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On Wednesday, KeyBanc has increased the price target for Spotify Technology SA (NYSE:SPOT) shares to $410 from the previous $400. The firm maintains an Overweight rating on the music streaming company's stock.
The revision comes amid recent pricing adjustments that the firm believes could impact consensus expectations for the upcoming third-quarter premium subscriber additions.
KeyBanc suggests that the market consensus might be overly optimistic about Spotify's premium subscriber growth, expecting 6 million new additions, while their estimate stands at 4 million.
Despite potential short-term concerns over subscriber growth guidance possibly affecting the stock's performance, KeyBanc emphasizes a broader positive outlook for Spotify.
The analyst pointed out that the market might be underestimating Spotify's revenue, gross margin, and operating margin projections for the years 2025 and 2026. According to KeyBanc, Spotify's valuation remains attractive, citing the company as a consumer staple with the ability to control pricing. The firm's valuation models are based on 26 times the 2025 estimated free cash flow and 20.5 times the 2026 estimated free cash flow.
KeyBanc's analysis supports a continued Overweight rating for Spotify, reflecting confidence in the company's long-term financial prospects and its position in the market. The raised price target is justified by the firm's expectations of robust revenue growth and improving profit margins in the coming years.
In other recent news, Spotify Technology SA has been making strategic moves to enhance its financial health and market position. BofA Securities recently increased Spotify's price target from $370 to $380, citing the company's successful execution of initiatives aimed at boosting revenue, gross margin, operating income, and free cash flow.
This comes on the heels of Spotify's recent price increases in the U.S. and other global markets such as the UK and Australia, which are expected to positively impact the company's gross margin.
Benchmark also raised its price target for Spotify to $405, anticipating increased revenue following the company's decision to raise the prices of its U.S. premium plans. Meanwhile, KeyBanc maintained an Overweight rating on Spotify, highlighting the potential of the company's bundles to contribute significantly to operating profit starting in the third quarter of 2024.
In terms of product offerings, Spotify has launched a new basic streaming service in the U.S. priced at $10.99 per month, aiming to provide a more affordable option for users. Furthermore, the company is planning to roll out a higher-tier plan later this year, catering to its most dedicated users at an additional cost of $5 per month. These recent developments highlight Spotify's ongoing efforts to expand its services and improve its financial performance.
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