SPOTIFY: $55 BILLION BY 2020 3 SPOTIFY UPDATE October 2017 200M PREMIUM SUBSCRIBERS / $55BN VALUATION OUR UPDATED VALUATION THESIS BY 2020 TARGET STOCK MARKET INTRODUCTION VALUATION OVER $20BN OUR UPDATED STOCK MARKET INTRODUCTION THESIS EXECUTIVE SUMMARY » Given Spotify’s explosive growth we believe the firm will be valued at $55bn by 2020 » Our target stock market introduction valuation for Spotify is over $20bn » Spotify is trending towards 100m premium subscribers by mid-2018 – estimates point toward 200m by the end of 2020 » We expect emerging markets to drive future growth which will likely dilute average revenue per premium subscriber – we have therefore decreased our ARPPS estimates by 10% to $80 » As Spotify’s ambition evolves the company is now seeking to become the third largest player in terms of advertising – behind Google and Facebook – which will drive ad revenue from non-premium subscribers » Gross margin will steadily increase due to more beneficial agreements with labels – estimated levels are consistent with our previous research reports » Premium subscribers as a percentage of total subscribers is estimated to be 40% in 2020 – slightly below today’s level of 43% » Our valuation reasoning and multiples have not changed since the last report – subscriber growth has however been stronger than we anticipated