On Thursday, Cantor Fitzgerald initiated coverage on Spotify Technology SA (NYSE:SPOT), assigning the music streaming giant a Neutral rating with a price target of $340. The firm acknowledged Spotify's impressive year-to-date (YTD) performance, which has seen the company's shares surge by 83%, far outpacing the Nasdaq's 18% gain over the same period.
The analyst cited the company's recent positive adjustments to gross profit (GP) and earnings before interest and taxes (EBIT) estimates as key factors behind the stock's outperformance. These adjustments stem from Spotify's initiatives to raise prices and implement cost-saving measures. Looking forward, the firm sees potential for Spotify to continue its revenue growth and margin expansion through 2025 and 2026.
Despite the optimistic outlook for growth, the analyst expressed concerns about the market's expectations for Spotify to maintain a steady increase in premium average revenue per user (ARPU) from 2024 to 2026. Meeting these expectations could pose a challenge for the company.
The Neutral rating is based on the firm's view that Spotify's current valuation already accounts for the anticipated margin growth and the potential for long-term compounding. The price target of $340 is derived from a 30 times multiple of Spotify's forecasted FY25E EBIT. This valuation reflects confidence in the company's ability to expand its margins while also recognizing the challenges it faces in increasing ARPU consistently.
In other recent news, Spotify Technology SA has seen multiple analyst revisions following its second-quarter results. Evercore ISI raised its price target for Spotify to $460 from $420, maintaining an Outperform rating, based on positive survey results indicating Spotify's strong position in the streaming market. TD Cowen also revised its price target for Spotify from $273 to $356, maintaining a Hold rating, influenced by Spotify's gross margin surpassing both the guidance and TD Cowen's estimates.
Meanwhile, Guggenheim adjusted its price target for Spotify to $420 from $400, maintaining a Buy rating, due to the company's robust financial performance with a higher gross margin and strong free cash flow. Benchmark raised Spotify's price target to $430 from $405, emphasizing Spotify's second-quarter free cash flow performance as a significant turning point.
Rosenblatt Securities adjusted its price target for Spotify, nudging it up to $399.00 from the previous $396.00, following Spotify's recent financial performance report, revealing revenues of €3,807 million and a substantial increase in premium subscribers exceeding expectations.
In other developments, the chief executives of Meta Platforms Inc (NASDAQ:META). and Spotify have expressed concerns over the European Union's regulatory environment for open-source artificial intelligence (AI), arguing that Europe's complex and fragmented regulations are stifling innovation.
InvestingPro Insights
As Spotify Technology SA (NYSE:SPOT) garners attention with its impressive performance, InvestingPro data offers additional insights into the company's financial health and market position. The music streaming giant holds a market capitalization of approximately $66.12 billion, reflecting its substantial presence in the industry. With a P/E ratio of 126.02, the company's valuation is high compared to its near-term earnings growth, yet it's important to note that this ratio is projected to adjust to 82.09 in the coming year, as per InvestingPro data.
InvestingPro Tips highlight that Spotify is trading at a high Price/Book multiple of 14.01, which could signal that investors have high expectations for the company's future growth. It's also worth noting that Spotify's revenue growth over the last twelve months has been a robust 16.5%, with a gross profit margin of 27.54%, indicating efficient control over costs relative to its revenue generation. Additionally, analysts have revised their earnings upwards for the upcoming period, suggesting a positive outlook on Spotify's financial performance.
For investors seeking more in-depth analysis, InvestingPro provides a suite of additional tips (https://www.investing.com/pro/SPOT) to further understand Spotify's market potential and financial stability. Among these, the fact that Spotify holds more cash than debt on its balance sheet is reassuring, and the expectation of net income growth this year could be a promising sign for those invested in the company's continued success. With 15 more tips available on InvestingPro, investors have access to a comprehensive view of Spotify's financial landscape to inform their investment decisions.
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