EFTA02512785

From: jeffrey E. <jeevacation@gmail.com> Sent: Wednesday, March 7, 2018 11:27 PM To: David Fiszel Subject: Fwd: BAML Sootily Cheat Sheet - UPDATE what does this mean to us jeevacation@gmail.com> Richard Kahn HBRK Associates Inc. <https://maps.google=com/?q=575+Lexington+Avenue+4th+Floor+New+York,+NY+10022&entry=gma=l&source=g> Avenue 4th Floor <https://maps.google.co=Pq=575+Lexington+Avenue+4th+Floor+New+York,+NY+10022&entry=gmail&=mp;source=g> New York, NY chttps://maps.google.com/=q=575+Lexington+Avenue+4th+Floor+New+York,+NY+10022&entry=gmail&am=;source=g> 10022 <https://maps.google.comfio=30575+Lexington+Avenue+4th+Floor+New+York,+NY+10022&entry=gmail&rource=g> tel cell= Begin forwarded message: From: "Ens, Amanda" &l=;amanda.ens@baml.=om <mailto:amanda.ens@baml.com» Subject= BAML Sootily Cheat Sheet - UPDATE </=iv> Date: March=7, 2018 at 2:09:53 PM EST To: "rkahn" mailto:a &g=; Reply-To: </r=pan>"Ens, Amanda" < <mailto > =u> Trading Commentary (Not a product of BAML Research and=should not viewed as a research report) <=span> S=otify: Stockholm-based music streaming service EFTA_R1_01645736 EFTA02512785 Timeline </=pan>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/d494294dfl.htm#rom494294_18> now publicly ava=lable 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/d494294dfl.htmltrom494294_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? <span style="font-size:10.5pt">Bull/Bear Views • </=pan>Bull =span style="font-size:10.5ptfont-family:'Courier Newm>o<=pan style="font-style:normal;font-variant- caps:normal;font-weight:normal=font-size:7pOine-height:normal;font-family(fimes 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 2 EFTA_R1_01645737 EFTA02512786 * =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> • =AO 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> Historical Private Share Trading</riv> aspan>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. 4=pan>Everything in prospectus reflects a 40-to-one share split (this in=ludes the beneficiary certificates that the founders own) au> Source:=span class="m_-2047515031755508950Apple-converted-space"> SEC.=ov <http://sec.gov/> , F-1 filing - https://www.sec.gov/Archives/edgar/dara/1639920/000119312518063434/d494294dfl.htm#rom494294_18</rpan> <https://www.sec.gov/Archives/edgar/dat=11639920/000119312518063434/d494294dfl.htm#rom494294_18> <=div> apan style="font-size:10.5pt;font-family:Symbol">• =C2 No deal roadshow, No underwriters • 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 Tradi=g Commentary (Not a product of BAML Research and should not viewed as a re=earch 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/emaildirclaimer/americas/global-markets <http://corp.bankofamerica.com/business/smb/lawring/emaildisclaimer/americas/global-markets> ru> This material =as prepared by Cash Equity Trading of Merrill Lynch, Pierce, Fenner & =mith, Incorporated ("ML"). The material is not a publication of =ofA Merrill Lynch Global Research, and it has not been reviewed or approve= by BofA Merrill Lynch Global Research. Any summary of ML Research notes a=d reports, and/or any reference or link to BofA Merrill Lynch Global Resea=ch notes and reports, are qualified in their entirety by the views of BofA=Merrill Lynch Global Research. Any reference to or summary of ML Research =n this material is qualified in its entirety by the views of BofA Merrill =ynch Global Research. Please refer to BofA Merrill Lynch Global Research f=r more details (baml.com/markets <http://www.baml.com/markets> ).<=span> The estimated values pro=ided in the material are "as of" the date indicated and do not r=present actual bids or offers by ML. Even though the material is based upo= publicly available information and news sources that are generally believ=d to be reliable, there can be no assurance that actual trades could be co=pleted at such value(s). Because these estimated valuations are based on u=derlying valuations obtained from third party sources we cannot make any 3 EFTA_R1_01645738 EFTA02512787 r=presentation as to the accuracy or completeness of the valuations. The mat=rial is not intended to be a comprehensive summary of all material news, i=formation, events and risks relating to the companies or securities mentio=ed. ML does not make any representation or warranty as to the accuracy or =ompleteness of this material, and, by accepting the material, you agree th=t ML shall not be responsible for any error or omission. References to pas= prices or quotes do not in any way imply that such prices or quotes will =gain be available or actionable. These estimates may not be representative=of any theoretical or actual internal valuations employed by us for our ow= purposes, may vary during the course of any particular day and may vary s=gnificantly from the estimates or quotations that would be given by anothe= dealer. This material does not constitute an offer, or a solicitation of an o=fer, to purchase or sell any security or financial instrument, nor does th= material constitute advice or an expression of ML's view as to whethe= a particular security or financial instrument is appropriate for you and =eets your financial objectives. ML will not be liable for any investment d=cision based in whole or in part on the material. The reader is required t= make its own investment decisions, using as necessary the advice of indep=ndent advisors or consultants. As a condition for providing these estimate=, you agree that Merrill Lynch makes no representation and shall have no l=ability in any way arising there from to you or any other entity for any l=ss or damage, direct or indirect, arising from the use of this information= ML and its affiliates may trade for their own accounts as market maker, b=ock positioner, dealer, specialist, arbitrageur or speculator in any of th= securities of issuers mentioned in this material. When trading for propri=tary accounts, ML and its affiliates may consider the material in their tr=ding decisions, as appropriate. Principal transactions by ML and its affil=ates are effected in accordance with applicable rules and regulations, and=such transactions may affect the prices of the securities mentioned. Furth=r, ML and its affiliates may from time-to-time perform investment banking =r other services for, or solicit investment banking or other business from= any company mentioned in the material. This material may not be distribut=d outside the United States; and is intended solely for Global Markets ins=itutional clients. The material is provided for informational purposes onl= and any distribution or copying of the material is prohibited4=> =span style="font-size:9pt;font-family:Tahoma,sans-serif;color:navy" lang=3D"EN-GB">Allison Wile Director I US Ca=h Equities Tradin New York, NY 10036 Merrill L n=h Pierce Fenner & Smith Incorporated Direct I=M: <mailto This message, and any attachments, is =or the intended recipient(s) only, may contain information that is privile=ed, confidential and/or proprietary and subject to important terms and con=itions available at http://www.bankofamerica.=om/emaildisclaimer <http://www.bankofamerica.com/emaildisclaimer> . If you are not the intended recipient, please dele=e this message. </=r> <http://rsch-bems-tr.baml.com/q/Mz0u=YLogZAiLelaNgcWvQ—/AAAAAQA—/RgRcgr3- PkEIAG1D2cCAiitCCgAliijigWhNSKIVSGHlrY=hugGhicmthc3NvY2lhdGVzLmNvbCIIRBAAAAABHmXsidGVtcGxhdGUiOilkZ WZhdWx0X3RIbXE(s=XRIliwibmFtZSI6IjAzMDcxNDASNDUzMjg4MzE6MjYxMjk5NillTkEwliwiY2xpZWS0X2Ikljo=NSOwMzA 3MTQw0TQlMzI4ODMx0jI2MTISOTYtSESBMCIslmFldGhvciBlbWFpbCI6ImFkbWluQ6=vbGRzcGFyaySjb20ifQ"—> 2612=96 =img name="m_-2047515031755508950_image002.png" style="font-family:Cali=ri,Arial;font- size:14.666666984558105px;font-style:normal;font-variant-capr:normal;font-weight:normal;letter-spacing:normal;text- align:starttext-ind=nt:Opx;text-transform:none:white-space:normal;word-spacing:Opx" id="m_- 2=475150317555089505ABA4A7D-698B-4F56-8647-80CBS1A65S1B" src="cid:10160276=5"> 4 EFTA_R1_01645739 EFTA02512788 rbr>-- please note The information contained in this communication is confidential, =ay be attorney-client privileged, may constitute inside information, an= is intended only for the use of the addressee. It is the property ollEE Unauthorized use, disclosure or copying of this communication o= any part thereof is strictly prohibited and may be unlawful. If you ha=e received this communication in error, please notify us immediately by=br>return e-mail or by e-mail to jeevacation@gmail.com <mailto:jeevacation@gmail.com> , and destroy this communicat=on and all copies thereof, including all attachments. copyright -all ri=hts reserved 5 EFTA_R1_01645740 EFTA02512789