On Thursday, Benchmark raised the price target for Spotify (NYSE:SPOT) Technology S.A. (NYSE:SPOT) to $325 from the previous target of $290, while reiterating a Buy rating on the stock. The adjustment follows insights from David Kaefer, Spotify's head of audiobooks, and reports suggesting potential subscription price hikes in five non-US markets at the end of April and in the United States later this year.
The analyst anticipates that the company's earnings, set to be reported next week on March 23 before the market opens, will be closely scrutinized, especially in light of the rumored subscription price increases. These increases are seen as a way to mitigate the impact of audiobook royalty costs on the company's premium gross profit.
The firm's analysis, which includes a detailed table on page 2 of their report, is based on an assumption of 20% engagement with audiobooks and a 3% uptake for additional paid content. It also incorporates the speculated $2 price increase for subscriptions in the U.S., U.K., and Australia. An "earnings cheat sheet" provided on page 3 offers further insights for investors.
The price target hike to $325 reflects a more optimistic view of the company's valuation, primarily due to a reduction in the weighted average cost of capital (WACC) as per the analyst's discounted cash flow (DCF) based analysis.
InvestingPro Insights
With Spotify's earnings report on the horizon, investors are keenly awaiting the company's financial performance. According to real-time data from InvestingPro, Spotify boasts a significant market capitalization of $58.22 billion, despite a negative P/E ratio indicating that the company is not currently profitable. The revenue growth figures are promising, with a 12.96% increase over the last twelve months as of Q4 2023, and a quarterly revenue growth of 15.95% in Q4 2023, reflecting a strong upward trajectory in sales.
InvestingPro Tips reveal a mixed financial landscape for Spotify. On the positive side, the company holds more cash than debt, suggesting a solid liquidity position, and analysts predict that Spotify will be profitable this year. Additionally, the company has seen a high return over the last year, with a 118.16% price total return, which is supported by strong returns over the last month and three months as well. On the flip side, the company is trading at a high EBITDA valuation multiple and a high Price/Book multiple of 21.64, which could indicate that the stock is priced optimistically relative to its book value and earnings before interest, taxes, depreciation, and amortization.
For investors looking for a more in-depth analysis, there are additional InvestingPro Tips available for Spotify, which could provide further clarity on the company's financial health and stock performance. To access these tips and make a well-informed investment decision, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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