On Tuesday, KeyBanc Capital Markets maintained its Overweight rating on Spotify Technology SA (NYSE:SPOT), while increasing the stock's price target from $410.00 to $420.00. The adjustment follows the company's second-quarter results, which bolstered the analyst's view of an upcoming improvement in margins and free cash flow (FCF).
The analyst's revised forecast anticipates Spotify to achieve free cash flow of €2.4 billion in 2025 and €2.9 billion in 2026. Although there has been a slowdown in monthly active users (MAUs), particularly in developing nations, the firm believes concerns over a potential drop-off in Premium Subscribers should be considered within the broader context. Notably, marketing expenses have decreased year over year, which could offset the impact of the MAU shortfall.
Spotify's ability to expand its audience through product enhancements and strategic partnerships was also highlighted as a positive factor. These initiatives are expected to contribute to the company's sustained growth, with projections of mid-teen percentage increases over the next few years.
The valuation of Spotify's stock was based on a multiple of 4.1 times the company's estimated enterprise value to sales (EV/S) and 31.6 times its estimated enterprise value to free cash flow (EV/FCF) for the year 2025. The raised price target reflects confidence in Spotify's financial trajectory and its potential for continued growth in the competitive streaming market.
In other recent news, Spotify Technology SA's second-quarter earnings revealed mixed results, with revenues slightly below market expectations, but gross margins and operating income surpassing anticipated figures. Despite a modest increase in premium subscribers, the company's monthly active users (MAUs) were lower than predicted. For the third quarter of 2024, Spotify's guidance suggests gross margins and operating income will exceed consensus estimates, while the forecast for MAUs is less optimistic.
In response to these developments, Citi has maintained its Neutral stance on Spotify, while Piper Sandler, Goldman Sachs, and UBS have also expressed neutral to positive outlooks on the company. Deutsche Bank has indicated optimism about Spotify's market trends, particularly in light of robust listenership figures.
Spotify's recent financial performance and future outlook reflect the company's current market position. With the guidance provided for the next quarter, investors and market watchers will be keeping a close eye on the company's ability to meet or exceed these expectations. The company's recent strategic moves, including the introduction of a new basic streaming service in the U.S., are expected to enhance Spotify's financial performance and market position. These are the recent developments in Spotify's ongoing efforts to expand its services and improve its financial performance.
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