November 29, 2017 | Webinar

Spotify: The Global Leader in Streaming Music

Rohit Kulkarni 00:05

Okay. We are going to go ahead and get started. Good morning everyone to-- good morning to everyone on the West Coast, and good afternoon to anyone who’s joining us from the East Coast. On behalf of everyone at SharesPost, I would like to welcome you to today’s webinar. I’m Rohit Kulkarni. I’m the managing director of the research group here at SharesPost, but I oversee a bunch of things. Among that, content data, website content, and research publications on SharesPost. Today’s presentation should take approximately 20, 25 minutes, and there will be a Q&A session to follow. If you have a question, please type it in the questions box, which should be located on the right-hand side of your screen. And you can type questions throughout the presentation, and I will try my best to answer them as and when they fit in. Before we jump into the main part of the webinar, for anyone who’s joining us for the first time, SharesPost is a seven-year-old fintech startup with headquarters in San Francisco financial district. At a very high level, our mission is to bring together shareholders and investors to create liquidity within the private tech growth asset class. These are just a few companies, issuers, that we have transacted in, and that list continues to grow as we are seeing a lot of incremental momentum from both buyers and sellers willing to transact in this asset class.

Rohit 01:35

We launched SharesPost Research last year, and this is a rewards-grown order of all the reports that we have done, and this is essentially a bunch of white papers. And recently over the last six, seven months, we have done more deep-dive company reports, starting with Uber in Jan, Airbnb, Pinterest, Dropbox, Palantir, and Spotify. We tried to do webinars on prevalent research reports, as well as we find a lot of interesting ideas from people who are experts in their field. Most recently, we did a webinar with Ron Suber who I think is kind of the guru or godfather of fintech. He used to be running a lot of things across Prosper Marketplace. Before that, we have done a few webinars with [inaudible] investors, CEOs of companies that run leading private companies. And obviously, we stay on top of market trends and publish a lot of blogs. All of these things are available online for people who are clients of SharesPost, where you can log in and you’ll be able to see all this content, in addition to tons and tons of data that we gather for companies that we follow very closely.

Rohit 02:59

So as far as the agenda for today is concerned, this is a quick overview. I’ll go through these slides in the next 15, 20 minutes, and feel free to type in questions as I said earlier. Spotify, a very interesting and a unique company, it was founded in 2006. It’s a Swedish company founded by Daniel Ek and Martin Lorentzon in Stockholm, back in ’06. The basic code of value proposition is the right music for every moment, and they launched around the time when physical music sales in CD were at their peaks about 12 years back. Feels like a distant history now. And digital downloads were just picking up, so an iPhone wasn’t even born at that time. So it was a very, very interesting time for Spotify to launch with the value proposition that you don’t need to own music, but you can rent music by streaming it online. Since then over the last 10 years or so, they have raised more than a billion dollars in funding. This is the chart we show on this slide. And at the last funding ground, which happened in June of 2015, they received an enlistment of $500 million and their post-money valuation was just about $8.5 billion. There are a lot of interesting investors, a lot of grade-A VCs, including Accel, Kleiner Perkins, as well as traditional public equity investors like Fidelity have also invested in Spotify.

Rohit 04:39

To get to the headline of our research as to what happens when Spotify goes public, we have done a lot of research in terms of building a financial model. We conducted a survey of more than 5,000 consumers, mostly based in the US, about their preferences to listening to music, and obviously a lot of other research based on our knowledge in the industry. We tried to kind of distill all of that together into what happens when Spotify goes public. Unlike a lot of private companies where we do not have access to information, where we do not have access to financials, Spotify is very unique. Spotify over the last seven years, have published their financials on the Luxembourg’s kind of counterpart of SEC. And essentially what we know is a lot of information about how Spotify has grown, its revenue, what are the underlying drivers, how has their profitability trended. And essentially, we can be extremely thoughtful and extremely careful in terms of how people can view Spotify’s IPO whenever it comes through. We are considering IPO as a given, simply given the fact that we have heard a lot of information in the media about Spotify’s likelihood of going public through a unique way, which is direct listing. We’ll talk about that in a bit. But simply put, as in when we look at Spotify, we think there’s a potential that this company hits $6 billion in revenue in 2018. They exceeded $3 billion in 2016. And essentially, these are pretty reasonable growth rates, 35-40 percent year on year, for a company with secular tailwinds and market leadership. How do they get to $6 billion in revenue? We think they can. There’s a scenario here that this company reaches 100 million paid subscribers by the end of 2018. Again, this is based on existing financial data, as well as kind of applying reasonable growth rates to what we see in the published financial information.

