Spotify Technology SA (SPOT) shares took flight on Wednesday, climbing 7.64% to $451.49, following the release of the company’s impressive third-quarter earnings report. The positive reaction from investors came on the heels of upbeat figures that showcased strong growth in key areas, including premium subscribers and monthly active users (MAUs). Analysts, too, expressed optimism, revising their price targets upwards, citing a number of encouraging factors.
Macquarie Equity Research:
Analyst Tim Nollen maintained his “Outperform” rating on Spotify, but significantly increased his price target from $395 to $500. Nollen highlighted the company’s robust revenue growth of 19%, although it fell slightly short of expectations. He lauded the strong performance of premium subscribers, reaching 252 million, and MAUs, hitting 640 million, both surpassing analysts’ forecasts. Nollen was particularly impressed with the expansion of Spotify’s gross margins, reaching 31.1% compared to 26.3% in the same period last year. He attributed this growth to “improved podcasting profitability, Marketplace strength, and shifting product mix to audiobooks vs. music.” However, he also cautioned that the company’s revenue growth guidance of 14% for the fourth quarter is “hindered by lapping price increases and FX headwinds.” Nollen’s confidence in Spotify’s future was reflected in his decision to raise the operating income estimate for 2024 from 1.2 billion euros ($1.28 billion) to 1.4 billion euros, a figure significantly higher than the consensus forecast.Goldman Sachs:
Eric Sheridan, an analyst at Goldman Sachs, reiterated his “Buy” rating on Spotify, boosting his price target from $430 to $490. He commended the company’s forward guidance, which he described as reflecting “strength in premium partially offset by advertising softness.” Sheridan emphasized that Spotify’s third-quarter results and its fourth-quarter guidance pointed to a “healthy user trajectory” driven by “platform/product enhancements aided by marketing spend.” Sheridan noted that Spotify’s operating income reached a record high, a result of “gross margin expansion and disciplined cost measures.” Management expressed confidence that these positive trends would continue into the new year, and their fourth-quarter guidance suggests “healthy exit rates for the overall business.”Bank of America Securities:
Jessica Reif Ehrlich, an analyst at Bank of America Securities, reaffirmed her “Buy” rating on Spotify, also increasing her price target from $430 to $515. Ehrlich called Spotify’s third-quarter results “very strong,” emphasizing the company’s impressive performance in gross margin, operating income, and free cash flow, which exceeded her forecasts. While revenue came in slightly below expectations, Ehrlich highlighted that Spotify’s third-quarter gross margin and fourth-quarter guidance indicated that the company had achieved its “intermediate gross margin target of 30%” sooner than anticipated. She attributed the healthy growth in premium subscribers and MAUs to “growth in all regions and aided by a recalibration of marketing activities and top of funnel health.” Ehrlich expressed confidence in Spotify’s future, stating that its strong balance sheet and free cash flow generation suggest the company has “ample capacity for capital returns in the near future.”The strong earnings report and analysts’ positive outlooks have solidified Spotify’s position as a leading player in the streaming music industry. With its focus on expanding its premium subscriber base, increasing its market share, and diversifying its offerings with audiobooks, Spotify seems well-positioned for continued growth in the years to come.
