Shares of Spotify (NYSE:SPOT) rose over 1% after UBS upgraded the stock to Buy from Neutral in a note Tuesday, lifting the price target to $274 from $170 per share.
Analysts told investors that the stock still has room to run as its efficiency gains continue to play out, while its gross margins are on track for steady improvement.
"We think efficiency initiatives remain the focus and have increased conviction on sustainable margin expansion and stronger bottom line trends in the coming years. This, coupled with solid sub/MAU growth, a steady cadence of price increases and advertising growth, should lead to an improved EBITDA trajectory," said the analysts.
"We believe the company remains on track to achieve break-even in podcast in 1H24, which should support an inflection in ad-supported segment margins," the analysts added.
The bank expects further improvement in ad-supported margins in 2025 as they see the company's operating leverage in podcasts proving out and the music segment benefitting from new royalty deals with the labels.
"While investors have struggled in the past with valuation given lack of profitability, we expect SPOT to gain valuation support with EBITDA now firmly in positive territory and growth pegged against peers," concluded the analysts.