about the OpEx. As a general reminder, one of the reasons why we're so excited about the Barcelona partnerships is just really around the impact the club has around the world, in particular in LatAm, but in Southeast Asia, our number one growth markets that we have. It also in particular with the younger audiences, Gen Z that the club has. It's really a perfect overlap when we think about where their strengths are and what our future growth opportunities lies as well.
A good framing for investors would probably be to look at this as this gives us a tremendous amount of exposure organically to a customer base that's notoriously difficult to market towards in many markets, which is very, very hard to reach them in. We believe, relative to other marketing initiatives, that this partnership should be more accretive than any other source that we could do to reach these customers in. That's obviously something that will have to be proven out. That's the thesis through which we enter the partnership in. The team's working on that, and you can see it in many social channels already.
I would just highly recommend you to go to both Instagram and YouTube and all TikTok and all these channels and subscribe to the FC Barcelona social channels and see the amount of content that they're putting out now that's jointly with the Spotify team, where music and soccer/football is coming to life. The social engagements are just off the chart. So far so good. The expectation you should have is not that this will come into fruition in the second half of this year. This is a multi-year partnership. We will take the second half of this year to learn and iterate on what works. You should see in 2023 that hopefully get ramped by us doubling down on what worked, stop doing what didn't work, and it's trial and error.
The most important thing is we have a very, very great partnership team from our side, and we have a great partnership team from the Barcelona side that are focused on delivering results. That's why I feel good about the partnership. I t's early innings, but if this proves out to be right, you should see it as being probably the most efficient channel that we can reach Gen Z in LATAM and Southeast Asia. That's the thesis through which we entered the partnership in. Paul, I don't know if you want to talk about the specifics around the OpEx.
Yes, there are a couple of things. Well, first, in general, I'll just echo what Daniel said. Follow on social media. If you guys don't know, Barcelona is out playing a bunch of friendlies in the US. They've been in Miami, they've been in Vegas. They'll actually be at Red Bull Stadium in New York this upcoming Saturday. It's been great. The combination of athletes love musicians and musicians love athletes and the mutual love we've seen on social media has been pretty fun to watch. T hat's actually been great. Just to echo what Daniel's point in terms of the reach, our data would suggest that Barcelona as a club reaches over 700 million unique people per year.
As Daniel mentioned, many of them in Latin America and emerging markets, and places where our next real phase of growth is going to be. We're super excited about that. Then from an OpEx standpoint, we've absorbed, I would say, probably about 80% of the incremental cost. We've reallocated other funds previously, but there will be about 20% of our cost is going to be incremental. That is a little bit of the marketing spend in the back half of the year is some of the costs related to that. Then again, as we get into 2023, we'll be able to cycle through, and as Daniel said, we'll be reallocating some marketing dollars to fully cover the incrementality of Barcelona.
All right, next question from Steven Cahall on gross margin. The vast majority of your gross profit comes from premium subscribers, and premium subscribers by region are slowly skewing more towards LATAM and rest of world. Does the growth in these regions present any premium gross margin mix headwinds?
The short answer is no. We don't really have any impact from that at all from a premium perspective.
Okay. Actually, conveniently, there's a follow-up from Steven Cahall in the queue, on premium pricing. Premium ARPU reportedly benefited from price increases in the quarter. Are you considering any in the U.S., and how did churn perform in regions where you implemented price increases?
I'll start, and if Daniel has any comments. First, just on churn in general, we see no impact to churn. Most of the price increases we launched are now a couple of quarters old, and we've talked about that over the last couple of quarters that we saw no material change in churn relative to any of our price increases. Just in general, just as a macro question, which I think we addressed earlier, but we haven't seen any impact at all on churn, either with respect to some of the questions we're getting about the macro uncertainty. The churn levels have been right in line with expectations. As I said, our core churn was down year-on-year in Q2 versus Q2 of last year.
On price increases, we obviously aren't commenting on anything. We've talked at the investor day about our belief that we have pricing power over time. T hat being said, there's a lot of macro uncertainty, and so we're always going to be smart about how and when we implement anything. I don't know Daniel if you have anything to add to that.
No, I would just say, we feel really confident in our ability of the value that we're providing to consumers, and that over time, we should be able to translate that value into price increases. Given the macro uncertainty in the marketplace, we're obviously going to be very careful before making any such moves. Long- term, we definitely believe we have pricing power. Short- term, obviously very concerned about the uncertainty in the marketplace, and we're going to evaluate that uncertainty into any decisions we make.
All right. Our next question is going to come from Ben Swinburne on advertising. How are you innovating in the Spotify Audience Network to attract more third-party publishers who have other options to monetize? I n addition, can you talk about the opportunity to build meaningful revenue off Spotify through the Spotify Audience Network?
Yes. L ook, I think it's a couple of things. I think one is if you look at the acquisitions we've made, those have been geared towards bringing more measurement, more attribution, more personalization for advertisers so that the value that they get on Spotify is higher, which will bring more people into SPAN and more people want to put their inventory into SPAN. It's really about the obvious, which is continuing to build out the ad tech, the ad stack, both through our own internal development as well as some of the acquisitions we've made, integrating those in and then offering those up to a wider array of advertisers.
