<table><tr><th>From:</th><th>Richard Kahn &lt;</th></tr><tr><td>Sent:</td><td>Wednesday, March 7, 2018 9:30 PM</td></tr><tr><td>To:</td><td>jeffrey E.</td></tr><tr><td>Subject:</td><td>Fwd: BAML Spotify Cheat Sheet - UPDATE</td></tr></table>

Richard Kahn
HBRK Associates Inc.
575 =exington Avenue 4th Floor
New York, NY 10022
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Begin forwarded message:

From: =/b>"Ens, Amanda" <███████████████████████>

Subject: =/b>BAML Spotify =heat Sheet - UPDATE

Date: =/b>March 7, 2018 at 2:09:53 PM =ST

To: =/███████████████████████████████████>

Reply-To: =/b>"Ens, Amanda" <█████████████████████>

Trading =ommentary (Not a product of BAML Research and should not viewed as a =esearch report)

Spotify: Stockholm-based music streaming =ervice

Timeline

	- March 15: =nalyst Day (confirmed — Livestream) - Official Listing/Trading =ate likely given

- Week of March 19 (Tentative): Company sponsored =E2 Investor Education" meetings & potential Research =overage launches by Sell Side

	- Week of March 26 (Tentative): Trading Begins - =dvisors work with Spotify to set initial trade price

	- April 2 (Tentative): Options Trade

Financials - Fl riling now publicly =vailable

2017 Revs: $5B & =ositive FCF $133M — 5-6x trailing revs certainly possible, =mplying $25B+ valuation (In our SOTP for Vivendi we have music at 4x sales or €24bn) Ordinary Shares Outstanding: 176,976,280 reported as of =/22/18 Valuation: At high =nd of recent trading, implies mkt cap $26B+ (very rough estimate). =owever, using current secondary market prices (- $125) implies a market =ap of —$22B (very rough estimate)

o Client conversations point to a =20-22B valuation as being a level they might add

## Source: SEC.gov, F-1filing -

https://www.sec.gov/Archives/edgar/data/1639920/000119312518063=34/d494294df1.htm#rom494294_18

Industry Model: Record Labels own New Music =amp; Back Catalog — Distribute thru Spotify & Apple Music =o Consumers — key question is how does Spotify gain control =ver supply?

## Bull/Bear Views

- Bull

o Spotify becomes the Netflix of =usic by becoming a record label owning exclusive content — not =he case today and likely cash intensive

o Spotify is an aggregator (not =etflix), it's taking a commission on providing all music any =ime you want — pushback likely would be then should be valued =n gross profit multiple

## Bear

o Cash burn / Potential dilution =ices higher than expected as company pivots to become Netflix of music = paying up for performer exclusivity (good) but likely results in =igher than expected cash burn (bad)

o Typical consumer model is =dvertising — give service away for free and get 3rd party advertisers to pay =or access to users. Typical business model is SaaS — =ubscription fee. Key for both is marginal cost to add users is =inimal. Due to royalty agreements, marginal costs for Spotify =row with user growth limiting operating leverage from network effect =similar to Lyft/Uber/Airbnb)

Competition — =pple Music — Record labels

## Index Implications

In =rder to be included in the S&P 500, a company must have been =rading for at least 12 months following an IPO as well have positive =arnings. As a result, we don't expect any index implications =or SPOT in the S&P 500 until these requirements are met. However, =t should be eligible for the S&P TMI and Completion indices. We are =till 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 =hares settling INTO stock lending programs due to the DWAC process. =Delivery Withdrawal at Custodian). This potential delay will more than =ikely affect the initial Locate Liquidity for a few days.

Happy to coordinate calls with John Egan, BAML's =hort Analytics Specialist

## Expected Trading Dynamics

Our understanding is that on the =orning of trading, the Floor Specialist will act like a stabilizing =gent normally would (with banks advising) 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 =robability of trading up significantly on day 1 due to lack of pressure =ram selling shareholders & inability to source a locate

## Historical Private Share =rading

- 2017: $37.50 to $125

- 1/1/18 to 2/22/18: $90 to =132.50 (excl Tencent transaction)

Some confusion on share =rices as secondary market =rices are currently -55000/share. Everything in =rospectus reflects a 40-to-one share split (this includes the =eneficiary certificates that the founders own)

## Historical Private Share =rading (cont.)

Source: SEC.gov, F-1 filing - https://www.sec.gov/Archives/edgar/data/1639920/000119312518063=span style=""=lass="434/d494294df1.htm#rom494294_18

