EFTA02511651

From: Richard Kahn Sent: Monday, March 5, 2018 6:01 PM To: Jeffrey E. Subject: Fwd: BAML Spotify Cheat Sheet Richard Kahn HBRK Associates Inc. 575 =exington Avenue 4th Floor New York, NY 10022 tel fa cel Begin forwarded message: From: =/b>Paul Barrett Subject: =/b>Fwd: BAML Spotify =heat Sheet Date: March 5, 2018 at 12:49:37 PM EST To: =/b>Richard Kahn Paul Barrett Alpha Group Capital LLC 142 = 57 <x-apple-data-detectors://0/1> th <x-apple-data-detectors://0/1> Street, 11 <x-apple-data- detectors://0/1> th Floor, New York, NY 10019 <x-a le-data-detectors://0/1> (o) (c) Begin forwarded message: From: "Ens, Amanda" Date: March 5, 2018 at 12:42:49 =M EST EFTA_R1_01644095 EFTA02511651 To: "Paul Barrett" Subject: BAML Spotify =heat Sheet Reply-To: "Ens, Amanda" Trading Commentary (Not a =roduct of BAML Research and should not viewed as a research report) Monday, March 5th, 2018 Timeline (Tentative) March 15: Analyst Day - Official =isting/Trading Date likely given Week of March 19: Company =ponsored "Investor Education" meetings & likely =esearch coverage launches by Sell Side Week of March 26: Trading Begins - =dvisors work with Spotify to set initial trade price • April 2 (Tentative): Options =rade Financials - Fl =iling now =ublicly available 2017 =evs: $5B & Positive FCF =133M — 5.6x trailing revs certainly possible, implying $25B+ =aluation (Vivendi — not clean comp sells at 2.2x current yr =evs). Ordinary Shares Outstanding: Working on syncing our =hares outstanding number with what is reported in the F-1. Source: SEC.gov, F-1 filing - https://www.sec.gov/Archives/edgar/data/1639920/000119312518063=34/d494294dfl.htm#rom494294_18 Historical Private Share Trading • 2017: $37.50 to $125 • 1/1/18 to 2/22/18: $90 to $132.50 =excl Tencent transaction) o At high end of recent trading, =mplies mkt cap $268+ (very rough estimate). Bull/Bear Views • Bull Argument for =tock to go $30B+. The model is not =etflix, it's like EBay or GrubHub. Company isn't =bout owning content — they're just taking a chunk of =he subscription for all the music you want anytime you want. Pushback will be =hen multiple should be on gross profit not revenue — we'l= see • Bear =rgument. If it's =etflix, then Spotify's lack of performer exclusivity is a =roblem — long term strategy for Spotify likely to be paying up =or performer exclusivity (good) but likely results in higher than =xpected cash burn (bad). • Competition = Apple's U.S. user =ase may exceed Spotify's by this summer. Spotify at 70M =ubscribers, growing at 2%/month vs Apple at 36M subscribers, growing at =%/month. Expected Trading Dynamics Our understanding is that on the =orning of trading, the Floor Specialist will act like a stabilizing =gent (with MS advising) normally would to help match supply and =emand. The opening is likely to be very =elayed as we will not know amount of shares to be bought/sold. The stock has a decent probability =f trading up significantly on day 1 due to lack of pressure from =elling shareholders. Other=tidbits • No deal roadshow, No =nderwriters • No fixed # of securities for =ale 2 EFTA_R1_01644096 EFTA02511652 No lock-ups except Tencent Music =ntertainment & Tencent (holding for at least 3 yrs), who own =7.5% Majority Ownership by Founders - =aniel Elk controls 37.3% of shares and Martin Lorentzon controls 43.1% =f shares • There is language about =eneficiary shares that may be issued to founders on top of shares, but =ould be dilutive and likely to maintain control if/when company does =uture capital-raising Source: SEC.gov <http://sec.gov/> , F-1 filing = https://www.sec.gov/Archives/edgar/data/1639920/000119312518063=34/d494294dfl.htmffrom494294_18 Funding Rounds Source: Crunch =ase https://www.crunchbase.com/organization/spotify#section-locked•=arketplace Trading Commentary (Not a =roduct of BAML Research and should not viewed as a research =eport) This material was =repared by Trading personnel of Merrill Lynch and is subject to the =erms available at the following link: http://corp.bankofamerica.com/business/smb/landing/emaildisclai=er/americas/global-markets This material was =repared by Cash Equity Trading of Merrill Lynch, Pierce, Fenner & =mith, Incorporated ("ML"). 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