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CFPB's leadership could come down to interpretation of 'shall'

Energy

Power Forecast Briefing: Fleet Transformation, Under-Powered Markets, and Green Energy in 2018

S&P Global Market Intelligence: Who We Serve

Banking, Corporations, Insurance, Professional Services

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Technology, Media & Telecommunications

Spotify’s Direct Listing Gamble Pays Off


CFPB's leadership could come down to interpretation of 'shall'

Leadership of the Consumer Financial Protection Bureau could hinge on the definition and interpretation of the word "shall."

A three-judge panel on April 12 heard arguments from lawyers representing Leandra English, a CFPB employee who was appointed as deputy director immediately prior to former Director Richard Cordray's resignation. Following Cordray's departure, President Donald Trump appointed Mick Mulvaney, director of the Office of Management and Budget, as acting director of the CFPB. Under Mulvaney's leadership, the CFPB has halted enforcement activity and called for numerous reviews of the CFPB's practices, a stark reversal from Cordray's tenure, known for an active docket of enforcement actions.

English is arguing the Dodd-Frank Act, which established the CFPB, stipulates the deputy director "shall" serve as acting director "in the absence or unavailability of the Director." As such, English argues she should be the acting director and is seeking an injunction against Trump, which would nullify his appointment of Mulvaney. On Jan. 11, a judge denied English's request for an injunction, which she appealed to the U.S. Court of Appeals for the District of Columbia Circuit, which heard the arguments on April 12.

"In the Dodd-Frank Act, Congress has used that 'shall' language to indicate a mandatory command," said Deepak Gupta, the lawyer for English.

In response, Hashim Mooppan, the lawyer representing Trump, argued the Federal Vacancies Reform Act, or FVRA, supersedes the language in Dodd-Frank. The FVRA allows the president to temporarily appoint officials to vacant positions that generally require Senate confirmation.

"Congress has already told us that if there is an agency-specific statute, even one that uses the word 'shall,' even one that is mandatory, it co-exists with the FVRA." He later added: "The FVRA itself says that saying 'shall' isn't enough."

Mooppan then seized on an assertion in English's brief that former President Barack Obama's succession plan for the Director of National Intelligence allowed for a more flexible interpretation of "shall" if the principal deputy director's office is vacant.

English's lawyer also noted that the selection of Mulvaney supports an injunction against Trump. Gupta argued that the Dodd-Frank Act made clear that Congress wanted the CFPB to be independent of budget scrutiny. Dodd-Frank stipulates the CFPB draws its funding directly from the Federal Reserve, which itself is funded independently of Congress.

Along those lines, Gupta said the Dodd-Frank Act and FVRA both are intended to limit presidential authority. The Dodd-Frank Act states the president can only fire the CFPB's director for cause as opposed to at-will. The FVRA requires the executive branch reports to Congress whenever there is a temporary appointee in a position that requires Senate confirmation.

The Trump administration, Gupta said in closing, has interpreted the Dodd-Frank Act and the FVRA in a way to allow it to take over the CFPB.

The case will be decided by a three-panel judge: Judith Rogers, appointed in 1994 by President Bill Clinton; Thomas Griffith, appointed in 2005 by President George W. Bush; and Patricia Millett, appointed in 2013 by President Barack Obama.


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Technology, Media & Telecommunications
Spotify’s Direct Listing Gamble Pays Off

Highlights

Spotify Technology SA shares rose 13% above its $132.00 reference price to close at $149.01 the day of the company’s IPO April 3, resulting in a public market valuation of 4.0x estimated 2018 revenue of €5.22 billion and 16.5x gross profit of €1.28 billion.

Apr. 06 2018 — The following post comes from Kagan, a research group within S&P Global Market Intelligence. To learn more about our TMT (Technology, Media & Telecommunications) products and/or research, please request a demo.

Spotify Technology SA shares rose 13% above its $132.00 reference price to close at $149.01 the day of the company’s IPO April 3, resulting in a public market valuation of 4.0x estimated 2018 revenue of €5.22 billion and 16.5x gross profit of €1.28 billion. That compares to a trading multiple of just 1.0x revenue for Pandora as of the same date, but Spotify’s higher trading multiple is justified by its higher proportion of paying subscribers among its listeners and its growth outside the U.S.

Spotify Technology is the parent of Spotify AB, the Swedish operator of the popular Spotify streaming service.

Company guidance for full year 2018, provided in Spotify's March 26 8-K filing, is revenue of €4.9 billion to €5.3 billion, up 20% to 30% year over year, and a gross profit margin of 23% to 25%, with an operating loss of €230 million to €330 million including an estimated total cost for the direct listing of roughly €35 million to €40 million in the second quarter.

Spotify Technology S.A. share price and market capitalization

The 8-K also shows Spotify has ambitious monthly active user, or MAU, and premium subscriber growth targets for 2018, with MAUs projected to increase by 26% to 32% year-over-year to 198 million to 208 million and total premium subs growing 30% to 36% to a range of 92 million to 96 million.

At the end of 2017, Spotify had reported 157 million MAUs and 71 million premium subs. Apple Music came in second place with a reported 36 million subs as of February 2018; based on reports from the Wall Street Journal, the company is growing at a monthly rate of 5% compared to 2% at Spotify. According to a Forbes article on April 4, Apple Music just reached 40 million paid subscribers.

Amazon.com Inc. has indicated it is the third-largest on-demand streaming music company behind Spotify and Apple Inc.'s Apple Music with a reported 16 million subscribers between Prime Music and Amazon Music Unlimited. That leaves Pandora Media Inc. in fourth place with 5.5 million paid subscribers, although it has a larger ad-supported user base with 74.1 million MAUs reported at the end of 2017.

Based on reports by Music Business Worldwide on April 4, Sony Corp.'s Sony Music, which had owned 5.71% of Spotify shares prior to the first day of trading, sold 17.2% of its stake in the company, representing a little less than a 1% total share, for over $250 million based on the April 3 closing price of $149.01.

In Spotify's prospectus filed April 3, Sony Music, before the April 3 shares sale in the first day of Spotify trading, was the fifth-largest shareholder behind Spotify co-founders Daniel Ek (27.1%) and Martin Lorentzon (13.1%), followed by Tencent Holdings Ltd. (9.1%) and Tiger Global (7.2%).

As reported by Music Business Worldwide, according to a memo released by Sony, the company projects that the unrealized valuation gain and the proceeds from the sale of Spotify shares will amount to roughly 105 billion Japanese yen, approximately US$1 billion, for the first quarter of the fiscal year ending March 31, 2019.