EFTA00866816.pdf

From: lacy E." <jeevacationkf;gmail.com> Ta: David Find Subject: Re: BAML Spotify Cheat Sheet - UPDATE Date: Thu, 08 Mar 2018 00:28:41 4.0000 What price are we in and what do expect the ipo price On Wed, Mar 7, 2018 at 7:17 PM David Fiszel wrote: Means zero. They aren't involved. Analyst day will be March IS and I think it will be a 'merest. Morgan, CS and Allen&Co are the advisors. On Mar 7, 2018, at 6:27 PM, jeffrey E. icevacation@gmail.com> wrote: what does this mean to us From: Richard Kahn Date: Wed, Max 7, 2018 at 4:29 PM Subject: Fwd: BAML Spotify Cheat Sheet - UPDATE To: "dirty E." <jcszacaliangsautiLuan> Richard Kahn HBRK Associates Inc. 575 Losing= Avenue 4th Floor CC Begin forwarded message: From: 'Ens. Amanda" Subject: BAML Spotlfy Cheat Sheet - UPDATE Date: March 7.2018 at 2:09:53 PM EST To: *ricahn"‹ Reply-To: "Ens, Amanda' <image001.png> Trodtng Commentat plot o padoct of Mint Reseoten and shoridnot atived as o re(eotch report) Sootily: Stockholm-based music streaming service Timeline • March 15: Analyst Day (confirmed — livestream) official ustingfirading Date likely given • Week of March 19 (Tentative): Company sponsored investor Education" meetings & potential Research coverage launches by Sell Side • Week of March 26 (Tentative): Trading Begins - Advisors work with Spotify to set initial trade price • April 2 (Tentairve): Options Dade Financials - Eli-dine now publicly available 2017 Revs: $58 & Positive FCF $133M — 5.6x trailing revs certainly possible, implying $2564 valuation (In our SOTP for vivendi we have music at ax sales or eabn) Ordinary Shares Outstanding: 176,976,280 reported as of 2/22/18 Valuation: At high end of recent trading, implies mkt cap $268. (very rough estimate). However, using current secondary market prices (- $12S) implies a market cap of - $228 (very rough estimate) o Client conversations point to a $20-228 valuation as being a level they might add cmage002.png> LI4d49423hirthWeem404,04 IS Industry model: Record LabelsCND .New - Distribute thru spotify & Apple Music to Consumers- key question is how does Sootily pin control over supply? Bull/Bear Views • Bull o sootily becomes the Henna of music by becoming a record label owning exclusive content - not the case today and likely cash intensive EFTA00866816  o Spotify is an aggregator (not Nedfix), it's taking a commission on providing all music any time you want — pushback likely would be then should be valued on gross profit multiple • Bear o Cash burn / Potential dilution rises higher than expected as company pivots to become Netflix of music - paying up for performer exclusivity (good) but likely results in higher than expected cash burn (bad( o Typical consumer model is advertising — gNe service away for free and get 3rd party advertisers to pay for access to users. Typical business model Is SaaS — subscription fee. Key for both is marginal cost to add users is minimal. Due to royalty agreements, marginal costs for Sootily grow with user growth limiting operating leverage from network effect (simiar to Wit/Ober/N.1mb) • Competition- Apple Music - Record labels Index Implications In order to be included in the S&P 500, a company must have been trading for at least 12 months following an IPO as well have positive earnings. As a result, we don't expect any index implications for SPOT in the S&P 500 until these requirements are met. However, It should be eligible for the S&P TMI and Completion indices. We are still looking at implications for FTSE and MSCI based on domicile. Stock Loan Implications Given the structure of the IPO, there may be a delay in shares settling INTO stock lending programs due to the DWAC process. (DelNery Withdrawal at Custodian). This potential delay will more than likely affect the initial Leal! Liquidity for a few days. Happy to coordinate calls with John Egon, 8.4IVIL's Short Analytic Specialist Expected Trading Dynamics • Our understanding is that on the morning of trading, the Floor Specialist will act like a stabilizing agent normallywould (with banks advising) to help match supply and demand • The opening is likely to be very delayed as we will not know amount of shares to be bought/sold • The stock has a decent probability of trading up significantly on day 1 due to lack of pressure from selling shareholders & inability to source a locate Historical Mute Share Trading • 2017: $37.50 to $125 • 1/1/18 to 2/22/18: $90 to $132.50 (excl Tencent transaction( Some conf&skin on shore pekes as secondary market pikes ore currently '$5000/shore. Everything in prospectus reflects o 00-to-one shore spilt (this Includes the beneficiarycertificates that the founders own) eimage003.pne Source IL(Lem F.I ping • imat.v •,•••• z• 8ot• 44:14% is c4gly Jim 444ini I 411,1 414 Olga h44•4,44441N4 I Other tidbits • No deal roadshow, No underwriters • No fixed M of securities for sale • No lock-ups except Tencent Music Entertainment & Tencent (holding for at least 3 yrs from 12/15/17), who own - 7.5% • Majority Ownership by Founders - Daniel Elk controls 37.3% of shares and Martin Lorenuon controls 43.1% of the vote. Both founders control 21%of the ordinary shares outstanding • There is language about beneficiary shares that may be issued to founders on top of shares, but would be diutive and likely to maintain control if/when company does future capital-raising eimage004.png, SOWN< rang • Mrs w .0; gov ‘cvnigitthosintwvoyMpril 4‘180)%414,64•14 , 44111 hirM(4414.4.N4 t ttt Have received a lot of requests for conference calls & happy to organize calls for those interested. Thanks. Alli, Alkesh & Mike Trading Commentary (Not a product of BAML Research and should not viewed as a research report) This material was prepared by Trading pe 4 of Merrill Lynch andis subject to the terms available of the following link. This material was prepared by Cash Equity Trading of Mernll Lynch, Pierce, Fenner & Smith. Incorporated ("MO). The material is not a publication of BolA Merrill Lynch Global Research, and it has not been reviewed or approved by BolA Merrill Lynch Global Research. 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