Rohit 06:57

So based on these underlying metrics, we also assume a slight decline in the monthly revenue per user. Again, that is something which is just a continuation of the recent trends that we are seeing, and we come up with revenue numbers between five and a half to six billion dollars in revenue for 2018. Why 2018? It’s simply because if the company goes public in the next, say 6 to 12 months, typical public equity investors try to look ahead 6 to 12 months. So we think 2018 would be an anchor to look at how the company would be valued. And based on that financial model, I guess if the growth rate of this company’s revenue is about 35%, if their gross margins, which are something that investors would be laser-focused on - again, more on that in a bit - exceed 15 to 20 percent, they have been lumpy, but there has been an uptick recently. So there is a positive sign there. We think this company could be valued at around 3.5 to 4 X 2018 revenues. Why three and a half to four times? Again, that may feel like a low revenue multiple for a company which is a market leader of secular tailwinds and essentially capturing a pretty significant portion of a large market. It boils down to their gross margin profile. They are structurally paying about 70 to 80 cents on the dollar to music labels - again, more on that in a bit - and that essentially changes the way they manage the business from an operating margin standpoint.

Rohit 08:42

But regardless, that gives us to our 20-billion dollar plus IPO, which again does not seem completely out of realm of possibilities for us. The biggest in a debate we think when the company hits the road to go public would be, how do we model out the growth rate of paid subscribers? Is there a scenario here that the company can reach on it’s lifetime, more than 150, maybe 200 million subscribers? Netflix has shown that they can do that and video, audio arguably is probably a larger market given kind of the distinction between audio and video consumption and user preferences. And the second probably equally important debate would be profitability. And as Spotify show a pathway towards profitability, so far it hasn’t, but that would be the biggest debate and which is what will dictate how people value them on assigning these specific multiples onto revenue. That’s kind of the headline. So the headline is, yes, we think this is a company that can go public at $20 billion or more, which would make it an extremely rare consumer Internet company going public at such high valuation. Probably would be one of the top four or five consumer Internet companies going public, and probably the largest digital media company going public. Although, Netflix is one that’s high up there. In terms of our investment thesis, it is divided into what are the positive or upside catalysts we would track and what are the downside kind of scenarios that we need to essentially monitor. Clearly, they operate in a pretty large and probably growing global streaming music industry.

Rohit 10:38

According to a leading industry, kind of Federation of Phonographic Industry is one of the leading provider of industry data. There has been kind of-- if you look back since 1998 or 1999 - this chart doesn’t show that here - but the overall sales in music industry have declined for almost 10 to 12 years in a row, from 1999 to 2010. The music industry was essentially facing a straight downward decline in revenue global sales, and a lot of factors are attributed to that. But the basic kind of secular headwind that music industry was facing was, one was piracy; second was how people are consuming music and how pricing was changing, and labels weren’t able to essentially adapt to how consumer preferences were changing. iPhone came around, iTunes came around, and all those things essentially affected how music sales have trended over the last 15 years. But on the last four or five years, we see growth. We see growth in music industry. And probably one of the biggest growth factors, we believe over the last two or three years, is music streaming. And the reason we say that is if we divide the overall kind of music industry into kind of two parts: physical and online. And in the case of online, we have again two types of revenue profiles, one is downloads and streaming. Downloads, if you look at what Apple is doing or what Amazon has been doing over the last three, four, five years, digital downloads have been declining solid double digits. People are essentially kind of-- the verdict is coming out from their wallets, that we do not want to download music anymore or pay for it if we can-- kind of renting instead of buying is a secular tailwind that companies like Spotify are benefiting from.

