On Wednesday, TD Cowen made adjustments to its outlook on Spotify Technology SA (NYSE:SPOT), increasing the price target from $356.00 to $416.00, while maintaining a Hold rating on the shares. This decision followed Spotify's third-quarter results, which aligned with TD Cowen's user estimates but fell slightly short on revenue, primarily due to foreign exchange headwinds.
The financial firm observed that Spotify's gross margin exceeded both the guidance and TD Cowen's own estimates, contributing to a stronger bottom line than anticipated. The analyst's commentary highlighted the company's performance, noting the reported quarter's results and the implications for the updated price target.
Spotify's guidance for the fourth quarter suggests that the company expects to see continued progress in its margins. In response to these projections and the recent earnings report, TD Cowen has revised its price target upwards, reflecting higher earnings before interest and taxes (EBIT) and gross margin (GM) estimates.
The Hold rating, as reiterated by TD Cowen, indicates that the firm advises investors to maintain their current position in Spotify shares without making additional purchases or sales. The updated price target of $416 represents TD Cowen's assessment of Spotify's value based on the company's financial outlook and market performance.
In other recent news, Spotify Technology SA has received several price target upgrades following its robust third-quarter performance. Canaccord Genuity raised its price target for Spotify from $475 to $525, citing the company's solid performance and significant improvement in gross margins and operating profit. Similarly, Piper Sandler increased its price target for Spotify to $450, highlighting the company's strong profitability results and guidance. Benchmark also raised its price target for Spotify to $520 due to the company's considerable growth in its premium subscription service. Lastly, Loop Capital increased its price target for Spotify to $435, following a slight outperformance in subscriber growth.
Spotify's premium subscription business demonstrated significant growth, with the average revenue per user (ARPU) increasing by 11% year over year. The company's user base also grew by 14 million, reaching 640 million, while subscribers rose by 6 million to total 252 million. For the fourth quarter, the company anticipates continued growth, projecting an increase in Monthly Active Users (MAU) to 665 million and subscribers to 260 million.
InvestingPro Insights
Spotify's recent financial performance and market position are further illuminated by data from InvestingPro. The company's stock has shown remarkable strength, with a 145.01% price total return over the past year and a 123.19% return year-to-date. This impressive performance has brought Spotify's stock price to 99.78% of its 52-week high, trading at $419.39 as of the previous close.
InvestingPro Tips highlight that Spotify holds more cash than debt on its balance sheet and has liquid assets exceeding short-term obligations, indicating a strong financial position. However, the stock is trading at high valuation multiples, with a P/E ratio of 183.64 and a Price / Book ratio of 18.61, suggesting investors are pricing in significant future growth.
For investors seeking a more comprehensive analysis, InvestingPro offers 20 additional tips on Spotify, providing a deeper understanding of the company's financial health and market position.
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