UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 6-K

Transcription

1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C FORM 6-K REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE SECURITIES EXCHANGE ACT OF 1934 For the month of July, 2018 Commission File Number: Spotify Technology S.A. (Translation of registrant s name into English) 42-44, avenue de la Gare L Luxembourg Grand Duchy of Luxembourg ( Address of principal executive office ) IndicatebycheckmarkwhethertheregistrantfilesorwillfileannualreportsundercoverofForm20-ForForm40-F. Form20-F Form40-F IndicatebycheckmarkiftheregistrantissubmittingtheForm6-KinpaperaspermittedbyRegulationS-TRule101(b)(1): Yes No IndicatebycheckmarkiftheregistrantissubmittingtheForm6-KinpaperaspermittedbyRegulationS-TRule101(b)(7): Yes No

2 Spotify Technology S.A. Interim condensed consolidated financial statements For the three and six months ended June 30, 2018

3 Table of contents PART I FINANCIAL INFORMATION Item1.FinancialStatements 1 Interimcondensedconsolidatedstatementofoperations 1 Interimcondensedconsolidatedstatementofcomprehensiveloss 2 Interimcondensedconsolidatedstatementoffinancialposition 3 Interimcondensedconsolidatedstatementofchangesinequity/(deficit) 4 Interimcondensedconsolidatedstatementofcashflows 5 Notestotheinterimcondensedconsolidatedfinancialstatements 6 Item2.Management sdiscussionandanalysisoffinancialconditionandresultsofoperations 23 Item3.QuantitativeandQualitativeDisclosuresAboutMarketRisk 37 PART II OTHER INFORMATION Item1.LegalProceedings 39 Item1A.RiskFactors 39 Item2.UnregisteredSalesofEquitySecuritiesandUseofProceeds 39 Item3.DefaultsUponSeniorSecurities 39 Item5.OtherInformation 40 Signatures 41 Page

4 PART I FINANCIAL INFORMATION Item 1. Financial Statements Interim condensed consolidated statement of operations (Unaudited) (in millions,exceptshareandpersharedata) Three months ended June 30, Six months ended June 30, Note Revenue 4 1,273 1,007 2,412 1,909 Costofrevenue ,800 1,572 Gross profit Researchanddevelopment Salesandmarketing Generalandadministrative Operating loss (90) (79) (131) (218) Financeincome Financecosts 5 (343) (148) (497) (210) Shareinearningsofassociate (1) 1 Finance income/(costs) - net (302) (108) (441) (141) Loss before tax (392) (187) (572) (359) Incometaxexpense/(benefit) (9) 2 Net loss attributable to owners of the parent (394) (188) (563) (361) Net loss per share attributable to owners of the parent Basicanddiluted 7 (2.20) (1.24) (3.25) (2.40) Weighted-average ordinary shares outstanding Basicanddiluted 7 179,077, ,069, ,459, ,612,183 Theaccompanyingnotesareanintegralpartoftheinterimcondensedconsolidatedfinancialstatements. -1-

5 Interim condensed consolidated state ment of comprehensive loss (Unaudited) (in millions) Three months ended June 30, Six months ended June 30, Note Net loss attributable to owners of the parent (394) (188) (563) (361) Other comprehensive income/(loss): Itemsthatmaybesubsequentlyreclassifiedto condensedconsolidatedstatementofoperations (netoftax): Gainsonshortterminvestments Exchangedifferencesontranslationofforeign operations 4 (2) (11) (1) Itemsnottobesubsequentlyreclassifiedto condensedconsolidatedstatementofoperations (netoftax): Gaininthefairvalueoflongterminvestment Other comprehensive income/(loss) for the period (net of tax) 6 (1) 35 1 Total comprehensive loss for the period attributable to owners of the parent (388) (189) (528) (360) Theaccompanyingnotesareanintegralpartoftheinterimcondensedconsolidatedfinancialstatements. -2-

6 Interim condensed consolidated state ment of financial position (in millions) Note June 30, 2018 December 31, 2017 (Unaudited) Assets Non-current assets Propertyandequipment Intangibleassetsincludinggoodwill Investmentinassociate 1 1 Longterminvestment Restrictedcashandothernon-currentassets Deferredtaxassets ,302 1,209 Current assets Tradeandotherreceivables Incometaxreceivable 1 Shortterminvestments ,032 Cashandcashequivalents Othercurrentassets ,058 1,898 Total assets 3,360 3,107 Equity and liabilities Equity Sharecapital Otherpaidincapital 3,733 2,488 Otherreserves Accumulateddeficit (2,990) (2,427) Equity attributable to owners of parent Non-current liabilities Convertiblenotes Accruedexpensesandotherliabilities Provisions Deferredtaxliabilities ,009 Current liabilities Tradeandotherpayables Incometaxpayable 4 9 Deferredrevenue Accruedexpensesandotherliabilities Provisions Derivativeliabilities ,280 1,860 Total liabilities 2,361 2,869 Total equity and liabilities 3,360 3,107 Theaccompanyingnotesareanintegralpartoftheinterimcondensedconsolidatedfinancialstatements. -3-

7 Interim condensed consolidated state ment of changes in equity/(deficit) (Unaudited) (in millions) Note Share capital Other paid in capital Other reserves Accumulated deficit (Deficit)/Equity attributable to owners of parent Balance at January 1, (1,192) (240) Lossfortheperiod (361) (361) Othercomprehensiveincome 1 1 Issuanceofsharesuponexerciseofstock optionsandrestrictedstockunits Issuanceofordinarysharesrelatedtobusiness combination 2 2 Share-basedpayments Incometaximpactassociatedwithshare-based payments 1 1 Balance at June 30, (1,553) (544) Balance at January 1, , (2,427) 238 Lossfortheperiod (563) (563) Othercomprehensiveincome Issuanceofnewshares 4 4 Issuanceofsharesuponexerciseofstock optionsandrestrictedstockunits Issuanceofsharesuponexchangeof ConvertibleNotes 19 1,145 1,145 Share-basedpayments Incometaximpactassociatedwithshare-based payments 2 2 Balance at June 30, , (2,990) 999 Theaccompanyingnotesareanintegralpartoftheinterimcondensedconsolidatedfinancialstatements. -4-

