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On Wednesday, Benchmark analyst Mark Zgutowicz increased the price target for Spotify Technology SA (NYSE:SPOT) shares, raising it to $720 from the previous $600 while maintaining a "Buy" rating. The stock, currently trading at $624, has delivered an impressive 178% return over the past year and is approaching its 52-week high. The adjustment comes in the wake of Spotify’s fourth-quarter earnings, which bolstered the analyst’s confidence in the company’s long-term prospects, particularly its ability to introduce higher-priced content tiers and maintain a profitable revenue model. According to InvestingPro data, Spotify’s revenue grew 18% in the last twelve months, with the company achieving profitability.
Zgutowicz highlighted management’s commentary that hinted at the potential release of a "Supremium" service tier within the year. The speculation around this offering includes features such as 24-bit lossless audio, 30 hours per month of audiobook listening, and advanced AI playlist and mixing tools. Additionally, the Supremium tier might offer exclusive Superfan club content, which has shown significant interest among Spotify users surveyed in January. The company’s strong financial health is evident in its balance sheet, with InvestingPro analysis showing more cash than debt and liquid assets exceeding short-term obligations.
The analyst noted that while lossless audio and Superfan content could partially justify a Supremium tier priced over $19.99, the most significant pricing leverage is expected to come from audiobooks. Zgutowicz previously discussed the dilutive impact of a more engaged audiobook user base on gross margins, but also pointed to the competitive pricing leverage Spotify holds in the market, particularly against rivals like Audible.
The expectation of higher-priced tiers aligns with the company’s financial strategy and is supported by growing user engagement, especially in the audiobook segment. Zgutowicz’s revised price target reflects these considerations and the potential for Spotify to capitalize on these new offerings.
In other recent news, Spotify has been the subject of multiple analyst upgrades following its strong fourth-quarter performance. JPMorgan raised its price target for the company to $730, recognizing the company’s significant user growth and progress towards its financial goals. KeyBanc Capital Markets also increased its price target to $675, citing Spotify’s improved operating margins and consistent revenue growth.
Similarly, Cantor Fitzgerald lifted its price target to $600, acknowledging the company’s significant overachievement of its prior guidance for monthly active users and subscribers. Guggenheim Securities increased its price target to $675, retaining a Buy recommendation on the shares, while Canaccord Genuity adjusted the price target to $700, maintaining a Buy rating on the stock.
These developments follow Spotify’s announcement of its robust fourth-quarter results, which surpassed guidance expectations in several key areas such as monthly active users, premium subscribers, total revenue, and gross margins. The company’s CEO, Daniel Ek, highlighted the company’s successful year and outlined the strategic direction for 2025, emphasizing a year of accelerated execution. Spotify plans to continue focusing on its core music offerings while expanding its investments in audiobooks, video, and podcasts. These recent developments suggest a strong performance outlook for Spotify as it diversifies its entertainment portfolio and seeks to build on its recent profitability.
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