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Spotify shares target lifted to $405 at Benchmark on premium plan price hike

EditorFrank DeMatteo
Published 04/06/2024, 13:10
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On Tuesday, Benchmark raised its price target for Spotify Technology SA (NYSE:SPOT), a leading music streaming service, to $405 from the previous target of $325, while maintaining a Buy rating on the stock. The adjustment reflects the anticipated increase in revenue following the company's decision to raise the prices of its U.S. premium plans.

The analyst from Benchmark forecasts a rise in premium revenue for the fiscal years 2024 and 2025, with estimates now set at €13.96 billion and €16.23 billion respectively. This projection is based on the current subscription mix in the U.S. market, which includes individual, duo, family, and student plans, and does not account for any potential decrease in subscriber numbers due to the price hikes.

In addition to the revenue forecast, the analyst anticipates a significant improvement in Spotify's operating profit for the same periods. The estimated GAAP operating profit is expected to increase by 13% in 2024 to €1.17 billion, and by 20% in 2025 to €1.89 billion. This profit growth is attributed to the full impact of the price increases, which are expected to contribute to the company's year-over-year operating leverage.

The revised price target is based on the assumption that there will be no changes to stock-based compensation (SBC) and that the price increases will not directly affect gross margins (GM). However, a modest benefit to the gross margin is anticipated due to a slight shift towards a higher mix of premium subscriptions.

Benchmark's decision to reiterate its Buy rating and increase the price target for Spotify is grounded in the detailed financial analysis and expectations of the company's performance following the implementation of the premium plan price increases in the U.S. market.

In other recent news, Spotify Technology SA has been the subject of multiple analyst notes and significant developments. Canaccord Genuity maintained a positive outlook on Spotify, citing the company's commitment to increasing profitability through pricing changes and operational efficiencies. This was echoed by Evercore ISI, which highlighted Spotify's decision to increase the price of its Individual Plan in the U.S., potentially enhancing revenue streams.

Spotify also made headlines for its strategic move to increase the cost of its premium subscription plans in the United States. This move is part of an ongoing effort to improve margins and profitability. Concurrently, the company has been actively reducing operating costs, including implementing layoffs.

Digital Music Europe, a group representing audio streaming companies including Spotify, has called on the European Commission to reject Apple (NASDAQ:AAPL)'s proposal aimed at addressing antitrust concerns in the App Store. Spotify has opted not to participate in Apple's proposed scheme.

Lastly, Citi reacted positively to Spotify's strategic shift, raising the company's stock price target significantly. The firm acknowledged the company's efforts to diversify its business model and increase revenue streams, but also expressed caution regarding future revenue projections and the sustainability of premium subscriber growth rates. These are recent developments that reflect Spotify's strategic initiatives and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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