On Friday, IndeRes initiated coverage on Spotify Technology SA (NYSE:SPOT), issuing a Reduce rating with a price target of $470. The firm's analysis suggests that while Spotify has seen a significant rise in stock value over the past two years, with an impressive 155.5% gain year-to-date and trading near its 52-week high of $506.47, the current trading multiples may be overly optimistic. This aligns with InvestingPro's Fair Value analysis, which indicates the stock is currently overvalued.
The firm's analyst pointed out that Spotify's stock appreciation reflects growing investor confidence in the company's growth and profitability strategies. The company maintains strong revenue growth of 18.52% and currently commands a market capitalization of $97 billion.
However, based on the 2025 estimates, Spotify's stock is trading at forward enterprise value to free cash flow (EV/FCFF) and enterprise value to earnings before interest and taxes (EV/EBIT) multiples of 29 times and 42 times, respectively. These figures are considered high by the firm, with InvestingPro data showing a current P/E ratio of 130.6x.
The analyst used a discounted cash flow (DCF) model to estimate a value per share of $468 for Spotify. This valuation assumes that the company will maintain double-digit growth and see improved margins in the years to come.
Despite the positive outlook on Spotify's ability to expand its user base and enhance margins, with InvestingPro showing an overall financial health score of "GREAT," the firm suggests that it is seeking a more favorable risk/reward balance before becoming more optimistic about the stock. For deeper insights into Spotify's valuation and 20+ additional ProTips, investors can access the comprehensive Pro Research Report available on InvestingPro.
IndeRes's cautious stance comes at a time when Spotify has been experiencing investor confidence due to its initiatives. The analyst's commentary underscores the importance of a balanced approach to stock valuation, acknowledging Spotify's long-term growth drivers while also considering the current market pricing.
The Reduce rating indicates that the firm advises investors to decrease their holdings in Spotify shares, based on the belief that the stock might not offer the best value at the moment. The given price target of $470 aligns with the firm's valuation model, which factors in the company's growth prospects and margin improvements.
In other recent news, Spotify Technology SA has reported robust Q3 results, with revenue growth of 18.5% year-over-year, reaching $16.8 billion. The music streaming giant's Premium Subscribers and Monthly Active Users (MAUs) met market expectations. Analysts from Canaccord Genuity, Citi, TD Cowen, and Piper Sandler have revised their price targets for Spotify, following these results.
Canaccord Genuity raised its price target to $560, citing Spotify's strong financial health and recent performance. Citi increased its price target for Spotify to $500, while maintaining a neutral stance. TD Cowen increased the price target to $416, highlighting the company's promising margin progress. Lastly, Piper Sandler raised its price target to $450, emphasizing the company's significant gross margin and operating income growth.
Spotify's premium subscription business has demonstrated significant growth, with the average revenue per user (ARPU) increasing by 11% year over year. The company's user base also grew by 14 million, reaching 640 million, while subscribers rose by 6 million to total 252 million. For the fourth quarter, the company projects an increase in MAUs to 665 million and subscribers to 260 million.
In addition to these financial developments, Spotify has been expanding its business model, launching the Spotify Partner Program and partnering with Emirates to integrate its media offerings into the airline's in-flight entertainment system.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.