8 Interim condensed consolidated state ment of cash flows (Unaudited) (in millions) Six months ended June 30, Note Operating activities Netloss (563) (361) Adjustmentstoreconcilenetlosstonetcashflows Depreciationofpropertyandequipment Amortizationofintangibleassets Share-basedpaymentsexpense Financeincome 5 (56) (68) Financecosts Incometax(benefit)/expense (9) 2 Shareinearningsofassociate (1) Other (2) 3 Changesinworkingcapital: Decrease/(increase)intradereceivablesandotherassets 27 (27) Increaseintradeandotherliabilities Increaseindeferredrevenue (Decrease)/increaseinprovisions 18 (7) 46 Interestreceived 12 9 Incometax(paid)/received (7) 2 Net cash flows from operating activities Investing activities Purchasesofpropertyandequipment 8 (11) (6) Purchasesofshortterminvestments 19 (715) (667) Salesandmaturitiesofshortterminvestments Transactionfeesforlongterminvestment (9) Changeinrestrictedcash 10 (11) (36) Other (13) (44) Net cash flows from/(used in) investing activities 122 (167) Financing activities Proceedsfromtheissuanceofordinaryshares 4 Proceedsfromexerciseofshareoptions Other (2) (2) Net cash flows from financing activities Net increase in cash and cash equivalents Cashandcashequivalentsatbeginningoftheperiod Netforeignexchangelossesoncashandcashequivalents (1) (39) Cash and cash equivalents at June Supplemental disclosure of cash flow information Non-cash investing and financing activities Purchasesofpropertyandequipmentintradeand otherliabilities IssuanceofsharesuponexchangeofConvertibleNotes 19 1,145 Theaccompanyingnotesareanintegralpartoftheinterimcondensedconsolidatedfinancialstatements. -5-

9 Not es to the interim condensed consolidated financial statements (Unaudited) 1. Corporate information SpotifyTechnologyS.A.(the Company )isapubliclimitedcompanyincorporatedanddomiciledinluxembourg.thecompany sregisteredoffice is42-44avenuedelagare,l1610,luxembourg. TheprincipalactivityoftheCompanyanditssubsidiaries(the Group, we, us, or our )ismusicstreaming.thegroup spremiumservice ( PremiumService )providesuserswithunlimitedonlineandofflinehigh-qualitystreamingaccesstoitscatalog.thepremiumserviceoffersacommercial-free musicexperience.thegroup sad-supportedservice( Ad-SupportedService, andtogetherwiththepremiumservice,the Service )hasnosubscriptionfeesand providesuserswithlimitedon-demandonlineaccesstothecatalog.thegroupdependsonsecuringcontentlicensesfromanumberofmajorandminorcontent ownersandotherrightsholdersinordertoprovideitsservice. OnApril3,2018,theGroupcompletedadirectlistingoftheCompany sordinarysharesonthenewyorkstockexchange( NYSE ). 2. Basis of preparation and summary of significant accounting policies TheinterimcondensedconsolidatedfinancialstatementsofSpotifyTechnologyS.A.forthethreeandsixmonthsendedJune30,2018and2017have beenpreparedinaccordancewithias34interimfinancialreporting.theinterimfinancialinformationisunaudited.theinterimfinancialinformationreflects allnormalrecurringadjustmentsthatare,intheopinionofmanagement,necessarytofairlypresenttheinformationsetforthherein.theinterimcondensed consolidatedfinancialstatementsshouldbereadinconjunctionwiththegroup sconsolidatedfinancialstatementsfortheyearendeddecember31,2017,asthey donotincludealltheinformationanddisclosuresrequiredintheannualconsolidatedfinancialstatements.interimresultsarenotnecessarilyindicativeofthe resultsforafullyear.theinterimcondensedconsolidatedfinancialstatementsarepresentedinmillionsofeuros. OnJanuary1,2018,theGroupadoptedInternationalFinancialReportingStandard( IFRS )9,FinancialInstruments,whichreplacesIAS39, FinancialInstruments:RecognitionandMeasurement.Thestandardintroducesnewrequirementsforclassificationandmeasurement,impairment,andhedge accounting.undertheprovisionsofthestandard,thegroupmadetheelectiontopresentinothercomprehensiveincome,changesinthefairvalueofitslongterm investmentintencentmusicentertainmentgroup( TME ),aprivatecompanythatprovidesdigitalmusicservicestousersincludingstreaming,onlinelive broadcasts,andkaraokeservices,withoutrecognizingfairvaluechangestoprofitandlossuponderecognition.thegroupconcludedthattheaccountingtreatment ofitsremainingfinancialassets,financialliabilitiesandderivativeinstrumentsunderias39wasinaccordancewiththerequirementsofifrs9and,therefore, therewasnomaterialimpactonthegroup scondensedconsolidatedfinancialstatementsuponadoptionofthestandard. Otherthanasmentionedabove,theaccountingpoliciesadoptedinthepreparationoftheinterimconsolidatedfinancialstatementsareconsistentwith thosefollowedinthepreparationofourconsolidatedfinancialstatementsfortheyearendeddecember31,2017.noneoftheneworamendedstandardsand interpretationsasofjanuary1,2018havehadamaterialimpactonourfinancialresultorposition. 3. Critical accounting estimates and judgments Inpreparingtheseinterimcondensedconsolidatedfinancialstatements,thesignificantjudgmentsmadebymanagementinapplyingtheGroup s accountingpoliciesandthekeysourcesofestimationanduncertaintywerethesameasthoseappliedtotheconsolidatedfinancialstatementsfortheyearended December31,2017. Estimatesandjudgmentsarecontinuallyevaluatedandarebasedonhistoricalexperienceandotherfactors,includingexpectationsoffutureevents. -6-

10 4. Segment information TheGrouphastworeportablesegments:PremiumandAd-Supported.ThePremiumServiceisapaidserviceinwhichcustomerscanlistenon-demand andoffline.revenueisgeneratedthroughsubscriptionfees.thead-supportedserviceisfreetotheuser.revenueisgeneratedthroughthesaleofadvertising. Royaltycostsareprimarilyrecordedineachsegmentbasedonspecificratesforeachsegmentagreedtowithrightsholders.Theremainingroyaltiesthatarenot specificallyassociatedtoeitherofthesegmentsareallocatedbasedonuseractivityortherevenuerecognizedineachsegment.nooperatingsegmentshavebeen aggregatedtoformthereportablesegments. Keyfinancialperformancemeasuresofthesegmentsincludingrevenue,costofrevenue,andgrossprofitareasfollows: Three months ended June 30, Six months ended June 30, Premium Revenue 1, ,187 1,732 Costofrevenue ,608 1,396 Gross profit Ad-Supported Revenue Costofrevenue Gross profit Consolidated Revenue 1,273 1,007 2,412 1,909 Costofrevenue ,800 1,572 Gross profit Reconciliationofgrossprofit Generalexpenditures,financeincome,financecosts,taxes,andshareinearningsofassociatearenotallocatedtoindividualsegmentsastheseare managedonanoverallgroupbasis.thereconciliationbetweenreportablesegmentgrossprofittoourlossbeforetaxisasfollows: Three months ended June 30, Six months ended June 30, Segment gross profit Researchanddevelopment (143) (95) (258) (175) Salesandmarketing (173) (146) (311) (256) Generalandadministrative (103) (70) (174) (124) Financeincome Financecosts (343) (148) (497) (210) Shareinearningsofassociate (1) 1 Loss before tax (392) (187) (572) (359) -7-

