On Wednesday, Phillip Securities adjusted its stance on Spotify Technology SA (NYSE:SPOT) stock, shifting from a "Buy" to an "Accumulate" rating, despite increasing the price target to $485 from the previous $420. The revision follows Spotify's third-quarter results for the fiscal year 2024, which aligned with the firm's expectations.
The company's revenue and profit after tax and minority interests (PATMI) for the first nine months reached 74% and 62% of Phillip Securities' full-year estimates, respectively.
Spotify's revenue saw a 19% year-over-year increase, and its net margin improved by 6 percentage points compared to the same period last year. The platform's monthly active users (MAUs) exceeded the company's guidance by 1 million, reaching 640 million users.
Premium subscribers, a key driver of Spotify's revenue, continued to grow at a healthy double-digit rate, now totaling 252 million, marking a 12% increase from the previous year.
The analyst from Phillip Securities anticipates further margin expansion into the fiscal year 2025 due to Spotify's ability to scale and reduce costs. While the full-year 2024 estimates remain unchanged, the firm has increased its profit forecasts for the fiscal year 2025 by 9%, citing expectations of higher profitability. This optimism is reflected in the raised discounted cash flow (DCF) target price.
Despite the positive outlook on Spotify's financial health and market position, the downgrade to "Accumulate" from "Buy" was attributed to the recent gains in Spotify's share price. The analyst noted that Spotify continues to lead the audio streaming industry, supported by its expanding subscriber base, streamlined cost structure, and strong pricing power.
In other recent news, Spotify has projected a fourth-quarter profit that surpasses Wall Street's expectations, attributed to strategic cost reductions and an increase in user numbers. The company's anticipated operating income stands at 481 million euros ($509.76 million) for the fourth quarter, notably higher than the average analyst estimate.
Furthermore, Spotify's monthly active users (MAUs) forecast is also higher than expected, with a projection of 665 million. Despite a less robust revenue growth than anticipated, Spotify's third-quarter gross profit surged by 40% to 1.24 billion euros.
In the analyst sphere, Benchmark revised the price target for Spotify, increasing it to $440 while maintaining a Buy rating. Deutsche Bank (ETR:DBKGn) also maintained a Buy rating, raising its price target to $440, citing the company's upcoming third-quarter earnings report. Evercore ISI reaffirmed its Outperform rating on Spotify, anticipating third-quarter earnings that modestly exceed expectations.
In terms of company developments, Spotify and Paramount Global adopted Alphabet (NASDAQ:GOOGL) Inc's Google Cloud's newly developed Axion CPU to enhance their streaming services. This marks Google Cloud's entry into the competitive market of Arm-based technology. These recent developments provide an updated perspective on Spotify's financial trajectory and operational efficiency.
InvestingPro Insights
Spotify's recent financial performance and market position are further illuminated by real-time data from InvestingPro. The company's market capitalization stands at an impressive $84.22 billion, reflecting investor confidence in its growth trajectory. This aligns with the analyst's positive outlook on Spotify's industry leadership and expanding subscriber base.
InvestingPro data shows that Spotify's revenue for the last twelve months as of Q2 2024 reached $15.5 billion, with a robust revenue growth of 16.5%. This growth rate supports Phillip Securities' observation of the company's 19% year-over-year revenue increase and underscores Spotify's ability to monetize its growing user base effectively.
InvestingPro Tips highlight that Spotify "holds more cash than debt on its balance sheet" and that "liquid assets exceed short-term obligations." These factors contribute to the company's financial stability and ability to invest in growth initiatives, which could further support the analyst's expectations of margin expansion into fiscal year 2025.
It's worth noting that InvestingPro offers 20 additional tips for Spotify, providing investors with a comprehensive analysis of the company's financial health and market position. These insights can be particularly valuable given Spotify's dynamic growth in the competitive audio streaming industry.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.