Rohit 12:42

And through our analysis working through the numbers and through our [inaudible], it doesn’t surprise us to say that Spotify might be the single biggest driver of growth in global music in the last couple of years. So that’s a very strong statement to make. But essentially if you take out Spotify’s growth, probably digital music has essentially stayed flat. And if you take out Spotify’s growth, the overall music industry has probably declined. So again, Spotify could be one of the largest kind of music stream-- single biggest reason to-- for the overall music sales to grow over the last maybe two to three years. Also, along with that, kind of-- it is somewhat kind of underappreciated factor as to the leadership position that Spotify has in the music industry. We estimate right now they have about 60 million subs who are paying Spotify on a monthly basis, that essentially is more than two times what Apple has today and significantly larger than what Pandora has today. And again, Apple also has other music listeners in there. But again, what we are comparing here is how many people are essentially paying for music on a monthly basis. Also kind of our survey also-- when we conducted a survey of more than 5,000 consumers, mostly in the US, what we found-- and we have conducted such surveys for other consumer names that we have researched in the last six to nine months - be it Uber, Lyft, Pintrest, Dropbox, Airbnb, and so on and so forth - what we found as a positive surprise is Spotify’s brand awareness is, in fact, comparable to kind of leading consumer brands in the private space, of course, such as Uber and Pinterest. And in fact, we kind of concluded that Spotify’s kind of overall brand awareness is probably greater than Airbnb. Again, which helps the company in acquiring more users and essentially kind of paving their pathway towards profitability.

Rohit 15:01

The other kind of essential positive is how sticky is the service that Spotify provides, as in given kind of they have this set of users who are essentially paying-- when we slice through to Spotify users on our survey, kind of consumers listen to about eight hours per music per week and pay about just shy of $8 per month to Spotify. So that’s a fairly sticky set of subscribers, which we think kind of there’s a less likelihood of churn rate among these subscribers. And the reason why say that on this chart is we again benchmarked satisfaction rates for consumer brands that we did, that we have done surveys in the last again 12 months or so. Spotify clearly skews, as in Spotify users clearly skew towards being more satisfied than their kind of “peer unicorns.” 84% of Spotify users are satisfied as compared to-- again, it’s a very tight group here, there is a self-selection bias, we agree in our survey sample. But again, what we were surprised was, Spotify’s satisfaction rates were clearly higher than say Pinterest, Airbnb, Uber, and Dropbox. Which again, the way we viewed that is this is a key leading indicator of a company that offers subscription service, and how likely these people would continue to remain subscribers. And hence, kind of creates a very [inaudible] cycle for a company like Spotify who essentially retain and upsell existing subscribers.

Rohit 16:45

I guess since we have financial statements for Spotify, we are able to construct fairly detailed kind of financial model that we have. And the company has, in fact-- when we benchmarked the company with its peers, be it Pandora or Sirius XM, they do have-- they have exhibited a pretty impressive financial track record. Spotify has consistently grown about 40 and 45 percent over the last four years, while Pandora’s growth rate has declined from say 50% to 44 to 26 to 19 and probably approaching single digits this year. Again, Spotify having the global footprint, having the scale that they have is able to probably surpass $4 billion in revenue this year. Also, what we wanted to highlight was how Spotify’s revenue model is more closer to Sirius XM as compared to Pandora, as in people will find-- I really would want to kind of highlight this simply, because this affects how people will view Spotify’s evaluation. Which may not be as comparable to Pandora, but it should be directly comparable to Sirius XM. Sirius XM is a probably 25, 30-billion dollar company with revenues not as high as-- more than kind of 50, 60 percent higher than Pandora than Spotify [inaudible]. So again, a pretty high proportion of Spotify’s revenue comes from subscription-based kind of offerings, which is comparable to Sirius XM. And in the blog post that we published along with this report, we did make this argument that when people compare Spotify to probably three other companies out there. Pandora, which is valued between one to two times revenue than Sirius XM, which is valued around four to five times revenue, and then Netflix that is valued around six to seven times revenue. So there is that notion of kind of jumping to a company which also offers streaming music. But again, as we peel through the onion of the financial statements present in Spotify we worked around, kind of-- we concluded that there is more comparison to be drawn between Sirius XM and Netflix and Spotify, as compared to Pandora.

Rohit 19:13

I guess that another key-- this is both a positive, as well as a negative. We’ll talk about the risk embedded in this as well in a bit. But the music industry presents a very interesting and challenging problem to an aggregator such as Spotify. There has been a lot of consolidation between record labels over the last four to six years. And what has happened is essentially big three record labels can roll about 70 to 75 percent of all music that anybody listens globally, which creates challenges for companies like Spotify who want to essentially kind of aggregate that music and essentially present a compelling valid [inaudible] to consumers. And how that translates into a company’s kind of financial morale is through the trend line we see in growth margins. For every dollar that Spotify owns, they pay about 70 cents to record labels, and that creates structural disadvantage for a company like Spotify. But over the last probably 12 to 18 months, what we have seen is the company is paying out probably or arguably that set amount of money to record labels. And the reason why is that is because of the direct deals that they have signed with label or owners, which probably affect or help their gross margins. This is just a one data point in the last six. So we think this is sustainable and this would be - again, as I’ve said in the beginning of the webinar - that this would be something that all investors would be focused on, and a positive red line would be viewed as a very, very key leading indicator of how profitable this company can become over the next foreseeable future.