11 Revenuebycountry Three months ended June 30, Six months ended June 30, UnitedStates UnitedKingdom Luxembourg Othercountries , ,273 1,007 2,412 1,909 Premiumrevenueisattributedtoacountrybasedonwherethemembershiporiginates.Ad-Supportedrevenueisattributedtoacountrybasedonwhere theadvertisingcampaignisviewed.therearenocountriesthatmakeupgreaterthan10%oftotalrevenueincludedin Othercountries. 5. Finance income and costs Three months ended June 30, Six months ended June 30, Finance income Fairvaluemovementsonderivativeliabilities(Note19) Interestincome Otherfinancialincome 8 Foreignexchangegains Total Finance costs Fairvaluemovementsonderivativeliabilities(Note19) (218) (50) (277) (63) FairvaluemovementsonConvertibleNotes(Note19) (123) (21) (201) (61) Interest,bankfees,andothercosts (2) (1) (2) (2) Foreignexchangelosses (76) (17) (84) Total (343) (148) (497) (210) 6. Income tax TheeffectivetaxratesforthethreemonthsendedJune30,2018and2017were(0.5)%and(0.6)%,respectively.Theeffectivetaxratesforthesix monthsendedjune30,2018and2017were1.5%and(0.5)%,respectively.driversofoureffectivetaxrateincludepermanentdifferences,withholdingtaxes, discretebenefitduetofairvaluegains,andunrecognizedtaxlossesincertainjurisdictions.weoperateinaglobalenvironmentwithsignificantoperationsin variousjurisdictionsoutsideluxembourg.accordingly,theconsolidatedincometaxrateisacompositeratereflectingourearningsandtheapplicabletaxratesin thevariousjurisdictionswhereweoperate. ForthesixmonthsendedJune30,2018,theincometaxbenefitof 9millionwasdueprimarilytotherecognitionofdeferredtaxesasaresultofthe unrealizedincreaseinthefairvalueofourlongterminvestment. Grosstaxprovisionswere 1millionand 6millionasofJune30,2018andDecember31,2017,respectively.Thegrosstaxprovisions,ifrecognized, willresultinareductionofapproximately 1milliontotheprovisionforincometaxes,thereforefavorablyimpactingoureffectivetaxrate.Weincludeinterestand penaltiesrelatedtotaxprovisionswithinincometaxexpense/(benefit)onthecondensedconsolidatedstatementsofoperationsandincometaxpayableinthe condensedconsolidatedstatementoffinancialposition.interestandpenaltiesincludedinincometaxexpensewerenotmaterialinanyoftheperiodspresented. Transactionsrecordedthroughothercomprehensiveincomehavebeenshownnetoftheirtaximpact,asapplicable,basedoncurrentlyenactedtaxlaws. -8-

12 Netdeferredtaxassetsof 8millionand 6millionhavebeenrecordedinthecondensedconsolidatedstatementoffinancialpositionasofJune30, 2018andDecember31,2017,respectively.Inevaluatingtheprobabilityofrealizingthedeferredtaxassets,weconsideredallavailablepositiveandnegative evidenceoffuturetaxprofit,includingitspastoperatingresultsandtheforecastofmarketgrowthandearnings.asofjune30,2018anddecember31,2017, deferredtaxassetsof 682millionand 581millionhavenotbeenrealized. 7. Loss per share Basiclosspershareiscomputedusingtheweighted-averagenumberofoutstandingordinarysharesduringtheperiod.Dilutedlosspershareis computedusingtheweighted-averagenumberofoutstandingordinarysharesandexcludesallpotentialordinarysharesoutstandingduringtheperiod,astheir inclusionwouldbeanti-dilutive.forthethreeandsixmonthsendedjune30,2018and2017,thegroup spotentialordinarysharesconsistofincrementalshares issuableupontheassumedexerciseofstockoptionsandwarrantsandtheincrementalsharesissuableupontheassumedvestingofunvestedrestrictedstockunits andrestrictedstockawards.thecomputationoflosspersharefortherespectiveperiodsisasfollows: Three months ended June 30, Six months ended June 30, (in millions, except share and per share data) Basic and diluted Netlossattributabletoownersoftheparent (394) (188) (563) (361) Sharesusedincomputation: Weighted-averageordinarysharesoutstanding 179,077, ,069, ,459, ,612,183 Basic and diluted loss per share attributable to owners of the parent (2.20) (1.24) (3.25) (2.40) Potentialdilutivesecuritiesthatwerenotincludedinthedilutedpersharecalculationsbecausetheywouldbeanti-dilutivewereasfollows: Three months ended June 30, Six months ended June 30, Shareoptions 13,507,387 13,465,080 13,507,387 13,465,080 Restrictedstockunits 203, , , ,360 Restrictedstockawards 61,880 61,880 Warrants 6,720,000 5,120,000 6,720,000 5,120,000-9-

13 8. Property and equipment Property and equipment Leasehold improvements Total Cost At January 1, Additions Disposals (12) (1) (13) Exchangedifferences 1 1 At June 30, Accumulated depreciation At January 1, 2018 (84) (21) (105) Depreciationcharge (9) (4) (13) Disposals Exchangedifferences At June 30, 2018 (81) (25) (106) Cost, net accumulated depreciation At January 1, At June 30, Intangible assets including goodwill Internal development costs and patents Acquired intangible assets Total Goodwill Total Cost At January 1, Additions Acquisition,businesscombination Exchangedifferences 1 1 At June 30, Accumulated amortization At January 1, 2018 (6) (2) (8) (8) Amortizationcharge (2) (2) (4) (4) At June 30, 2018 (8) (4) (12) (12) Cost, net accumulated amortization At January 1, At June 30, Amortizationchargesof 2millionand 1millionareincludedinresearchanddevelopmentinthecondensedconsolidatedstatementofoperations duringthethreemonthsendedjune30,2018and2017,respectively.amortizationchargesof 4millionand 3millionareincludedinresearchanddevelopment inthecondensedconsolidatedstatementofoperationsduringthesixmonthsendedjune30,2018and2017,respectively.therewerenoimpairmentchargesforthe sixmonthsendedjune30,2018and

14 10. Restricted cash and other non-current assets June 30, 2018 December 31, 2017 Restrictedcash Leasedeposits Other 1 1 Othernon-currentassets Equity and Other Reserves AsofJune30,2018andDecember31,2017,theCompanyhad179,778,023and167,258,400ordinarysharesissuedandoutstanding,respectively, withanadditional4,123,017and0ordinarysharesheldastreasuryshares,respectively. InOctober2017,theCompany sshareholdersauthorizedtheissuanceofupto1,400,000,000beneficiarycertificatestoshareholdersofthecompany withoutreservingtothegroup sexistingshareholdersapreemptiverighttosubscribeforthebeneficiarycertificatesissuedinthefuture.onfebruary16,2018,the Companyissued10beneficiarycertificatesperordinaryshareheldofrecordtoentitiesbeneficiallyownedbytheGroup sfounders,danielekandmartin Lorentzon.Thebeneficiarycertificatescarrynoeconomicrightsandareissuedtoprovidetheholdersofsuchbeneficiarycertificateswithadditionalvotingrights. Thebeneficiarycertificates,subjecttocertainexceptions,arenon-transferableandshallbeautomaticallycanceledfornoconsiderationinthecaseofsaleor transferoftheordinarysharetowhichtheyarelinked.thecompanymayissueadditionalbeneficiarycertificatesunderthetotalauthorizedamountatthe discretionofitsboardofdirectors,ofwhichthegroup sfoundersaremembers.asofjune30,2018,thegroup sfoundersheld372,596,740beneficiary certificates. -11-

