On Wednesday, Spotify Technology SA (NYSE:SPOT) saw its stock price target increased to $440 from the previous $340 by Cantor Fitzgerald, while the firm maintained a Neutral rating on the stock. The upgrade follows Spotify's third-quarter results for 2024, which showcased revenues matching prior forecasts and a significant beat in subscriber and monthly active user (MAU) growth.
The company's gross margins (GMs) exceeded expectations by 90 basis points, primarily due to the premium segment's upward trend, influenced by favorable music costs and marketplace growth. Operating expenses (Opex) also showed year-over-year leverage, outperforming Street forecasts.
The guidance provided by Spotify indicates a continuation of robust subscriber growth, average revenue per user (ARPU) increase from recent price hikes, and consistent EBIT margin expansion.
Spotify's recent product innovations, including audiobooks, video, and artificial intelligence, have positively impacted key performance indicators such as engagement, retention, and conversion. These advancements are expected to provide sustained financial benefits in the coming quarters.
Following the announcement of the third-quarter results, Spotify's shares experienced a 7% increase in after-market trading, contrasting with Nasdaq futures, which fell slightly by 0.2%.
The revised price target of $440 is based on a 35 times multiple of the forecasted FY25 GAAP EBIT, an increase from the previous 30 times multiple. Despite the positive outlook reflected in the third-quarter performance and subsequent share price increase, Cantor Fitzgerald reaffirms its Neutral stance on Spotify's stock.
In other recent news, Spotify Technology S.A. reported strong Q3 2024 results, with a substantial increase in Monthly Active Users (MAU) and revenue. The company's user base grew by 14 million, reaching 640 million, while subscribers rose by 6 million to total 252 million.
A 21% year-on-year revenue increase led to a total revenue of EUR 4 billion for Q3, with premium revenue up by 24%. Furthermore, Spotify achieved a record gross margin of 31.1% and an operating income of EUR 454 million.
Deutsche Bank (ETR:DBKGn) has raised Spotify's price target to $500, maintaining a Buy rating on the shares. This move followed the company's robust Q3 financial results, which surpassed Deutsche Bank's and other analysts' predictions.
The bank noted that the successful implementation of recent price hikes contributed to the company's gross margins, and the positive shift in unit economics could further challenge skepticism regarding Spotify's potential for structural margin growth.
Spotify anticipates continued growth, with projections indicating an increase in MAU to 665 million and subscribers to 260 million in Q4. The company also expects total revenue to reach EUR 4.1 billion in the next quarter, with an improved gross margin of 31.8% and an operating income of EUR 481 million.
The company is committed to enhancing music discovery and user engagement through technological advancements and sees potential in performance-based advertising and its Marketplace growth. These are recent developments reflecting the company's strategic focus on sustained profitability.
InvestingPro Insights
Spotify's recent performance aligns with several key metrics and insights from InvestingPro. The company's strong financial position is evident, with InvestingPro data showing a market capitalization of $84.22 billion and a robust revenue of $15.5 billion over the last twelve months as of Q2 2024. This financial strength is further supported by an InvestingPro Tip indicating that Spotify holds more cash than debt on its balance sheet, providing financial flexibility for continued innovation and growth.
The company's impressive stock performance is reflected in its year-to-date price total return of 123.19% and a one-year return of 145.01%. This aligns with the InvestingPro Tip highlighting Spotify's strong return over the last year. Moreover, the stock is trading near its 52-week high, with a price that is 99.85% of its 52-week high value, underscoring the market's positive sentiment following the company's recent earnings report and product innovations.
However, investors should note that Spotify's P/E ratio stands at 166.07, which the InvestingPro Tips characterize as trading at a high earnings multiple. This valuation metric suggests that the market has high growth expectations for the company, which aligns with the analyst's increased price target and the company's positive outlook on subscriber growth and EBIT margin expansion.
For those seeking a more comprehensive analysis, InvestingPro offers 20 additional tips for Spotify, providing a deeper understanding of the company's financial health and market position.
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