Rohit 21:12

Those are kind of are positives. I guess we have one question over here where people are asking, “Do you think IPO is the only outcome? Why not the company-- is there a scenario that the company could be acquired?” Yes. That is a possibility. We do write about that in the report. But the likelihood of that, as we follow this company, seems to be diminishing over time. As in we believe if you look at the big three [inaudible], Apple, Amazon and Google. Each of those three companies which are valued at more than 20, 30 times Spotify today, would probably benefit significantly if they were to acquire a company like Spotify. Digital media, if you divide that in three parts - pictures, audio, and video - each of those three companies have assets for digital video as well as-- obviously, there’s YouTube, there’s Amazon Prime, and then Apple has its own offerings similarly on the picture side of things. But on the audio, on the music side, the winner is yet to be declared. So I think, yeah, acquisition is possible. The way investors would kind of manifest the likelihood of an acquisition into their valuation argument would be the real-- I [inaudible] that would be kind of a downside, kind of flawed valuation that people would apply. But in that worst case, there’s always a likelihood of this company being acquired. And hence, there’s that risk-reward argument that we could make.

Rohit 22:53

In terms of risks that this company has, probably a single biggest one - which again, we are going in circles here - is kind of how they compete against large tech platforms. As in, if you look at digital music streaming, you compete based on pricing, you compete based on selection of music, you compete based on content duration. Also, that fact goes into user engagement, and there’s a circular kind of benefit with the greater selection with the pricing and for the duration. And again as I’ve said, Apple, Amazon, and Google have assets, aspirations to fundamentally disrupt Spotify’s business model. I think, [inaudible] as we have seen kind of products being offered on [inaudible] stocks by these three large companies. And so far, we feel that global reach that Spotify has, the brand awareness that they have been able to double up. And I will say the exclusive focus that they have on digital music, should mitigate any risks presented by these three players on the near term. But again, in our survey, they were clearly the leader as well as compared to other companies. But this is something that we need to closely monitor. Probably the way people again handicap their valuation is through the revenue it procreates, as well as the revenue multiples that people would assign based on any incremental product offering that allows players a chance, Apple, Amazon can’t make.

Rohit 24:35

Again, this is probably the second largest negative risk. We don’t see Spotify turning profitable anytime in the near future, as in by that, I mean in the next two to three years. They still need to prove that the longtime viability of its cost structure and the unit economics are sustainable. As I’ve said, in the first half of this year, their revenue growth escalated while the gross margins increased. That’s, in an investors mindset, that’s kind of a utopia you have: growing margins and a revenue escalation. How sustainable is that? That remains to be seen. As you can see, Sirius XM’s gross margins are significantly higher than Spotify’s. Same with Pandora. As you can see, operating margins for Spotify and Pandora have been in the red for a number of years, and you have kind of growing operations. So I think what we will want to see from the company when they go public, is how profitable they can get and what’s the pathway to that profitability level. One way they can do that is by growing gross margins. But again, we see they have branched out, free expansion. Also, last year, they signed a pretty big deal with Google to essentially host all of their data and infrastructure, and all their storage on Google Cloud. Which again, we saw somewhat similar trend in Snapchat. Snapchat did a similar deal with Amazon Web Services and Google, just [inaudible] their IPO. And we saw a somewhat of a soft hit to Snapchat’s gross margins. Which again, we feel that would happen. Spotify will face a similar margin trend over the near term.

Rohit 26:37

Okay. We don’t have a clear answer. The only way we can mitigate that is by assuming kind of a slight stability of gross margins, which affects their overall potential in profitability. This is somewhat something that we hit upon in a positive, is essentially content acquisition costs.They do pay a significant amount of money to the big three record owners: Sony, Warner, and Universal. And again this, to some extent, creates a negotiating leverage for Spotify. Being you could argue that Spotify is among the very few companies that this large record labels now rely on, for essentially billions of dollars in kind of R&D revenue every year. Also, what we will probably watch out for, are how the new licensing deals are structured over the next 6 to 12 months. We have seen a couple of licensing deals which have kind of a positive, kind of nuance for a company like Spotify, simply because they get a first look into content. Sometimes they get exclusive 30-day [inaudible] where they can allow listeners to listen to some newly released record album. So there are ways and means that Spotify - now that they have the global scale, now that they have more than 60 million payer subs, more than 150 million listeners - they have that muscle or the muscle that can flex on the record label is getting stronger, and that we feel will help with the [inaudible] the rising content costs that this company faces.