15 Other reserves Currency translation At January 1 (7) (4) Currencytranslation (11) (1) At June 30 (18) (5) Short term investments At January 1 (5) (4) (Losses)/gainsonfairvaluethatmaybesubsequentlyreclassifiedto condensedconsolidatedstatementofoperations (4) 2 Lossesreclassifiedtoconsolidatedstatementofoperations 2 Deferredtaxonunrealizedlosses 2 At June 30 (5) (2) Long term investment At January 1 (11) Gainsonfairvaluenottobesubsequentlyreclassifiedto condensedconsolidatedstatementofoperations 58 Deferredtaxonunrealizedgains (12) At June Cash flow hedges At January 1 Gainsonfairvalue 1 Gainsreclassifiedtorevenue (3) Lossesreclassifiedtocostofrevenue 2 At June 30 Share-based payments At January Share-basedpayments Incometaximpactassociatedwithshare-basedpayments 2 1 At June Other reserves at June Share-based payments Theexpenserecognizedinthecondensedconsolidatedstatementofoperationsforshare-basedpaymentsisasfollows: Three months ended June 30, Six months ended June 30, Costofrevenue 1 Researchanddevelopment Salesandmarketing Generalandadministrative

16 ActivityintheGroup srestrictedstockunits( RSUs )andrestrictedstockawards( RSAs )outstandingandrelatedinformationisasfollows: RSUs RSAs Number of RSUs Weighted average grant date fair value Number of RSAs Weighted average grant date fair value US$ US$ Outstanding at January 1, , , Granted 14, Forfeited (6,591) Released (466) Outstanding at June 30, , , Activityinourshareoptionsoutstandingandrelatedinformationisasfollows: ESOP Weighted Number of options average exercise price US$ Outstanding at January 1, ,646, Granted 2,557, Forfeited (620,578) Exercised (3,057,405) Expired (18,600) Outstanding at June 30, ,507, Exercisable at January 1, ,822, Exercisable at June 30, ,637, Theweighted-averagecontractuallifefortheshareoptionsoutstandingatJune30,2018is3.3years.Theweightedaveragesharepriceatexercisefor optionsexercisedduringthesixmonthsendedjune30,2018wasus$ theweightedaveragefairvalueofoptionsgrantedduringthesixmonthsended June30,2018wasUS$36.16peroption. ThefollowingtableliststheinputstotheBlack-Scholesoption-pricingmodelsusedforshare-basedpaymentsforthethreeandsixmonthsended June30,2018and2017: Three months ended June 30, Six months ended June 30, Expectedvolatility(%) Risk-freeinterestrate(%) Expectedlifeofshareoptions(years) Weightedaverageshareprice(US$) Convertible Notes InJanuary2018,theGroupenteredintoanexchangeagreementwithholdersoftheremainingbalanceofitsConvertibleNotes,pursuanttowhichthe GroupexchangedtheremainingUS$628millionofConvertibleNotes,plusaccruedinterestofUS$16million,foranaggregateof9,431,960ordinaryshares. OnApril3,2018,theGroupcompletedadirectlistingoftheCompany sordinarysharesonthenyse.uponthedirectlisting,theoptionforthe ConvertibleNoteholderstounwindtheJanuary2018exchangetransactionexpiredand,asaresult,theGrouprecordedanexpenseof 123millionwithinfinance coststomarktomarketthe -13-

17 ConvertibleNotestothefairvaluebasedontheclosingpriceoftheCompany sordinarysharesonapril3,2018.thecompanythenreclassifiedtheconvertible Notesbalanceof 1.1billiontosharepremiumwithinEquity. 14. Trade and other receivables June 30, 2018 December 31, 2017 Tradereceivables Less:provisionforimpairmentoftradereceivables (15) (23) Tradereceivables net Other Trade and other payables June 30, 2018 December 31, 2017 Tradepayables Valueaddedtaxandsalestaxespayable Othercurrentliabilities Deferred revenue June 30, 2018 December 31, 2017 Deferredsubscriptionrevenue Deferredadvertisingrevenue Accrued expenses and other liabilities June 30, 2018 December 31, 2017 Non-current Deferredrent Otheraccruedliabilities Current Accruedfeestorightsholders Accruedsalaries,vacation,andrelatedtaxes AccruedsocialcostsforoptionsandRSUs Otheraccruedexpenses ,

18 18. Provisions Legal contingencies Other Total Carrying amount at January 1, Charged/(credited)tothecondensedstatementofoperations: Additionalprovisions 2 2 Reversalofunutilizedamounts Utilized (9) (1) (10) Exchangedifferences 2 2 Carrying amount at June 30, As at January 1, 2018: Currentportion Non-currentportion 6 6 As at June 30, 2018: Currentportion Non-currentportion 8 8 Variouslegalactions,proceedings,andclaimsarependingormaybeinstitutedorassertedagainsttheGroup.Theresultsofsuchlegalproceedingsare difficulttopredictandtheextentofthegroup sfinancialexposureisdifficulttoestimate.thegrouprecordsaprovisionforcontingentlosseswhenitisboth probablethataliabilityhasbeenincurredandtheamountofthelosscanbereasonablyestimated. BetweenDecember2015andJanuary2016,twoputativeclassactionlawsuitswerefiledagainstSpotifyUSAInc.intheU.S.DistrictCourtforthe CentralDistrictofCalifornia,allegingthattheGroupunlawfullyreproducedanddistributedmusicalcompositionswithoutobtaininglicenses.Thesecaseswere subsequentlyconsolidatedinmay2016andtransferredtotheu.s.districtcourtforthesoutherndistrictofnewyorkinoctober2016,asferricketal.v.spotify USAInc.,No.1:16-cv-8412-AJN(S.D.N.Y.).InMay2017,thepartiesreachedasignedclassactionsettlementagreementthatthecourthaspreliminarily approved,pursuanttowhichthegroupwillberesponsiblefor(i)aus$43millioncashpaymenttoafundfortheclass,(ii)allsettlementadministrationandnotice costs,expectedtobebetweenus$1milliontous$2million,(iii)adirectpaymentofclasscounsel sattorneys feesofuptous$5milliondollars,(iv)future royaltiesforanytracksidentifiedbyclaimants,aswellasotherclassmemberswhoprovideproofofownershipfollowingthesettlement,and(v)reservingfuture royaltiesforunmatchedtracks.onmay22,2018,thecourtgrantedfinalapprovalofthesettlement.thecourt sordergrantingapprovalofthesettlementhasbeen appealedbyobjectorstotheu.s.courtofappealsforthesecondcircuit.thoseappealsarecurrentlypending. Eveniftheapprovalofthesettlementisupheldonappeal,theGroupmaystillbesubjecttoclaimsofcopyrightinfringementbyrightsholderswho havepurportedtooptoutofthesettlementorwhomaynototherwisebecoveredbyitsterms. 19. Financial instruments Foreign exchange forward contracts Cashflowhedges TheGroupdesignatedcertainforeignexchangeforwardcontractsascashflowhedgeswhenalltherequirementsofIFRS9FinancialInstrumentswere met.theforeignexchangecontractshelptoprotectthegroupagainstthevariabilityofforecastedforeigncurrencycashflowsresultingfromrevenue,costof revenue,andnetassetorliabilitypositionsdesignatedincurrenciesotherthantheeuro.themaximumoriginaldurationofanycontractallowableunderthe hedgingpolicyisthirteenmonths.thegroup soutstandingforeignexchangeforward -15-

