On Monday (NASDAQ:MNDY), Evercore ISI maintained its positive stance on Spotify Technology S.A. (NYSE:NYSE:SPOT), reiterating an Outperform rating and a price target of $460. The firm expects Spotify to present third-quarter earnings per share (EPS) results that will modestly exceed expectations.
Analysts from Evercore ISI suggest that the current consensus revenue forecast of €4.02 billion, indicating a year-over-year growth of 20%, along with the estimates for monthly active users (MAUs) and premium subscriber net additions, are reasonable. The expected additions are 13 million MAUs and 5 million premium subscribers, compared to 23 million and 6 million in the same quarter of the previous year.
The analyst also considers the gross margin estimate of 30.2%, which is slightly higher than the company's guidance, to be sensible. After recent downward revisions, the firm is comfortable with the consensus operating income estimate of €391 million for the third quarter. This figure accounts for anticipated social charges that are projected to surpass €30 million, exceeding the guidance assumption of €15 million.
Looking ahead to the fourth quarter, Evercore ISI views the street's revenue estimate of €4.25 billion, suggesting a 15.7% year-over-year growth, as somewhat optimistic. This forecast represents a deceleration from previous growth rates and comes against a more challenging comparison from the previous year. Similarly, the operating income estimate of €431 million for the fourth quarter is seen as slightly high by the firm.
Despite the recent price increases announced by Spotify in Canada, Evercore ISI does not foresee sufficient new monetization initiatives to justify a fourth-quarter guidance significantly above the current market estimates. The firm's analysis suggests that while some average revenue per user (ARPU) benefit is expected, it may not be enough to drive a substantial upward revision in the fourth-quarter outlook.
In other recent news, Spotify Technology S.A. has been the subject of several analyst notes.
Deutsche Bank (ETR:DBKGn) also maintained a Buy rating on Spotify shares, raising its price target to $440 from $430, citing the company's upcoming third-quarter earnings report. Rosenblatt Securities adjusted its stock price target for Spotify to $438, maintaining a "Buy" rating, and KeyBanc Capital Markets increased their price target for Spotify, citing consistent annual revenue increases and robust operating margins.
In other developments, Spotify Technology and Paramount Global have adopted Alphabet (NASDAQ:GOOGL) Inc's Google Cloud's newly developed Axion CPU to enhance their streaming services. This marks Google Cloud's entry into the competitive market of Arm-based technology.
French digital music company Believe is currently embroiled in a $500M U.S. copyright case with Universal Music Group (AS:UMG). UMG accuses Believe of distributing unauthorized copies of copyrighted recordings, leading to a lawsuit that could significantly impact the company's financial standing.
These are among the recent developments shaping the landscape for investors and market watchers alike.
InvestingPro Insights
Spotify's financial performance and market position align with Evercore ISI's optimistic outlook. According to InvestingPro data, Spotify's revenue for the last twelve months as of Q2 2024 reached $15.5 billion, with a robust revenue growth of 16.5%. This growth trend supports the analyst's expectations for strong third-quarter results.
InvestingPro Tips highlight that Spotify's net income is expected to grow this year, which could contribute to the anticipated earnings beat. Additionally, the company's strong return over the last three months, with a 17.88% price total return, reflects investor confidence in Spotify's performance.
It's worth noting that Spotify is trading near its 52-week high, with its current price at 98.71% of the 52-week high. This aligns with the positive sentiment expressed in the Evercore ISI report. However, investors should be aware that Spotify is trading at a high P/E ratio of 159.64, which may indicate high growth expectations.
For those interested in a deeper analysis, InvestingPro offers 18 additional tips for Spotify, providing a comprehensive view of the company's financial health and market position.
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