Rohit 28:35

Onto the last, you can see a couple of questions on this two on our screen. But why is a company like Spotify trying to do a direct listing? Why would they not follow more of a traditional approach? Again, we are surprised as well. Again, there are some near [term?] positives and there are some near [term?] risks as well. [inaudible] as more of a long-term risk that the company would be taking. Obviously, they are operated by extremely savvy management teams that have good advisers on the board. But there is a risk, as in the risk here is, A, nobody has done this before. Nobody has done this at a scale at which Spotify may be trying to do. We haven’t seen direct listings in the recent history, at the scale at which Spotify is hoping to get. They will probably [inaudible] underwriter fees in the near [term?]. They’ll probably, and part of the reason is they may not want to risk capital. Which also is a clear signal to the equity markets that they don’t need capital, they’re just providing liquidity to existing shareholders. So there is that positive signaling that the company can make. But again, the risk here is there is an investor education element, and that happens along with any IPO which has underwriters associated with it. They would otherwise have had structured road shows to create incremental demand on the CEO and the CFO of the company, tends to kind of answer more forward-looking statements that they are able to otherwise going to clarify investors. So there are those positives that come with having a more of a traditional IPO approach. But again, the risk here is [inaudible] of unknown.

Rohit 30:40

So I guess that’s our view, and we are coming to a close and I’m looking through a couple of questions that we have on the screen. Before we kind of wrap it up, quickly I’ll just-- we have a lot of charts and more database on the music streaming survey that we did over the last six weeks or so. But again, I encourage everyone to log on to their account on Sharespost and essentially look through the detailed research report. And again, the broader take of it from our consumer survey was essentially, Spotify is a market leader. That is in the US, they are competing with YouTube and Pandora, but also there are ways and means that they are exploiting their leadership position outside of the US as well. From the valuation framework standpoint, as I said, Spotify is a fairly unique private company with the fact that we have access to all financial statements over the last six years. So we are able to construct a fairly detailed valuation argument, based on the multiples and based on the revenue estimates and revenue growth rates. Again, we think when the company goes public, they’ll probably-- people will look at a whole bunch of comparable consumer-oriented Internet software companies. Again, this is just what’s the range of multiples that the companies could be assigned. And again, based on revenue, growth rate on the Y-axis again. The reason why if the company’s growing at 40%, it would still be valued at around four to five times, simply because of the gross margin. And that’s the hard part of assigning multiples that investors will need to make.

Rohit 32:40

At Sharespost, we do track mutual fund holdings for a whole bunch of companies. And what we have seen interestingly over the last maybe 12 months or so, the fair market value that the mutual funds we track for Spotify’s common shares, that has increased over time. Which we find fairly encouraging, and that’s something that even new public equity investors would keep in mind in terms of how their peers, their mutual fund investor peers, are valuing this company and how that has trended over time. Those were my prepared remarks. There are a couple other questions on the screen. And while we gather those, just give me one second.

Rohit 33:49

There are a couple of other questions about, “Can Spotify grow beyond music?” Again, that remains to be seen. So far, they have received that as a clear potential. They have partnered with Hulu recently, to kind of try to essentially provide both music and other options. So there is a possibility. Sirius XM Radio has 400 non-music audio options, which is also a possibility. Yeah, this company beyond kind of more of the same, more of the same. There are many other things that this company can do, which I believe should be an encouraging sign to investors. Another question I see a couple of times repeated, “What is the IPO timeline for Spotify?” Again, we don’t have a crystal ball. But from what we have seen and heard in the media, it feels imminent. But what I call as imminent, is in the next 6 to 12 months. Again, it could be sooner or later, but that feels like a reasonable time frame for this company to go public. And again, what I would also say is one of the key anchors for this company to go public would be if CFO-- we have followed the CFO of Spotify for a number of years in prior relations. Barry McCarthy used to be the CFO of Netflix, which is where we find some pricing and some streaming related growth plans that the company had. So we feel fairly comfortable with the fact that Barry’s at Spotify, and that makes it that much more attractive to investors.

