UBS raises Spotify stock price target to $720 from $540

On Wednesday, UBS analyst Batya Levi increased the price target on Spotify (NYSE:SPOT) shares, raising it significantly to $720 from the previous $540, while reaffirming a Buy rating on the stock. The adjustment follows Spotify’s report of robust financial performance, which included substantial subscriber growth, margin expansion, and enhanced cash flow. The stock has demonstrated remarkable momentum, delivering a 178.51% return over the past year and currently trading near its 52-week high of $623.40. According to InvestingPro analysis, the stock appears overvalued at current levels, though momentum remains strong with a price momentum score of 4.78 out of 5.

Spotify’s recent earnings revealed a 17% year-over-year revenue increase, slightly below UBS’s estimate of 18%. This growth rate represents a deceleration from the 21% observed in the third quarter. Despite this, the company’s gross margins saw a notable rise of approximately 550 basis points, reaching 32.2%, which is higher than UBS’s expectation of 31.9%. The improvement in margins contributed to a full-year expansion of around 450 basis points. InvestingPro data shows the company maintains strong financial health with a current ratio of 1.88 and holds more cash than debt on its balance sheet. For deeper insights into Spotify’s financial metrics and over 20 additional ProTips, consider accessing the comprehensive Pro Research Report.

Levi highlighted that while management anticipates a slower pace of margin improvement in 2025, with an estimated increase of 250 basis points to 32.6% compared to the previous forecast of 32.3%, the investments in Spotify’s Partner Program for video podcasts, growing audiobook consumption, and an expanded music offering are expected to gradually boost monetization potential. UBS forecasts a continued healthy revenue growth of 15% on a fixed exchange rate basis for 2025, albeit lower than the 20% growth rate in 2024.

The analyst’s outlook remains positive, with expectations for Spotify’s free cash flow (FCF) to increase, reaching an estimated €3.2 billion in 2025. This projection is an uptick from the prior estimate of €3.0 billion and represents significant growth from €2.3 billion in 2024 and less than €700 million in 2023. The raised price target and maintained Buy rating reflect UBS’s confidence in Spotify’s financial trajectory and its ability to generate increased cash flow in the coming years. With a market capitalization of $126.07 billion and a P/E ratio of 104.77, investors seeking detailed valuation analysis and growth projections can access comprehensive insights through InvestingPro’s exclusive research tools and Fair Value models.

In other recent news, Spotify Technology SA has been the focus of several analyst firms. Benchmark raised the Spotify stock price target to $720, maintaining a Buy rating, citing the company’s ability to introduce higher-priced content tiers and maintain a profitable revenue model. Concurrently, JPMorgan increased the Spotify stock price target to $730, acknowledging the company’s significant user growth and progress toward its financial goals.

KeyBanc Capital Markets also adjusted its outlook on Spotify, increasing the price target to $675, while maintaining an Overweight rating, emphasizing the company’s success in leveraging its music and non-music investments. Cantor Fitzgerald increased the Spotify stock price target to $600, maintaining a Neutral rating, following the company’s fourth-quarter results that surpassed Wall Street’s expectations.

Lastly, Guggenheim Securities updated its outlook on Spotify, increasing the price target to $675, while retaining a Buy recommendation, following the company’s successful fourth-quarter earnings. These are all recent developments, highlighting the positive outlook of various analyst firms on Spotify’s financial trajectory.

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