Tuesday, Evercore ISI has increased its price target on Spotify Technology SA (NYSE:SPOT) shares to $340 from the previous $285, while maintaining an Outperform rating. The adjustment follows Spotify's first-quarter earnings, which surpassed expectations, showcasing profitability with record-high gross margin and operating income. The firm highlighted the significant growth in Marketplace contribution and efficiencies in cloud spending, podcast cost restructuring, and advertising revenue scaling as key drivers of the financial results.
Spotify's first-quarter revenue reached €3.64 billion, slightly exceeding Evercore ISI and general market predictions. The audio streaming giant reported a gross margin of 27.6%, which was notably higher than anticipated, and an operating income of €168 million, surpassing estimates despite significant social charges. Monthly active users (MAUs) totaled 615 million, a figure that fell slightly short of expectations, while the number of premium subscribers, at 239 million, met projections.
For the second quarter, Spotify has provided guidance that is optimistic, forecasting higher revenue, gross margin, and operating income compared to market expectations, while subscription numbers are projected to align with predictions and MAUs are anticipated to be modestly lower. Evercore ISI pointed out the positive fundamental trends, including an acceleration of revenue growth excluding foreign exchange impacts, from 20% in the fourth quarter to 21% in the first quarter, which is expected to exceed 22% in the second quarter.
The firm also noted that gross margin and operating margin have reached record levels and are likely to continue their upward trajectory in the coming quarter. Consequently, Evercore ISI has retracted its Tactical Underperform rating on Spotify, which was initially based on concerns regarding first-quarter operating income and the outlook for second-quarter MAUs. These concerns were acknowledged but deemed insignificant in light of the substantial improvement in gross margin.
InvestingPro Insights
Following the upbeat analysis from Evercore ISI on Spotify Technology SA (NYSE:SPOT), it's worth noting some key financial metrics and expert insights from InvestingPro. Spotify's market cap stands robust at $63.16 billion, underlining its significant presence in the audio streaming market. Despite a challenging P/E ratio currently at -108.97, there's an optimistic revenue growth trajectory, with a 12.96% increase over the last twelve months as of Q1 2023. This is complemented by a gross margin of 26.03%, reflecting the company's ability to maintain profitability amidst its expansion efforts.
InvestingPro Tips highlight the company's strong cash position relative to its debt, which is a reassuring sign for investors concerned about financial stability. Additionally, analysts on InvestingPro predict that Spotify will achieve profitability this year, which could be a pivotal turnaround for the company that has not been profitable over the last twelve months. The stock's recent performance also indicates significant volatility, with a notable 31.7% price total return over the last three months and an impressive 103.53% over the past year, echoing the high return potential that Spotify offers.
For investors looking to delve deeper into Spotify's financials and future prospects, InvestingPro offers additional tips that can provide a more comprehensive understanding of the stock's potential. By using the coupon code PRONEWS24, readers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to a total of 14 InvestingPro Tips for Spotify, ranging from valuation multiples to stock price trends and dividend policies.
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