Proactive Investors - Spotify Technology SA (NYSE:SPOT) is hitting all the right notes, say analysts at UBS who have upped their price target on the music streaming platform from $274 to $375 and awarded the stock a ‘Buy’ rating.
Shares of Spotify were up 5% at about $311 on Friday afternoon, having added about 17% this week on the news it is raising its subscription prices.
The UBS analysts expect Spotify’s first quarter results to highlight continued profitability improvements and solid topline growth as price increases flow through.
Spotify will report its 1Q financial results before the stock market opens on Tuesday, April 23.
“We remain constructive on the margin expansion opportunity and see upward bias to estimates as efficiency initiatives play out, profitability in podcasts improves (including the shift to non-exclusive deals) and spend on audiobooks remains modest/manageable, with margin accretive monetization opportunities in the pipeline,” the bank’s analysts wrote.
They expect Spotify to report operating income of €141 million for 1Q, below Spotify’s guidance of €180 million due to higher non-cash social charges given the approximately 40% increase in Spotify’s share price during the quarter.
The analysts expect revenue of €3.62 billion, slightly ahead of Spotify’s guidance of €3.6 billion.
Gross margins are seen expanding to 26.4%, in line with management’s guidance. “We model similar 120 basis points year-over-year improvement in 2Q/2H and acceleration in 2025, reaching the approximately 30% gross margin target,” they wrote.
The analysts expect Spotify to add 17 million monthly active users in Q1, above management’s guidance of 16 million and compared to 26 million in the year-ago quarter.
Paid subscribers are seen at 3.4 million, above Spotify’s guidance of 3 million and down from 5 million in Q1 2023.