KeyBanc Capital Markets adjusted their outlook on Spotify (NYSE:SPOT), increasing the price target for the audio streaming giant from $440 to $490 while maintaining an Overweight rating. The firm's analyst believes that Spotify's ongoing product development and a less aggressive competitive environment will drive a consistent annual revenue increase of at least 15% and nearly 15% operating margins by the year 2026.
The analyst's optimism is based on the assumption that Spotify will continue to benefit from its product cycles and the current state of the market. The firm predicts that aside from social charges and foreign exchange fluctuations, there should be few unexpected developments in Spotify's third-quarter results.
KeyBanc's revised price target is based on a 4.2 times multiple of the company's estimated 2026 enterprise value to sales (EV/S) and a 26.7 times multiple of the estimated 2026 enterprise value to free cash flow (EV/FCF). These multiples reflect the firm's confidence in Spotify's growth trajectory and profitability outlook.
Furthermore, KeyBanc anticipates that Spotify's operating profit will reach €2.4 billion in 2025 and €3.2 billion in 2026, which is 18% and 19% higher, respectively, than the consensus estimates. This projection underscores the firm's higher expectations for Spotify's financial performance compared to the wider analyst community.
Investors and market watchers will be keeping a close eye on Spotify's upcoming quarterly report to see if the company's actual performance aligns with KeyBanc's positive projections and whether the streaming service can sustain its growth amidst the evolving digital landscape.
In other recent news, Spotify Technology SA (NYSE:SPOT) has been the focus of several financial firms. Wells Fargo reaffirmed an overweight rating on Spotify, expressing optimism for the company's profit margins. BofA Securities, Jefferies, CFRA, and Pivotal Research have all maintained a "Buy" rating, while KeyBanc retained an Overweight rating.
The third-quarter revenue is expected to slightly exceed Spotify's own guidance at €4.04 billion, according to BofA Securities. Jefferies raised its price target for Spotify to $445, citing the company's competitive pricing and potential for growth in international markets. CFRA upgraded its price target for Spotify from $375 to $425, based on the company's expansive global reach and growth trajectory.
Spotify has been involved in discussions around the European Union's regulatory environment for open-source artificial intelligence. The chief executives of Spotify and Meta Platforms Inc (NASDAQ:META). expressed concerns over the potential stifling of innovation due to complex and fragmented regulations.
InvestingPro Insights
Spotify's recent performance and financial metrics align with KeyBanc's optimistic outlook. According to InvestingPro data, Spotify's revenue growth remains strong, with a 19.83% increase in the most recent quarter. This supports KeyBanc's prediction of consistent annual revenue growth of at least 15%.
The company's profitability is also improving, as evidenced by its adjusted operating income of $759.51 million in the last twelve months. This progress towards better margins is in line with KeyBanc's projection of nearly 15% operating margins by 2026.
InvestingPro Tips highlight Spotify's financial strength, noting that the company "holds more cash than debt on its balance sheet" and "liquid assets exceed short term obligations." These factors contribute to Spotify's ability to invest in product development and maintain its competitive edge, as mentioned in the KeyBanc analysis.
Investors should note that Spotify is "trading near its 52-week high" and has shown a "strong return over the last three months," with a 24.82% price total return. This performance reflects the market's confidence in Spotify's growth strategy and aligns with KeyBanc's increased price target.
For readers interested in a deeper analysis, InvestingPro offers 16 additional tips for Spotify, providing a comprehensive view of the company's financial health and market position.
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