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On Wednesday, KeyBanc Capital Markets adjusted its outlook on Spotify Technology SA (NYSE:SPOT) shares, reducing the price target to $625 from the previous $675, while continuing to endorse the stock with an Overweight rating. According to InvestingPro data, Spotify has demonstrated remarkable momentum with a 72.36% return over the past year, despite trading above its Fair Value estimate. Analysts at KeyBanc highlighted their preference for subscription-based models, with Spotify and Netflix (NASDAQ:NFLX) remaining as their favored choices in the sector. They believe that Spotify's enhanced content offerings are paving the way for long-term pricing power, estimating U.S. monetization at approximately $0.18 per hour. The company's strong financial health is reflected in its "GREAT" overall score from InvestingPro, with robust revenue growth of 18.31% in the last twelve months.
Spotify's improving AdTech stack and the Spotify Partner Program (SPP), which is expected to draw more creators during economic downturns, were cited as factors that could boost user engagement and monetization. These elements are anticipated to contribute to the company's long-term free cash flow (FCF) generation. The revised price target of $625 is based on 2026 estimated enterprise value to sales (EV/S) and enterprise value to FCF (EV/FCF) multiples of 5.4x and 32.1x, respectively.
The reduction in the price target reflects KeyBanc's lower revenue and FCF projections for Spotify, as well as a more conservative approach to multiples. Despite the downward adjustment, KeyBanc maintains that Spotify has several strategies to significantly increase revenue and FCF growth. Moreover, they expect the company's stock to trade in close proximity to its peer, Netflix, due to these growth levers. KeyBanc's continued Overweight rating indicates their confidence in Spotify's performance potential despite the revised financial forecasts. The company currently trades at a P/E ratio of 82.27 and an EV/EBITDA of 65.45, reflecting high growth expectations. For deeper insights into Spotify's valuation and growth metrics, including 16 additional ProTips, check out the comprehensive Pro Research Report available on InvestingPro.
In other recent news, Spotify Technology SA has seen a series of noteworthy developments. UBS analyst Batya Levi has raised the price target for Spotify shares to $720, citing the company's strong financial performance, including a 17% year-over-year revenue increase and significant margin expansion. The analyst maintained a Buy rating, anticipating healthy revenue growth and increased free cash flow in the coming years. Additionally, Redburn-Atlantic has upgraded Spotify's stock rating from 'Sell' to 'Neutral' and increased the price target to $545, acknowledging potential growth in audiobooks and premium tier offerings.
FBN Securities also initiated coverage of Spotify with a "Sector Perform" rating and a price target of $645, highlighting the company's growth potential in the subscription music streaming sector. In a strategic move, Spotify has renewed its contract with popular podcast host Bill Simmons, ensuring his continued contribution to the company's podcast and video content strategy. Meanwhile, Spotify CEO Daniel Ek has accused Apple (NASDAQ:AAPL) of evading European Union Big Tech rules, urging regulators to enforce compliance with the Digital Markets Act.
These recent developments underscore Spotify's ongoing efforts to strengthen its market position and financial performance while navigating regulatory challenges.
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