Fwd: BAML Sootily Cheat Sheet - UPDATE
Trading Commentary (Not a product of BAML Research and should not viewed as a research report) <=span> S=otify: Stockholm-based music streaming service
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Timeline
March 15: Analyst Day (conf=rmed — Livestream) - Offi=ial Listing/Trading Date likely given
• <=pan style="font-size:10.5pt">Week of March 19 0: Company sponsored "Investor Education" =eetings & potential Research coverage launches by Sell Side<=u>
- =C2• Week of March 26 =Tentative): Trading Begins - Advisors wor= with Spotify to set initial trade price <=pan>* April 2 (Tenta=ive): Options Trade
Financials - Fl filing
https://www.sec.gov/Archives/edga=/data/1639920/000119312518063434/d494294df1.htm#rom494294_18 now publicly available
2017 Revs: $=B & Positive FCF $133M — 5-6x trailing revs certainly possible= implying $25B+ valuation (In our SOTP for Vivendi we ha=e music at 4x sales or €24bn) Ordinary Shares Outstanding:=/b> 176,976,280 reported as of 2/22/18 Valuation: At high end of rece=t trading, implies mkt cap $26B+ (very rough estimate). However, using cur=ent secondary market prices (- $125) implies a market cap of - $22B (very ro=gh estimate) o =C2 =AOClient conv=rsations point to a $20-228 valuation as being a level they might add</=>
https://www.sec.gov/Archives=edgar/data/1639920/000119312518063434/d494294df1.htm#rom494294_1=
Ind=stry Model: =A0Record Labels own New=Music & Back Catalog — Distribute thru Spotify & Apple Mus=c to Consumers — key question is how does Spotify gain control ove= supply?
<=pan style="font-size:10.5pt">Bull/Bear Views
· </=pan>Bull
=span style="font-size:10.5pt;font-family:'Courier New'">o<=pan style="font-style:normal;font-variant-caps:normal;font-weight:normal=font-size:7pt;line-height:normal;font-family:'Times New Roman'">=C2 Spoti=y becomes the Netflix of music by becoming a record label owning exclusive=content – not the case today and likely cash intensive</=>
o Spotify is an aggregator (not Netflix)= it's taking a commission on providing all music any time you want=— pushback likely would be then should be valued on gross profit m=ltiple
• =AO Bear =AO=/div>
o Cash burn / Potential dilution rises higher tha= expected as company pivots to become Netflix of music - paying up for per=ormer exclusivity (good) but likely results in higher than expected cash b=rn (bad)
o =C2 Typical consumer =odel is advertising — give service away for free and get 3rd<=sup> party advertisers to pay for access to users. Typical business mod=I is SaaS — subscription fee. Key for both is marginal cost =o add users is minimal.
Due to royalty agreements, marginal costs fo= Spotify grow with user growth limiting operating leverage from network ef=ect (similar to Lyft/Uber/Airbnb)
=C2* =span style="font-size:10.5pt">Competition=C2 — Apple Music — Record labels =A0
Index Implications
In order to be included in the S&P 5=0, a company must have been trading for at least 12 months following an IP= as well have positive earnings. As a result, we don't expect any =ndex 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 ind=ces. We are still looking at implications for FTSE and MSCI based on domic=le.
<=pan style="font-size:10.5pt">Stock Loan Implications Given the=structure of the IPO, there may be a delay in shares settling INTO stock l=nding programs due to the DWAC process. (Delivery Withdrawal at Custodian)= This potential delay will more than likely affect the initial Locate Liqu=dity for a few days.
Happy to coordinate calls with John Egan, BAML=E2 s Short Analytics Specialist
Expe=ted Trading Dynamics
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- =C2 Our understanding is that on the morning of trading, the=Floor Specialist will act like a stabilizing agent normally would (with ba=ks advising) to help match supply and demand
The opening is likely to be very d=layed as we will not know amount of shares to be bought/sold=/span>
=A0 The stock has a dece=t probability of trading up significantly on day 1 due to lack of pressure=from selling shareholders & inability to source a locate=/span>
<=u>
Historical Private Share Trading</=iv>
<=span>2017: $37.50 to $125
- *=A0 =/span>1/1/18 to 2/22=18: $90 to $132.50 (excl Tencent transaction)
Some confusion on s=are prices as secondary market prices are currently ~$5000=share. </=pan>Everything in prospectus reflects a 40-to-one share split (this in=ludes the beneficiary certificates that the founders own) <=u> Source:=span class="m_-2047515031755508950Apple-converted-space"> SEC.=ov http://sec.gov/ , F-1 filing - https://www.sec.gov/Archives/edgar/da=a/1639920/000119312518063434/d494294df1.htm#rom494294_18</=pan> https://www.sec.gov/Archives/edgar/dat=/1639920/000119312518063434/d494294df1.htm#rom494294_18 <=div>
<=pan style="font-size:10.5pt;font-family:Symbol">· =C2 No deal roadshow, No underwriters
· No fixed # of securities for sale<=>>
- No fixed # of securities for sale<=>
=C2 No lork-ups except Tencent Music Entertainment & Tencent (holding for at lea=t 3 yrs from 12/15/17), who own -7.5%
<=pan style="font-size:10.5pt">Majority Ownership by Founders - Daniel Elk=controls 37.3% of shares and Martin Lorentzon controls 43.1% of the vote. =oth founders control 21% of the ordinary shares outstanding<=span>
*=A0 There is language ab=ut beneficiary shares that may be issued to founders on top of shares, but=would be dilutive and likely to maintain control if/when company does futu=e capital-raising Source: SEC.gov http://sec.gov/ , F-1 filing - https://wrw.sec.gov/Archives/edgar/data/1639920/000119312518063434/d494294=fl.htm#rom494294_18
=C2
Have received a lot o= requests for conference calls & happy to organize calls for those int=rested. =AO
Thanks,
Alli, Alkesh & Mike
Trading Commentary (Not a product of BAML Research and should not viewed as a re=arch report) This material was prepared=by Trading personnel of Merrill Lynch and is subject to the terms availabl= at the following link: http://corp.bankofamerica.com/business/smb/landing/emaildi=claimer/americas/global-markets http://corp.bankofamerica.com/business/smb/lan=ing/emaildisclaimer/americas/global-markets
=u>
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<span style="font-size:9pt;font-family:Tahoma,sans-serif;color:navy" lang=3D"EN-GB">Allison Wile Director | US Ca=h Equities Trading | New York, NY 10036 Merrill Lyn=h, Pierce, Fenner & Smith Incorporated Direct | =M: <mailto:
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what does this mean to us
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