19 contractsdesignatedascashflowhedgeshavematuritiesoflessthanoneyear.thegroup sprimarycurrencypairsusedforcashflowhedgesareeuro/u.s. dollar,euro/australiandollar,euro/britishpound,andeuro/swedishkrona.thenotionalprincipaloftheforeignexchangecontractswasapproximately 885 millionasofjune30,2018.thefollowingtablesummarizesthenotionalprincipaloftheforeigncurrencyexchangecontractsbyhedgedlineiteminthecon densedstatementofoperationsasofjune30,2018: Notional amount in foreign currency Australian dollar (AUD) British pound (GBP) Swedish krona (SEK) U.S. dollar (USD) (in millions) Hedged line item in condensed consolidated statement of operations Revenue , Costofrevenue Total , TheGrouprecognizestheforeignexchangecontractsfromhedgingactivitiesaseitherassetsorliabilitiesonthebalancesheetandmeasuresthemat fairvalue.thegroupreflectsthegainorlossontheeffectiveportionofacashflowhedgeasacomponentofotherreservesandsubsequentlyreclassifies cumulativegainsandlossestorevenueorcostofrevenue,dependingontheriskhedged,whenthehedgedtransactionsarerecorded.ifthehedgedtransactions becomeprobableofnotoccurring,thecorrespondingamountsinotherreserveswouldbeimmediatelyreclassifiedtofinancecosts.thegroupevaluateshedge effectivenessattheinceptionofthehedgeprospectivelyandrecordsanyineffectiveportionofthehedgeinfinancecostsinthecondensedconsolidatedstatement ofoperations.interestchargesor forwardpoints ontheforeignexchangecontractsareexcludedfromtheassessmentofhedgeeffectivenessandarerecordedin financecostsinthecondensedconsolidatedstatementofoperations. Theassetandliabilitypositionsoftheforeignexchangeforwardcontractsareincludedinothercurrentassetsandderivativeliabilitiesonthe condensedconsolidatedstatementoffinancialposition,respectively. Nondesignatedhedges ForeignexchangeforwardcontractsthatdonotmeettherequirementsinIFRS9FinancialInstrumentstobedesignatedasacashflowhedgesare measuredatfairvalue.inthefirstquarter,thegroupeffectivelycloseditspositionsinforeignexchangeforwardcontractsnotdesignatedashedgesandrecognized againof 8millioninfinanceincomeassociatedwiththechangesinfairvalueoftheseinstruments.ForthethreemonthsendedJune30,2018,therewerenogains orlossesrecognizedassociatedwiththechangesinfairvalueoftheseinstruments. -16-

20 Fair values OnJanuary1,2018,theGroupadoptedIFRS9,FinancialInstruments.TheGroupconcludedthatthemeasurementandclassificationofitsfinancial assets,financialliabilities,andderivativeinstrumentsunderias39wasinaccordancewiththerequirementsofifrs9and,therefore,therewasnoimpactonthe Group scondensedconsolidatedfinancialstatementsuponadoptionofthestandard. Thecarryingamountsofcertainfinancialinstruments,includingcashandcashequivalents,tradeandotherreceivables,restrictedcash,tradeandother payables,andaccruedexpensesandotherliabilitiesapproximatefairvalueduetotheirrelativelyshortmaturities.allotherfinancialassetsandliabilitiesare accountedforatfairvalue. Thefollowingtablessummarize,bymajorsecuritytype,ourfinancialassetsandliabilitiesthataremeasuredatfairvalueonarecurringbasis,andthe categoryusingthefairvaluehierarchy: Financial assets and liabilities by fair value hierarchy level Level 1 Level 2 Level 3 June 30, 2018 Financial assets at fair value Shortterminvestments: Governmentsecurities Agencysecurities 4 4 Corporatenotes Collateralizedreversepurchaseagreements Derivatives(designatedforhedging): Foreignexchangeforwards 9 9 Longterminvestment Total financial assets at fair value by level ,862 Financial liabilities at fair value Derivatives(notdesignatedforhedging): Warrants Derivatives(designatedforhedging): Foreignexchangeforwards 8 8 Total financial liabilities at fair value by level

21 Financial assets and liabilities by fair value hierarchy level Level 1 Level 2 Level 3 December 31, 2017 Financial assets at fair value Shortterminvestments: Governmentsecurities Agencysecurities 7 7 Corporatenotes Collateralizedreversepurchaseagreements Derivatives(notdesignatedforhedging): Foreignexchangeforwards 2 2 Derivatives(designatedforhedging): Foreignexchangeforwards 6 6 Longterminvestment Total financial assets at fair value by level ,950 Financial liabilities at fair value ConvertibleNotes Derivatives(notdesignatedforhedging): Contingentoptions 3 3 Warrants Derivatives(designatedforhedging): Foreignexchangeforwards 5 5 Total financial liabilities at fair value by level 5 1,293 1,298 Allassetsandliabilitiesforwhichfairvalueismeasuredordisclosedinthecondensedconsolidatedfinancialstatementsarecategorizedwithinthefair valuehierarchy,describedasfollows,basedonthelowestlevelinputthatissignificanttothefairvaluemeasurementasawhole: - Level1:quoted(unadjusted)pricesinactivemarketsforidenticalassetsorliabilities - Level2:othertechniquesforwhichinputsarebasedonquotedpricesforidenticalorsimilarinstrumentsinmarketsthatarenotactive,quotedprices forsimilarinstrumentsinactivemarkets,andmodel-basedvaluationtechniquesforwhichallsignificantassumptionsareobservableinthemarketor canbecorroboratedbyobservablemarketdataforsubstantiallythefulltermoftheassetorliability - Level3:techniquesthatuseinputsthathaveasignificanteffectontherecognizedfairvaluethatrequiretheGrouptouseitsownassumptionsabout marketparticipantassumptions Ourpolicyistorecognizetransfersintoandtransfersoutoffairvaluehierarchylevelsattheendofeachreportingperiod.Duringthesixmonthsended June30,2018andtheyearendedDecember31,2017therewerenotransfersbetweenlevelsinthefairvaluehierarchy. -18-

