Spotify Technology - Gabelli Research Analyst John Tinker (4-3-2018)

Spotify Technology - Gabelli Research Analyst John Tinker (4-3-2018)

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Transcript:Spotify is coming public today via a direct listing. Spotify is a great service but we initiate with a Hold
due to concerns about Valuation. Spotify reversed the global music business decline due to piracy as music has
become access rather than buy oriented. Streaming now accounts for 2/3rd US music revenues
Spotify is the world’s largest music streaming company with 163 Monthly Active Users in 61 countries and
a 42% market Share . There are 92M ad- supported and 71M premium subscribers, who pay up to
$9.99 a month in the US for unlimited streaming of 35M songs.
Premium subs grew 71% in 2016, 48% last year and is estimated to grow 40% to 100M this year
Due to more smart phones and launching in new countries like India and Japan
Spotify now have playlists which offer discovery which is about 31% of usage
Our concern is that scale does not translate into profitability as content costs remain nearly 70% of
revenue Spotify is building a two-sided market place where data can be sold to artists to better
market users. Basically Spotify needs more leverage against the record companies;
Competitors include Apple, who bundles music with its smart phone and Amazon who use music
as a loss leader We Project positive EBITDA in 2020 but the path to profitability is unclear.
Accordingly we use a multiple of 2.8x revenue
to compute out 2019 PMV of $160



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