Weekly Update #244: Spotify Issues 2018 Guidance

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Hello Investors,

Spotify released financial guidance yesterday highlighting its expectations for 2018. Overall, we believe the numbers point to a solid near-term outlook for the company and will likely support valuation into its public listing next week. Key highlights of the guidance include strong revenue growth of 20-30%, a 26-32% increase in monthly active users and 30-36% growth in premium subscribers. Notably, operating losses are expected to ebb to €230-330M (incl. a €35-40M impact from listing costs), equating to a -5.5% margin at the midpoint compared to a -9% operating margin last year. Part of the improvement its likely attributable to a favorable mix shift in customers. The company expects its gross margin to expand 200-400bps on the back of its strong premium subscriber growth. Premium subscriptions tend to carry higher gross margins for Spotify vs. ad-driven customers.

Spotify User Growth, w/ 2018 Guidance

Source: Company filings and EquityZen estimates

Spotify Revenue Growth, w/ 2018 Guidance

Source: Company filings and EquityZen estimates

Spotify Operating Margins, w/ 2018 Guidance

Source: Company filings and EquityZen estimates

As a reminder, Spotify will begin trading April 3 under the ticker “SPOT”.

On a related note for those tracking VC-backed IPOs, activity has gotten off to a solid start through the first quarter of the year. Year-to-date, six VC-backed companies have filed for a public listing including Spotify, Dropbox, Pivotal, Smartsheet, Zuora and Zscaler. At this time last year, there were three tech IPOs -- Snap, Mulesoft and Alteryx. For more of our 2018 IPO expectations, please see our outlook here.

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Catherine Klinchuch
Finance & Research Lead, EquityZen



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