22 Recurring Fair Value Measurements Longterminvestment ThefollowingsectionsdescribethevaluationmethodologiesweusetomeasureourLevel3financialinstrumentsatfairvalueonarecurringbasis. Longterminvestmentconsistsofanon-controllingequityinterestofapproximately9%inTME.Theinvestmentiscarriedatfairvaluethroughother comprehensiveincome.thefairvalueofunquotedordinaryshareshasbeenestimatedusingunquotedtmemarkettransactionswithcloseproximityofmarch31, 2018.DuringthethreemonthsendedJune30,2018,therewerenochangesintheGroup spreviouslyutilizedassumptionsorchangeinthefairvalueofthe investment.accordingly,therewerenoamountsrecognizedinothercomprehensiveincomeforthethreemonthsendedjune30,2018.thefairvalueofthelong terminvestmentwillvaryovertimeandissubjecttoavarietyofrisksincluding:companyperformance,macro-economic,regulatory,industry,andsystemicrisks oftheequitymarketsoverall. Thetablebelowpresentsthechangesinthelongterminvestment: 2018 At January Changesinfairvaluerecordedinothercomprehensiveloss 58 At June TheimpactonthefairvalueoftheinvestmentinTMEonourequityusingreasonablypossiblealternativeassumptionswithanincreaseordecreasein thesharepriceusedtovalueourequityinterestof10%resultsinarangeof 871millionto 1,065millionatJune30,2018and 819millionto 1,001millionat December31,2017. Fairvalueofordinaryshares OnApril3,2018,theGroupcompletedadirectlistingoftheCompany sordinarysharesonthenyse.thefairvalueofthecompany sordinary sharessubsequenttoourdirectlistingisbasedonthenyseclosingordinarysharepriceofthegroup. Thevaluationofcertainitemsintheinterimcondensedconsolidatedfinancialstatementspriortothedirectlistingwasconsistentwithouruseofthe ProbabilityWeightedExpectedReturnMethod( PWERM )tovaluethecompany sordinaryshares. ThefairvalueoftheordinarysharespriortothedirectlistingwasdeterminedusingrecentsecondarymarkettransactionsintheCompany sordinary sharesandthepwerm,whichisoneoftherecommendedvaluationmethodstomeasurefairvalueinprivatelyheldcompanieswithcomplexequitystructuresin theamericaninstituteofcertifiedpublicaccountantspracticeguide,valuationofprivately-held-companyequitysecuritiesissuedascompensation.underthis method,discretefutureoutcomes,includingasapubliccompany,non-publiccompanyscenarios,andamergerorsale,areweightedbasedonestimatesofthe probabilityofeachscenario.inthegroup sapplicationofthismethod,fivedifferentfuturescenariosareidentified(highandlowcasepubliccompany,highand lowcasetransaction,andprivatecompany).foreachscenario,anequityvalueiscalculatedbasedonrevenuemultiples,derivedfromlistedpeercompanies,which areappliedondifferent(scenario-dependent)forecastedrevenue.fortheprivatecompanyscenario,adiscountedcashflowmethodalsoisconsideredin determiningtheequityvalue.ordinarysharevaluesareweightedbytheprobabilityofeachscenariointhevaluationmodel.inaddition,anappropriatediscount adjustmentisincorporatedtorecognizethelackofmarketabilityduetobeingacloselyheldentity.finally,theimpactonthesharevalueofrecentfinancingand secondarytradingareconsidered. -19-

23 ThePWERMvaluations,upuntiltheGroup sdirectlisting,weightedthedifferentscenariosasfollows: March 31, 2018 MarketApproach HighCasePublicCompany 55 70% MarketApproach LowCasePublicCompany 28 35% MarketApproach HighCaseTransaction 0 3% MarketApproach LowCaseTransaction 0 2% PrivateCase IncomeandMarketApproaches 2 5% ThekeyassumptionsusedtoestimatethefairvalueoftheCompany sordinarysharesandcontingentoptionsusingthepwerm,upuntilthegroup s directlisting,wereasfollows: March 31, 2018 Revenuemultipleusedtoestimateenterprisevalue 3.0 Discountrate(%) 13.0 Volatility(%) Contingentoptions TheGroup sderivativesincludedcontingentoptionsthatprovidedinvestorsassociatedwiththeequityfinancingswithdownsideprotection. ThecontingentoptionsweremeasuredonarecurringbasisinthecondensedconsolidatedstatementoffinancialpositionandareLevel3financial instrumentsrecognizedatfairvaluethroughthecondensedconsolidatedstatementofoperations.thecontingentoptionswerevaluedusingthemodelsthatinclude thevalueofthecompany sordinaryshares,includingtheassumptionsforprobabilityscenariosandpwermasdeterminedabove.thekeyassumptionsusedto estimatethefairvalueoftheoptionsusingthepwermwereconsistentwiththosenotedabove. Undereachscenario,theGroupcomputedthedifferencebetweena)thevalueofthenewshares,valuedwiththeembeddedcontingentoptionsandb) theordinaryshares,valuedwithouttheembeddedcontingentoptions( OrdinaryShares )toderiveanindicationofthevalueofthecontingentoptionsforeach scenario.thedifferentialbetweennewsharesandtheordinaryshareswasdiscounted,whereappropriate,topresentvaluetoarriveatanindicationofthevalueof thecontingentoptionsforeachscenarioatthevaluationdate.finally,theindicatedvaluesundereachscenariowereweightedbasedontheweightingsnotedabove todeterminetheindicatedvalueofthecontingentoptions.uponthedirectlisting,thegroupreducedthefairvaluetoniltoreflecttheexpirationofitscontingent putoptions. Thetablebelowpresentsthechangesinthecontingentoptionsliability: At January (Gains)/lossrecognizedincondensedconsolidated statementofoperations (3) (60) At June Thecontingentoptionswereincludedinderivativeliabilitiesonthecondensedconsolidatedstatementoffinancialposition.Thechangeinestimated fairvaluewasrecognizedwithinfinanceincomeorcostsinthecondensedconsolidatedstatementofoperations. Warrants ThewarrantsaremeasuredonarecurringbasisinthecondensedconsolidatedstatementoffinancialpositionandareLevel3financialinstruments recognizedatfairvaluethroughthecondensedconsolidatedstatementofoperations.thewarrantsarevaluedusingablack-scholesoption-pricingmodel,which includesinputs -20-