We're going to continue to increase, and build out our self-serve tools, which will bring in more small and mid-size advertisers. All of that will go towards bringing in both more publishers to opt in and the more advertisers who can both effectively and easily advertise on Spotify.
Yes. I would just probably add, if you think about it's a trifecta of three things. It's the trifecta of what we as a platform can contribute. It's the number of advertisers and the number of publishers. What we can add to the table is obviously all the things that Paul talked about, better data, better targeting abilities, better formats. That should mean advertisers get a better deal, and if there's enough advertisers, that should also means the publisher getting a better deal. In addition to that, we also have a pretty sizable ad sales team now, which help cover a lot of advertisers and publishers relationships in many markets around the world. That's something that we tend to always underestimate, but it's a very powerful thing.
O n the audio network side, there's no platform that can truly get to this scale in as many markets as Spotify does. W hen you're a publisher, and let's say you have audience in many more markets, I just don't see any alternative to Spotify because frankly speaking, we have more data to bring to the table that should mean better results for advertisers, so advertisers are getting better value and b ecause we have our sales force in many markets, we can also help sell their inventory in many more markets than say they could do on their own or even through a much smaller reseller of their inventory.
Our host-read ads, which are perhaps more unique and novel in their delivery, at scale, Spotify should win with all the advantages that we bring to bear. Those are the similar talking points on SPAN too b ecause even though they're off-platform, we can still leverage a lot of what we know around our audience and our sales force and what we know around advertisers as well, and bring that to bear for people off the platform too.
All right. Our next question is going to come from Mario Lu on market penetration. Much of the MAU growth in Q2 came from Latin America and rest of world versus lower growth from North America and Europe. How should we think about user saturation in the developed Western markets and growth there going forward?
I'll start and then maybe Paul, you can add. Obviously, naturally so when you think about the TAM, the emerging market or rest of world is obviously far greater in future potential than the existing markets. The inverse is probably true in the short term to revenue potential. The way I think about it is, if you create a mental model, the near, mid, and long term, and then think about developed and developing or rest of world, and then you think about growth in users and growth in revenue, I think you'd see most in the near to midterm, most of the user growth should come from more of the emerging markets to not.
Given what we talked about during our investor day, we think more of our revenue story in the near to mid-term should come from our already developed markets. The great story there is that we believe we can upsell more of these into podcasting, which means more people will spend more time and then subsequently audiobooks, which also means that they'll spend more time and increase our revenue opportunities there too. Overall, on the platform growth side, we think obviously more of the user growth should come from emerging markets where they're more mid to long- term in terms of monetization opportunities. It is true that developed markets were slowing down. The flip side is not on the revenue side. We have lots of opportunities there still.
On the emerging market side, we have probably more work to do on the monetization side, and that will take a little bit longer, but that's the mid to long- term story.
Okay. Next question from Ben Swinburne on audiobooks investment. Now that you've closed on Findaway, can you give us a sense of the investment needs for audiobooks over the next 12-18 months? Sh ould we be thinking about this vertical materially impacting OpEx or gross margin in 2023?
I'll start and then Paul maybe can add. We're obviously super early in the integration efforts with Findaway. We're still trying to create any plans. Just like you should imagine and as we've talked about before, you should imagine us to start experimenting getting this up and live. If we're seeing great results, we will double down on that investment and that might in turn obviously impact OpEx. However, the gross margin considerations for this vertical will be substantially different than other verticals, and that should be positive to us.
The only thing I would add is, I think Daniel mentioned that with Findaway having closed our expectation is that the first iteration of audiobooks will occur in Q3. You can assume that there's been some of the OpEx that we've talked about has gone to making sure that we've been building up the resources, the potential to quickly integrate Findaway. There's been some expense already that we've incurred to build out the team and be prepared for Findaway. Then again, as it ramps, we'll give you more guidance as we get closer to 2023 when we give that guidance.
All right. We've got time for one more question, and that's going to come from Doug Anmuth on net additions. Do you still expect 2022 MAU and subscriber net additions to be in line with 2021 levels? W hat factors would change your view here?
Yes. Let's start with MAU first. I think as you've seen both now through Q2 and then our guidance for Q3, we're pacing pretty well for MAU through the year. While we aren't giving Q4 guidance, t he numbers would definitely imply that we're on pace to do similar to or better than that for 2022 on the MAU side. On the subs side, we've done really well on subs as well. W hen you think about those numbers, there's some moving parts with respect to pulling out Russia as well as some of the expected growth we had in Russia for 2022 as well. On the subs side, I'd say roughly similar types of growth, when you normalize for the Russia stuff. On the MAU side, we definitely look like we're on pace to do a little bit better than what I said already.
All right. Great. That's going to conclude our Q&A session on today's call, and I'll turn it back over to Daniel for some closing remarks.
All right. Well, thank you everyone for joining the call. I just want to close by saying that I'm really confident and I have a lot of optimism in our business and hopefully this quarter was a just great testament to all of that. I look forward to the rest of the year. For more detail, please do check out For the Record podcast. That should be dropping tomorrow or the day after. Thank you everyone for joining.
All right. That concludes today's call. A replay will be available on our website and also on the Spotify app under the Spotify earnings call replays. Thanks everyone for joining.
This concludes today's call. You may now disconnect.