Other tidbits

• No deal roadshow, No =nderwriters

• No fixed # of securities for =ale

- No lock-ups except Tencent Music =ntertainment & Tencent (holding for at least 3 yrs from 12/15/17), =ho own - 7.5%

Majority Ownership by Founders - =aniel Elk controls 37.3% of shares and Martin Lorentzon controls 43.1% =f the vote. Both founders control 21% of the ordinary shares =utstanding

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, F-1filing -

https://www.sec.gov/Archives/edgar/data/1639920/000119312518063=34/d494294df1.htm#rom494294_18

Have received a lot of requests =or conference calls & happy to organize calls for those =nterested.

Thanks,

Alli, =lkesh & Mike

Trading Commentary =Not a product of BAML Research and should not viewed as a research =eport) This=material was prepared by Trading personnel of Merrill Lynch and is =ubject to the terms available at the following link: http://corp.bankofamerica.com/business/smb/landing/emaildisclai=er/americas/global-markets

This material was prepared by =ash Equity Trading of Merrill Lynch, Pierce, Fenner & Smith, =ncorporated ("ML"). The material is not a publication of BofA Merrill =ynch Global Research, and it has not been reviewed or approved by BofA =errill Lynch Global Research. Any summary of ML Research notes and =eports, and/or any reference or link to BofA Merrill Lynch Global =esearch notes and reports, are qualified in their entirety by the views =f BofA Merrill Lynch Global Research. Any reference to or summary of ML =esearch in this material is qualified in its entirety by the views of =ofA Merrill Lynch Global Research. Please refer to BofA Merrill Lynch =lobal Research for more details (baml.com/markets <http://www.bamIcom/markets> ).

The estimated =alues provided in the material are "as of" the date indicated and do =ot represent actual bids or offers by ML. Even though the material is =ased upon publicly available information and news sources that are =enerally believed to be reliable, there can be no assurance that actual =rades could be completed at such value(s). Because these estimated =aluations are based on underlying valuations obtained from third party =ources we cannot make any representation as to the accuracy or =ompleteness of the valuations. The material is not intended to be a =omprehensive summary of all material news, information, events and =isks relating to the companies or securities mentioned. ML does not =ake any representation or warranty as to the accuracy or completeness =f this material, and, by accepting the material, you agree that ML =hall not be responsible for any error or omission. References to past =rices 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 =y us for our own purposes, may vary during the course of any particular =ay and may vary significantly from the estimates or quotations that =ould be given by another dealer.

This material =oes not constitute an offer, or a solicitation of an offer, to purchase =r sell any security or financial instrument, nor does the material =onstitute advice or an expression of ML's view as to whether a =articular security or

## Historical Private Share =rading (cont.)

financial instrument is appropriate for you and =eets your financial objectives. ML will not be liable for any =nvestment decision based in whole or in part on the material. The reader is required to make its own investment decisions, using as =ecessary the advice of independent advisors or consultants. As a =ondition for providing these estimates, you agree that Merrill Lynch =akes no representation and shall have no liability in any way arising =here from to you or any other entity for any loss or damage, direct or =ndirect, arising from the use of this information. ML and its =ffiliates may trade for their own accounts as market maker, block =ositioner, dealer, specialist, arbitrageur or speculator in any of the =ecurities of issuers mentioned in this material. When trading for =roprietary accounts, ML and its affiliates may consider the material in =heir trading decisions, as appropriate. Principal transactions by ML =nd its affiliates are effected in accordance with applicable rules and =egulations, and such transactions may affect the prices of the =ecurities mentioned. Further, ML and its affiliates may from =ime-to-time perform investment banking or other services for, or =olicit investment banking or other business from, any company mentioned =n the material. This material may not be distributed outside the United =tates; and is intended solely for Global Markets institutional clients. =he material is provided for informational purposes only and any =istribution or copying of the material is prohibited.

## Allison =ile

Director J US Cash Equities Trading

One Bryant =ark 15th Floor I New York, NY 10036 Merrill Lynch, =ierce, Fenner & Smith Incorporated Direct +

This message, =nd any attachments, is for the intended recipient(s) only, may contain =nformation that is privileged, confidential and/or proprietary and =ubject to important terms and conditions available at http://www.bankofamerica.com/emaildisclaimer. If you are =ot the intended recipient, please delete this message.

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