On Thursday, Rosenblatt Securities maintained a Buy rating for Spotify Technology SA (NYSE:SPOT) with an unchanged price target of $315.00. The firm highlighted Spotify's recent pricing strategy, noting the impact of a price increase across the majority of its markets. The music streaming giant raised its subscription fees in about 75% of its markets, equating to approximately a $1 increase in the United States, starting in September with full implementation by the end of the fourth quarter of 2023.
The price adjustment contributed to a significant uptick in average revenue per user (ARPU), which rose from a 1% decrease in constant currency during the third quarter of 2023 to a 5% increase in the fourth quarter. The analyst noted that this growth trend is expected to have continued into the first quarter of 2024. A further price hike is anticipated in five markets in April, although it will be less extensive globally, offering a modest boost to the already positive ARPU growth.
The report also touched on the potential effects of a similar price increase in the United States, which accounts for roughly a quarter of Spotify's global subscriptions. While the impact of such a hike could be more substantial, it remains uncertain whether additional markets will experience price adjustments.
Nevertheless, the firm expressed increased confidence in its near-term estimates for ARPU growth, which are projected at 5% for the second and third quarters of 2024, with a slight upward adjustment for the fourth quarter and beyond, post the September 2023 price hike comparison.
In the final quarter of 2023, Spotify saw a notable addition of 10 million net new subscribers, surpassing its guidance by 1 million and tying with its all-time high for the fourth quarter. This achievement came despite the significant price increases, suggesting that the company possesses considerable pricing power in the market. The analyst's remarks underscore a positive outlook for Spotify's revenue growth, driven by its effective pricing strategy.
InvestingPro Insights
As Spotify Technology SA (NYSE:SPOT) continues to demonstrate its pricing power, key metrics from InvestingPro provide an additional perspective on the company's financial health and market performance. According to InvestingPro data, Spotify's market capitalization stands at a robust $57.87 billion. Despite a challenging P/E ratio of -96.96, indicating that investors are currently valuing the company's growth prospects over immediate profitability, the revenue growth figures are promising. With a revenue increase of 12.96% over the last twelve months as of Q4 2023, and an even higher quarterly growth rate of 15.95% in Q4 2023, Spotify's pricing strategy seems to be translating into tangible top-line growth.
InvestingPro Tips also reveal that Spotify holds more cash than debt, suggesting a solid balance sheet, and analysts are optimistic about net income growth this year. Moreover, the company's stock has shown a significant return over the last week, month, three months, and even the last year, with a one-year price total return of 116.32%. These metrics underscore the analyst's positive outlook on Spotify's revenue growth and may justify the company's aggressive pricing moves.
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