On Friday, Phillip Securities revised its rating on Spotify Technology SA (NYSE:SPOT) stock, moving from an "Accumulate" to a "Buy" stance, while also increasing the price target to $340 from the previous $270.
This adjustment comes following the company's first-quarter financial results for 2024, which showcased revenue in line with expectations and profit after tax and minority interests (PATMI) surpassing forecasts.
The first-quarter revenue and PATMI accounted for 23% and 33% respectively of Phillip Securities' full-year estimates for 2024. Spotify's growth has been attributed to a rise in subscriber numbers coupled with price hikes, which resulted in a 5% year-over-year increase in average revenue per user (ARPU).
The company has also capitalized on its scale to negotiate improved royalty agreements, leading to a 240 basis points enhancement in gross margin year-over-year, reaching 27.6%.
Phillip Securities has consequently raised its full-year 2024 PATMI projections for Spotify by 26%, citing lower costs and greater operating leverage, while maintaining the revenue forecast.
The firm's valuation model relies on a discounted cash flow (DCF) approach, and the revised price target reflects updated assumptions. The weighted average cost of capital (WACC) and growth rate assumptions remain unchanged at 7.5% and 4% respectively.
The analyst notes that Spotify is further cementing its leadership in the audio streaming sector, with an expanding subscriber base, a more efficient cost structure, and the ability to control pricing.
InvestingPro Insights
Following the recent upgrade by Phillip Securities, Spotify Technology SA (NYSE:SPOT) appears poised for a potentially lucrative year. InvestingPro Tips highlight that Spotify holds more cash than debt, suggesting a strong balance sheet, and analysts expect net income to grow this year. Additionally, the company's stock has experienced substantial returns, with a 117.11% increase over the past year and a 53.81% year-to-date price total return, reflecting investor confidence.
From a valuation perspective, the current market cap stands at $57.28B, with significant revenue growth of 14.31% over the last twelve months as of Q1 2024. Despite a negative P/E ratio in the recent past, the forward-looking sentiment is bolstered by a positive PATMI performance in the first quarter and a strong revenue outlook. Spotify's liquid assets also exceed its short-term obligations, further underlining its financial health.
For readers looking to delve deeper into Spotify's financials and future prospects, there are over 14 additional InvestingPro Tips available at: https://www.investing.com/pro/SPOT. These insights could be particularly valuable when considering Spotify's high valuation multiples and the volatility of its stock price. To access these insights, users can take advantage of the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, offering a more comprehensive investment analysis tool.
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