24 determinedfrommodelsthatincludethevalueofthecompany sordinaryshares,asdeterminedaboveandadditionalassumptionsusedtoestimatethefairvalueof thewarrantsintheoptionpricingmodelasfollows: June 30, 2018 Expectedterm(years) Riskfreerate(%) Volatility(%) Shareprice(US$) Thetablebelowpresentsthechangesinthewarrantsliability: At January Noncashchangesrecognizedincondensedconsolidated statementofoperations Changesinfairvalue Effectofchangesinforeignexchangerates 13 (4) At June Thewarrantliabilityisincludedinderivativeliabilitiesonthecondensedconsolidatedstatementoffinancialposition.Thechangeinestimatedfair valueisrecognizedwithinfinancecostsinthecondensedconsolidatedstatementofoperations. TheimpactonthefairvalueofthewarrantswithanincreaseordecreaseintheCompany sordinarysharepriceof10%resultsinarangeof 516 millionto 705millionatJune30,2018and 275millionto 403millionatDecember31,2017. ConvertibleNotes TheConvertibleNotesweremeasuredonarecurringbasisinthecondensedconsolidatedstatementoffinancialpositionandwereLevel3financial instrumentsrecognizedatfairvaluethroughthecondensedconsolidatedstatementofoperations.atdecember31,2017,theconvertiblenoteswerevaluedatthe assumedexchangetoordinarysharesbasedonthefairvalueofthecompany sordinaryshareprice.thekeyassumptionstothefairvalueofordinaryshareshas beendiscussedabove. OnApril3,2018,theGroupcompletedadirectlistingoftheCompany sordinarysharesonthenyse,andtheoptionfortheconvertiblenoteholders tounwindthejanuary2018exchangetransactionexpired.asaresult,thegrouprecordedanexpenseof 123millionwithinfinancecoststomarktomarketthe ConvertibleNotestothefairvaluebasedontheclosingpriceoftheCompany sordinarysharesonapril3,2018.thecompanythenreclassifiedtheconvertible Notesbalanceof 1.1billiontosharepremiumwithinEquity.RefertoNote13. ThetablebelowpresentsthechangesintheConvertibleNotes: At January ,106 Noncashchangesrecognizedincondensedconsolidated statementofoperations Changesinfairvalue Effectofchangesinforeignexchangerates (20) (92) IssuanceofsharesuponexchangeofConvertibleNotes (1,145) At June 30 1,

25 20. Contingencies Variouslegalactions,proceedings,andclaimsarependingormaybeinstitutedorassertedagainsttheGroup.Thesemayincludebutarenotlimitedto mattersarisingoutofallegedinfringementofintellectualproperty;allegedviolationsofconsumerregulations;employment-relatedmatters;anddisputesarising outofsupplierandothercontractualrelationships.asageneralmatter,themusicandothercontentmadeavailableonthegroup sservicearelicensedtothegroup byvariousthirdparties.manyoftheselicensesallowrightsholderstoauditthegroup sroyaltypayments,andanysuchauditcouldresultindisputesoverwhether thegrouphaspaidtheproperroyalties.ifsuchadisputeweretooccur,thegroupcouldberequiredtopayadditionalroyalties,andtheamountsinvolvedcouldbe material.thegroupexpenseslegalfeesasincurred.thegrouprecordsaprovisionforcontingentlosseswhenitisbothprobablethataliabilityhasbeenincurred andtheamountofthelosscanbereasonablyestimated.anunfavorableoutcometoanylegalmatter,ifmaterial,couldhaveanadverseeffectonthegroup s operationsoritsfinancialposition,liquidity,orresultsofoperations. SinceJuly2017,sixlawsuitsallegingunlawfulreproductionanddistributionofmusicalcompositionshavebeenfiledagainsttheGroupin(i)theU.S. DistrictCourtfortheMiddleDistrictofTennessee(BluewaterMusicServicesCorporationv.SpotifyUSAInc.,No.3:17-cv-01051;Gaudioetal.v.SpotifyUSA Inc.,No.3:17-cv-01052;Robertsonetal.v.SpotifyUSAInc.,No.3:17-cv-01616;andA4VDigital,Inc.etal.v.SpotifyUSAInc.,3:17-cv-01256),(ii)intheU.S. DistrictCourtfortheSouthernDistrictofFlorida(WatsonMusicGroup,LLCv.SpotifyUSAInc.,No.0:17-cv-62374),and(iii)theU.S.DistrictCourtforthe CentralDistrictofCalifornia(WixenMusicPublishingInc.v.SpotifyUSA,Inc.,2:17-cv-09288)(allegingthatSpotifyhasinfringedthecopyrightsinover10,000 musicalcompositions).thecomplaintsseekanawardofdamages,includingthemaximumstatutorydamagesallowedunderu.s.copyrightlawofus$150,000per workinfringed.thegroupintendstovigorouslydefendtheclaims. 21. Related party transactions OnApril1,2016,theGroupissuedandsoldtheConvertibleNotesto,amongothers,RiversCrossTrust,anentitywhollyownedbyBarryMcCarthy, thegroup schieffinancialofficer.theoriginalprincipalamountpurchasedbyriverscrosstrustwasapproximatelyus$0.2million.injanuary2018,the ConvertibleNotes,plusaccruedinterest,wereexchangedforordinaryshares.SeeNote

26 Item 2. Mana gement s Discussion and Analysis of Financial Condition and Results of Operations Special Note Regarding Forward Looking Statements Thisdiscussionandanalysisreflectsourhistoricalresultsofoperationsandfinancialpositionandcontainsestimatesandforward-lookingstatements. Allstatementsotherthanstatementsofhistoricalfactareforward-lookingstatements.Thewords may, might, will, could, would, should, expect, plan, anticipate, intend, seek, believe, estimate, predict, potential, continue, contemplate, possible, andsimilarwordsareintendedto identifyestimatesandforward-lookingstatements. Ourestimatesandforward-lookingstatementsaremainlybasedonourcurrentexpectationsandestimatesoffutureeventsandtrends,whichaffector mayaffectourbusinessesandoperations.althoughwebelievethattheseestimatesandforward-lookingstatementsarebaseduponreasonableassumptions;they aresubjecttonumerousrisksanduncertaintiesandaremadeinlightofinformationcurrentlyavailabletous.manyimportantfactorsmayadverselyaffectour resultsasindicatedinforward-lookingstatements.thesefactorsinclude,butarenotlimitedto: ourabilitytoattractprospectiveusersandtoretainexistingusers; ourdependenceuponthird-partylicensesforsoundrecordingsandmusicalcompositions; ourabilitytocomplywiththemanycomplexlicenseagreementstowhichweareaparty; ourabilitytogeneratesufficientrevenuetobeprofitableortogeneratepositivecashflowonasustainedbasis; ourlackofcontrolovertheprovidersofourcontentandtheireffectonouraccesstomusicandothercontent; ourabilitytoaccuratelyestimatetheamountspayableunderourlicenseagreements; thelimitationsonouroperatingflexibilityduetotheminimumguaranteesrequiredundercertainofourlicenseagreements; ourabilitytoobtainaccurateandcomprehensiveinformationaboutmusiccompositionsinordertoobtainnecessarylicensesorperformobligations underourexistinglicenseagreements; potentialbreachesofoursecuritysystems; riskassociatedwithunauthorizedaccessofoursoftwareandservicesandmanipulationofstreamcountsandcustomeraccounts; assertionsbythirdpartiesofinfringementorotherviolationsbyusoftheirintellectualpropertyrights; risksrelatedtoourstatusasaforeignprivateissuer; dilutionresultingfromadditionalshareissuances; theconcentrationofvotingpoweramongourfounderswhohaveandwillcontinuetohavesubstantialcontroloverourbusiness; tax-relatedrisks; unanticipatedchangesrelatingtocompetitivefactorsinourindustry; abilitytohireandretainkeypersonnel; -23-

