Fwd: BAML Spotify Cheat Sheet
Trading Commentary (Not a product of BAML Research and should not viewed as a research report)
Monday, March 5th, 2018
Timeline (Tentative)
- March 15: Analyst Day - Official listing/trading date likely given
Week of March 19: Company sponsored "Investor Education" meetings & likely research coverage launches by Sell Side
Week of March 26: Trading Begins - Advisors work with Spotify to set initial trade price
April 2 (Tentative): Options trade
Financials - Filing now publicly available
2017 revs: $5B & Positive FCF $133M — 5.6x trailing revs certainly possible, implying $25B+ valuation (Vivendi — not clean comp sells at 2.2x current yr revs).
Ordinary Shares Outstanding: Working on syncing our shares outstanding number with what is reported in the F-1.
Source: SEC.gov, F-1filing -
https://www.sec.gov/Archives/edgar/data/1639920/00011931251806334/d494294df1.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, implies mkt cap $268+ (very rough estimate).
Bull/Bear Views
• Bull Argument for stock to go $30B+. The model is not Netflix, it's like EBay or GrubHub. Company isn't about owning content — they're just taking a chunk of the subscription for all the music you want anytime you want. Pushback will be when multiple should be on gross profit not revenue — we'll see
• Bear Argument. If it's Netflix, then Spotify's lack of performer exclusivity is a problem — long term strategy for Spotify likely to be paying up for performer exclusivity (good) but likely results in higher than expected cash burn (bad).
• Competition = Apple's U.S. user base may exceed Spotify's by this summer. Spotify at 70M subscribers, growing at 2%/month vs Apple at 36M subscribers, growing at 5%/month.
Expected Trading Dynamics
Our understanding is that on the morning of trading, the Floor Specialist will act like a stabilizing agent (with MS advising) normally would 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.
Other tidbits
• No deal roadshow, No underwriters
• No fixed # of securities for sale
No lock-ups except Tencent Music Entertainment & Tencent (holding for at least 3 yrs), who own 7.5% Majority Ownership by Founders - Daniel Elk controls 37.3% of shares and Martin Lorentzon controls 43.1% of shares
• There is language about beneficiary shares that may be issued to founders on top of shares, but could be dilutive and likely to maintain control if/when company does future capital-raising
Source: SEC.gov, F-1 filing = https://www.sec.gov/Archives/edgar/data/1639920/00011931251806334/d494294df1.htm#rom494294_18
Funding Rounds
Source: Crunchbase - https://www.crunchbase.com/organization/spotify#section-locked-marketplace
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