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Tuesday, 23 April 2024

Analysts tune into Spotify’s stock price target ahead of earnings

by BD Banks

Can you handle one more Taylor Swift story?

We know, we know, you’ve probably had it up to here with one Tay Tay tale after another, but honestly—cross our hearts and hope to die—this is the very last Swifty saga you’ll ever hear from us…for at least the next five minutes, anyway.

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The billionaire singer recently rocked Spotify when her 11th studio album, “The Tortured Poets Society,” became the first record on the audio streaming platform to rack up over 300 million streams in a single day.

“History is officially made,” Spotify declared on April 19, as the album “continues to break streaming records and reach new heights that haven’t been seen before.”

“The Tortured Poets Society” broke another record on release day as “Fortnight (feat. Post Malone)” became the most-streamed song in a single day in Spotify history.

Spotify is scheduled to report first-quarter results on April 23 before the market opens, prompting analysts to update their share price outlook.

Spotify’s CEO and Co-Founder Daniel Ek is riding a wave of demand thanks to Taylor Swift and Joe Rogan.

David M. Benett/Getty Images

Spotify CEO says audiobooks are surging

Analysts surveyed by FactSet expect the company to report earnings of 67 cents per share on $3.94 billion in revenue. A year earlier, Spotify reported a loss of $1.27 per share on $3.34 billion in sales.

Wall Street had expected the company to post a loss of 95 cents per share on $3.41 billion in sales.

Spotify has experienced a series of layoffs, most recently in December, when 17% of the company’s staff were laid off.

During the company’s fourth-quarter earnings call in February, CEO Daniel Ek told analysts, “There is no question that we had to make some difficult decisions to put us on track to achieve our goal of being a consistently profitable company.”

“But by taking these steps, I’m super confident in where we’re heading,” said Ek, who co-founded the Stockholm, Sweden-based company.

 “So looking into 2024, you should expect a continuation of what you saw in 2023, strong product development,” he added, “which leads to strong growth, but with an increased focus on monetization and efficiency, which in turn drives profitability.”

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Ek reminded analysts that, in the fourth quarter, Spotify became the number two provider of audiobooks behind Audible, “which is notable given how entrenched the legacy players are.”

“And this is exactly what we set out to do, grow the pie for the publishing industry and expand the interest in audiobooks to an entirely new set of listeners,” he said.

Spotify rides Joe Rogan podcast wave, plans price increases

The company announced in February that it signed a new multi-year deal with podcaster and commentator Joe Rogan, worth more than $250 million, to have the podcast “The Joe Rogan Experience” spread across multiple platforms beyond just Spotify.

“The Joe Rogan Experience” started in 2009 and became exclusive to Spotify in 2020, with a payout estimated to be between $180 million and $220 million.

The company has acknowledged that “podcasting was a drag to the business,” Ek said, “but something we were committed to turn around.”

“And I’m pleased to say in Q4, we were very close to breakeven on that business, which gives me a lot of confidence that as we get into 2024, we will achieve the full-year profitability target on podcasting,” he said.

Rogan is one of the world’s most successful podcasters. His show has over 14 million followers on Spotify.

Earlier this month, Bloomberg reported that Spotify was planning to raise its subscription prices in multiple markets, including the U.S., this year and add a new subscription tier.

By the end of April, Spotify will look to raise its individual subscription plans by $1 monthly and its Premium Family and Premium Duo plans by $2 in the U.K., Australia, and Pakistan. U.S. prices will increase “later this year,” according to Bloomberg.

Analysts have been reworking their price targets ahead of the company’s earnings report, and some of them have noted Spotify’s subscription price increase.

Loop Capital raised its price target on Spotify to $250 from $165 while keeping a hold rating on the shares.

Analyst sees ‘year of profitable growth’ at Spotify

The analyst told investors in a research note that the firm is incorporating the recently announced price increase in certain markets and the planned increase in the U.S. – the second in a year – into its estimates.

 Spotify’s foray into audiobooks, which began domestically in September, also appears “quite successful,” Loop Capital added. However, it noted that its neutral stance reflects the stock’s valuation. Spotify’s forward price-to-earnings ratio (P/E ratio) is 70.

More Wall Street Analysts:

Macquarie analyst Tim Nollen raised his price target on Spotify to $330 from $300 while maintaining an outperform rating on the shares. The analyst expects an in-line first-quarter report from Spotify. 

Nollen cited the company’s continued focus on profitability for the target increase following the U.S. price hike and headcount cuts. The firm believes podcasting is nearing an inflection point for Spotify’s profitability.

“We think Spotify has entered its year of profitable growth as the company tugs on revenue growth levers and rationalizes costs following the ZIRP era,” he said, referring to zero-interest-rate-policy.

Analysts at Morgan Stanley boosted their price target on Spotify to $350 from $270 per share, while keeping an overweight rating on the stock.

As price increases, market share gains, and operating leverage becomes ” even clearer,” the firm expects Spotify’s “transformation from a great product to a great business to accelerate in 2024,” analysts said. 

Morgan Stanley said it was raising its estimates on the assumption Spotify will increase retail prices more quickly, better reflecting the value it provides its users and subscribers.

Meanwhile, Canaccord analyst Maria Ripps raised her price target on Spotify to $330 from $315 per share and kept a buy rating on the stock. 

Ripps said that she believes first quarter results will likely reflect another quarter of solid user growth and accelerating revenue growth as the company continues to see momentum in LatAm and the rest of the world and benefit from recent price increases.

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