Rohit 35:47

I guess one last question that I see on the screen here is, “What do you feel about Apple and Google trying to make a play at Spotify?” And again, it’s a hard question to answer. It’s something that we have seen rumors ebb and flow, and we have seen-- so it’s hard to speculate on that. But from what we have researched, it does feel increasingly unlikely that this company would be acquired before they go public. So I guess we are approaching well past 35, so we’re approaching what we had planned for. So I think we’ll wrap it up right here. As you’ll see on the screen, my contact information is there. If you have any further questions, please don’t hesitate to shoot me an email. And we see a few people who have requested access to the webinar presentation. We will be sending a followup email with the link to the presentation within the next few days, so stay tuned for that. So thank you very much for joining us today, and hope everyone has a good week ahead. Thank you.

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CONFLICTS

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The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about any and all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be, directly or indirectly related to the specific views contained in this report.

Analyst compensation is based upon various factors, including the overall performance of SharesPost, Inc. and its subsidiaries, and the performance and productivity of such analyst, including feedback from clients of SharesPost Financial Corporation and other stakeholders in our ecosystem, the quality of such analyst’s research and the analyst’s contribution to the growth and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost, Inc., including brokerage sales.

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This report does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The opinions expressed in this report reflect our judgment at this date and are subject to change. The information contained in this report has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.

Any securities offered are offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk. It should only be considered as a long-term investment. You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and you should complete your own independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or other investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.

PLEASE READ THESE IMPORTANT LEGAL NOTICES & DISCLOSURES

CONFLICTS

This report is being published by SharesPost Research LLC, and distributed by SharesPost Financial Corporation, a member of FINRA/SIPC. SharesPost Research LLC, SharesPost Financial Corporation and SP Investments Management, LLC, an investment adviser registered with the Securities and Exchange Commission, are wholly owned subsidiaries of SharesPost, Inc.

Recipients who are not market professionals or clients of SharesPost Financial Corporation should seek the advice of their own personal financial advisors before making any investment decisions based on this report. None of the information contained in this report represents an offer to buy or sell, or a solicitation of an offer to buy or sell, any security, and no buy or sell recommendation should be implied, nor shall there be any sale of these securities in any state or governmental jurisdiction in which said offer, solicitation, or sale would be unlawful under the securities laws of any such jurisdiction.

This report does not constitute an offer to provide investment advice or service. Registered representatives of SharesPost Financial Corporation do not (1) advise any member on the merits or advisability of a particular investment or transaction, or (2) assist in the determination of fair value of any security or investment, or (3) provide legal, tax, or transactional advisory services.

ANALYST CERTIFICATION

The analyst(s) certifies that the views expressed in this report accurately reflect the personal views of such analyst(s) about any and all of the subject securities or issuers, and that no part of such analyst compensation was, is, or will be, directly or indirectly related to the specific views contained in this report.

Analyst compensation is based upon various factors, including the overall performance of SharesPost, Inc. and its subsidiaries, and the performance and productivity of such analyst, including feedback from clients of SharesPost Financial Corporation and other stakeholders in our ecosystem, the quality of such analyst’s research and the analyst’s contribution to the growth and development of our overall research effort. Analyst compensation is derived from all revenue sources of SharesPost, Inc., including brokerage sales.

DISCLAIMER

This report does not contain a complete analysis of every material fact regarding any issuer, industry, or security. The opinions expressed in this report reflect our judgment at this date and are subject to change. The information contained in this report has been obtained from sources we consider to be reliable; however, we cannot guarantee the accuracy of all such information.

Any securities offered are offered by SharesPost Financial Corporation, member FINRA/SIPC. SharesPost Financial Corporation and SP Investments Management are wholly owned subsidiaries of SharesPost, Inc. Certain affiliates of these entities may act as principals in such transactions.

Investing in private company securities is not suitable for all investors. An investment in private company securities is highly speculative and involves a high degree of risk. It should only be considered as a long-term investment. You must be prepared to withstand a total loss of your investment. Private company securities are also highly illiquid and there is no guarantee that a market will develop for such securities. Each investment also carries its own specific risks and you should complete your own independent due diligence regarding the investment, including obtaining additional information about the company, opinions, financial projections and legal or other investment advice.

Accordingly, investing in private company securities is appropriate only for those investors who can tolerate a high degree of risk and do not require a liquid investment.

SharesPost, the SharesPost logo, My SharesPost, the SharesPost Index, and SharesPost Investment Management are all registered trademarks of SharesPost, Inc. All other trademarks are the property of their respective owners.

Copyright SharesPost, Inc. 2019. All rights reserved.