On Wednesday, Goldman Sachs maintained a positive stance on Spotify Technology SA (NYSE:SPOT) sstock by increasing the price target to $550 from the previous $490 while retaining a Buy rating.
The adjustment follows Spotify’s impressive 135% stock return over the past year, with InvestingPro data showing the company maintains a "GREAT" financial health score of 3.09.
The firm’s analysis comes ahead of the fourth-quarter 2024 earnings report, scheduled for February 4, which is expected to provide insights into Spotify’s performance and strategic initiatives.
Goldman Sachs highlighted several investor focus areas ahead of the earnings release. These include Spotify’s management commentary on pricing and product decisions, which have implications for monetization, new subscriber growth, customer retention, and competitive dynamics within the industry.
With current gross profit margins at 28.7% and revenue growth of 18.5% in the last twelve months, InvestingPro subscribers can access 15+ additional key metrics and insights about Spotify’s financial performance.
Goldman also pointed out that investors are keen on understanding the company’s gross margin results and the forward guidance for the first quarter, as these will offer a framework for the 2025 gross margin trajectory.
After a year of significant results, Goldman Sachs now models a more conservative pace of margin improvement for 2025 due to Spotify’s announced need for ongoing investment in its platform and products. The company’s strong financial position, with a current ratio of 1.71 and sufficient cash flows to cover interest payments, supports this investment strategy.
This investment is seen as vital for the continued evolution and scaling of the platform, particularly as the company expands its offerings for the creator economy, which are expected to scale in 2025.
The analyst also noted the importance of considering broader elements of the audio landscape beyond Spotify’s core music services and growing podcast capabilities. In the short term, the company’s approach to audiobooks is of particular interest to investors, as it represents another avenue for platform growth and user engagement.
Spotify’s upcoming earnings report is anticipated to shed light on these themes and provide a clearer picture of the company’s financial health and strategic direction moving forward.
In other recent news, IndeRes initiated coverage on Spotify with a Reduce rating and a price target of $470, citing concerns about the company’s current trading multiples.
On the other hand, Canaccord Genuity, Citi, TD Cowen, and Piper Sandler have all raised their price targets for Spotify following strong Q3 results. The company reported a revenue growth of 18.5%, reaching $16.8 billion, and its user base grew by 14 million, reaching 640 million.
Spotify’s premium subscription business has shown significant growth with the average revenue per user (ARPU) increasing by 11% year over year. The company’s subscribers also rose by 6 million to total 252 million. For the fourth quarter, the company projects an increase in Monthly Active Users (MAUs) to 665 million and subscribers to 260 million.
The company has also been expanding its business model. It recently launched the Spotify Partner Program and partnered with Emirates to integrate its media offerings into the airline’s in-flight entertainment system. These developments reflect Spotify’s strategic focus on sustained profitability and growth.
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