27 changesinlegislationorgovernmentalregulationsaffectingus; international,nationalorlocaleconomic,socialorpoliticalconditions; conditionsinthecreditmarkets;and risksassociatedwithaccountingestimates,currencyfluctuationsandforeignexchangecontrols. Weoperateinanevolvingenvironment.Newriskfactorsanduncertaintiesemergefromtimetotime,anditisnotpossibleforourmanagementto predictallriskfactorsanduncertainties,norareweabletoassesstheimpactofalloftheseriskfactorsonourbusinessortheextenttowhichanyriskfactor,or combinationofriskfactors,maycauseactualresultstodiffermateriallyfromthosecontainedinanyforward-lookingstatements. Wequalifyallofourforward-lookingstatementsbythesecautionarystatements.Foradditionalinformation,refertotheriskfactorsdiscussedunder Item1A.RiskFactors belowandinourotherfilingswiththeu.s.securitiesandexchangecommission( SEC ). Youshouldreadthisdiscussionandanalysiscompletelyandwiththeunderstandingthatouractualfutureresultsmaybemateriallydifferentandworse fromwhatweexpect. Overview Ourmissionistounlockthepotentialofhumancreativitybygivingamillioncreativeartiststheopportunitytoliveofftheirartandbillionsoffansthe opportunitytoenjoyandbeinspiredbythesecreators. Wearethelargestglobalmusicstreamingsubscriptionservice.Withapresencein65countriesandterritoriesandgrowing,ourplatformincludes180 millionmonthlyactiveusers( MAUs )and83millionpremiumsubscribers(asdefinedbelow)asofjune30,2018. Ourusersarehighlyengaged.WecurrentlymonetizeourServicethroughbothsubscriptionsandadvertising.OurPremiumSubscribershavegrown 40%year-over-yearasofJune30,2018to83million.Our180millionMAUshavegrown30%year-over-yearasofJune30,2018. Ourresultsreflecttheeffectsofourbi-annualtrialprograms,inadditiontoseasonaltrendsinuserbehaviorand,withrespecttoourAd-Supported Service,advertisingbehavior.Historically,PremiumSubscribergrowthaccelerateswhenwerunbi-annualtrialprogramsinthesummerandwinter,which typicallybegininthelastmonthofthesecondandfourthquarters.thisleadstodecreasesingrossmargininthefirstandthirdquarterofeachyear,asweabsorb thepromotionalexpensesofdiscountedtrialoffers. ForourAd-SupportedService,weexperiencehigheradvertisingrevenuesinthefourthquarterofeachcalendaryearduetogreateradvertisingdemand duringtheholidayseason.however,inthefirstquarterofeachcalendaryear,wetypicallyexperienceaseasonaldeclineinadvertisingrevenueduetoreduced advertiserdemand.therapidgrowthinourbusinesstodatehassomewhatmaskedthesetrends.inthefuture,weexpectthesetrendstobecomemorepronounced. OnApril3,2018,wecompletedadirectlistingoftheCompany sordinarysharesonthenyse.uponthedirectlisting,theoptionfortheconvertible NoteholderstounwindtheJanuary2018exchangetransactionexpired,and,asaresult,werecordedanexpenseof 123millionwithinfinancecoststomarkto markettheconvertiblenotestothefairvaluebasedontheclosingpriceofthecompany sordinarysharesonapril3,2018.wethenreclassifiedtheconvertible Notesbalanceof 1.1billiontosharepremiumwithinEquity. -24-

28 Key Performance Indicators MAUs WetrackMAUsasanindicatorofthesizeoftheaudienceengagedwithourService.WedefineMAUsasthetotalcountofusersofourAd-Supported Service( Ad-SupportedUsers )andpremiumsubscribersthathaveconsumedcontentforgreaterthanzeromillisecondsinthelastthirtydaysfromtheperiod-end indicated.reportedmausmayoverstatethenumberofuniqueindividualswhoactivelyuseourservicewithinathirty-dayperiodasoneindividualmayregister for,anduse,multipleaccounts.additionally,fraudandunauthorizedaccesstoourservicemaycontribute,fromtimetotime,toanoverstatementofmaus,if undetected.fraudulentaccountstypicallyarecreatedbybotstoinflatecontentlicensingpaymentstoindividualrightsholders.westrivetodetectandminimize thesefraudulentaccounts.duringthesecondquarterof2018,werevisedourpolicyrelatingtoourusermetrics.inourregistrationstatementonform-1filedwith thesecinmarch2018andourform6-kreportingourfirstquarterresultsfurnishedinmay2018,weexcludedanumberofusersthatmayhaveemployed methodstolimitorotherwiseavoidbeingservedadvertisements.ourmausfiguresinthetablesbelowarenowinclusiveofusersthatmayhaveemployed methodstolimitorotherwiseavoidbeingservedadvertisements.forcomparability,wehaveadjustedbothourmausandad-supportedmausfiguresasof June30,2017toalignwiththisrevisedmethodology.Foradditionalinformation,refertotheriskfactorsdiscussedunderPartII OtherInformation, Item1A. RiskFactors belowandinourotherfilingswiththesec. ThetablebelowsetsforthourmonthlyactiveusersasofJune30,2018and2017. As of June 30, Change (in millions, except percentages) MAUs % MAUswere180millionasofJune30,2018and138millionasofJune30,2017,whichrepresentedanincreaseof30%.TheincreaseinMAUs benefitedfromourcontinuedinvestmentindrivingtherapidgrowthofourservice,boththroughgeographicexpansionandconsumermarketing.theincreasealso benefitedfromcontinuedinvestmentincontentandfeaturesonourplatform,includingfeaturedplaylists,artistmarketingcampaigns,andoriginalcontenttodrive increaseduserengagementandcustomersatisfaction.mauswereimpactedpositivelybyanincreaseinpremiumsubscribers,asnotedbelow. Premium Subscribers WedefinePremiumSubscribersasusersthathavecompletedregistrationwithSpotifyandhaveactivatedapaymentmethodforPremiumService.Our PremiumSubscribersincludeallregisteredaccountsinourFamilyPlan.OurFamilyPlanconsistsofoneprimarysubscriberanduptofiveadditionalsub-accounts, allowinguptosixpremiumsubscribersperfamilyplansubscription.premiumsubscribersincludessubscribersinagraceperiodofupto30daysafterfailingto paytheirsubscriptionfee. ThetablebelowsetsforthourPremiumSubscribersasofJune30,2018and2017. As of June 30, Change (in millions, except percentages) PremiumSubscribers % PremiumSubscriberswere83millionasofJune30,2018and59millionasofJune30,2017,whichrepresentedanincreaseof40%.TheFamilyPlan wasameaningfulcontributoroftotalgrossaddedpremiumsubscribers,whileourbi-annualglobalsummerandholidaycampaignsalsoaccountedforasignificant portionofgrossaddedpremiumsubscribers. -25-