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Analysts have slightly lowered their fair value estimate for Spotify Technology, adjusting the price target from $756 to $748. More balanced risk-reward expectations and moderated growth outlooks for key metrics offset recent model updates and price increases.

Analyst Commentary

Recent Street research on Spotify Technology presents a nuanced picture as analysts assess both the upside potential and risks to execution, growth, and valuation for the company.

• Bullish analysts highlight Spotify’s ongoing price increases across multiple markets as a significant driver of upward revisions to revenue and profit estimates. This is supporting higher price targets.
• Steady user and subscriber growth, coupled with product innovations such as potential new offerings and enhancements to the free tier, are viewed as important differentiators in the competitive streaming landscape.
• Improved engagement and conversion rates, along with the company’s buyback authorization and enhanced pricing power, are seen as contributing to a stronger overall growth profile and increased investor confidence.
• Upwardly revised price targets, including from major firms, reflect optimism that Spotify can maintain mid-teens percent annual revenue growth over the coming years and successfully absorb increased wholesale music costs.

• Bearish analysts have moderated their outlooks, noting that current stock valuations may already price in much of Spotify’s anticipated forward growth. This could limit further upside unless execution exceeds expectations.
• Concerns persist regarding the potential for underestimating the impact of rising wholesale music costs, which could pressure operating margins if not offset by pricing adjustments or new revenue streams.
• Recent pullbacks in share price are attributed to softer near-term revenue growth, heightened investments, and increased operating costs. All of these factors could temper short-term profitability.
• Muted near-term ARPU growth and ongoing challenges in the ad business present risks, with some analysts cautioning that consensus expectations may not fully acknowledge these headwinds to growth and profitability.

What's in the News

• Spotify has indicated upcoming price increases for customers alongside the introduction of new services and features, according to a senior executive. (Financial Times)
• Apple will distribute its curated radio stations globally through a new partnership with TuneIn, stepping up competition to convert radio listeners to paid subscribers, an area where Spotify currently leads. (Wall Street Journal)
• Spotify's head of advertising has departed to join DoorDash as its Chief Revenue Officer. (Axios)
• Phillip Securities upgraded Spotify to Neutral from Reduce, citing sustained user and subscriber growth but moderated near-term expectations due to increased investments and costs. (Phillip Securities)

Valuation Changes

• Consensus Analyst Price Target: Decreased slightly from $756 to $748. This reflects a more tempered outlook despite recent gains.
• Discount Rate: Marginally reduced from 8.36% to 8.34%. This indicates only a minor adjustment in assessing risk or required return.
• Revenue Growth: Revised downward from 13.0% to approximately 12.8%. This signals somewhat more modest growth expectations.
• Net Profit Margin: Eased from 14.46% to 14.39%. This shows a minimal reduction in long-term profitability assumptions.
• Future P/E: Declined significantly from 60.2x to 51.4x. This suggests analysts anticipate improved earnings or a reassessment of growth multiples.