In a report released today, Jonathan Woo from Phillip Securities upgraded Spotify Technology SA (SPOT – Research Report) to a Buy, with a price target of $340.00.
Jonathan Woo has given his Buy rating due to a combination of factors that include Spotify Technology SA’s (SPOT) consistent revenue growth and its ability to outperform on profitability. Despite facing increased competition in audio streaming, Spotify has demonstrated a robust growth trajectory, underpinned by a rise in subscriber numbers and the ability to command higher prices, resulting in a 5% year-over-year increase in average revenue per user (ARPU). Furthermore, the company has successfully leveraged its scale to negotiate more favorable royalty agreements, which has led to a significant improvement in its gross margin, up 240 basis points year-over-year to 27.6%. This indicates that Spotify is not only expanding its user base but is also becoming more efficient in its operations, which enhances its market leadership position.
Moreover, Woo’s optimism is further buoyed by Spotify’s strategic initiatives to introduce new products and platform enhancements, such as Audiobooks, AI DJ, and music videos, which are anticipated to deliver incremental value to users and support the company’s strategy to improve monetization while keeping churn rates low. Despite a minor shortfall in monthly active users (MAU) against guidance, which was attributed to several short-term factors, Woo remains positive on Spotify’s outlook. The assessment reflects confidence in the company’s ability to navigate operational challenges and continue its growth momentum, supported by Spotify’s correction of its marketing spend and ongoing operational improvements. The upgrade to a Buy rating and an increased discounted cash flow (DCF) target price of US$340 underscore the expected benefits from the company’s enhanced revenue growth and meaningful cost advantages achieved through economies of scale.
In another report released on April 24, HSBC also maintained a Buy rating on the stock with a $355.00 price target.
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Spotify Technology SA (SPOT) Company Description:
Founded in 2006, Luxembourg-based Spotify Technology SA is the world’s most popular audio streaming subscription service. It serves a community of over 320 million users across 92 markets. The company generates revenue from Premium and Ad-Supported segments. The Premium segment provides subscribers with unlimited online and offline high-quality streaming access to music and podcasts. It also offers a music listening experience without commercial breaks. The Ad-Supported segment provides on-demand online access to its catalog of music and unlimited online access to the catalog of podcasts to its subscribers with no subscription fees. The company also provides sales, marketing, contract research and development, and customer support services.
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