On Thursday, UBS maintained a Buy rating on Spotify Technology SA (NYSE:SPOT) and increased the price target to $400 from the previous $375. The firm's outlook for the music streaming company remains positive due to anticipated benefits from efficiency initiatives.
The analyst at UBS highlighted that the updated price target takes into account the recent U.S. price increase for Spotify's bundled plans, which is expected to impact the third quarter partially. Additionally, a higher assumed flow through compared to previous price hikes on the music-only service was considered in the revised estimates.
Furthermore, the firm projects that Spotify's growing marketplace contribution, profitability in podcasts, and improvements in streaming delivery and other non-royalty costs will help the company achieve approximately 30% gross margins by the end of the year. This is slightly above the street's expectation of 29.5%.
The UBS analyst also anticipates that these improvements will significantly enhance Spotify's free cash flow, forecasting a 40% year-over-year increase to $2.1 billion. This financial growth is expected to be a key driver for the company's performance in the upcoming year.
In other recent news, Spotify Technology SA has seen a flurry of activity from analysts, with Jefferies upgrading the stock based on strong revenue growth projections. The firm anticipates Spotify sustaining a revenue growth rate exceeding 15% over the next three years, due in part to a potential trend of periodic price increases.
Similarly, KeyBanc has increased its price target for Spotify, citing a robust future revenue outlook despite potential short-term concerns over subscriber growth. BofA Securities also upped its price target for Spotify, highlighting successful initiatives expected to boost revenue, gross margin, operating income, and free cash flow.
In addition to these financial adjustments, Spotify has introduced a new basic streaming service in the U.S., priced at $10.99 per month, and plans to roll out a higher-tier plan later this year. These strategic moves are expected to enhance Spotify's financial performance and market position.
Other firms such as Benchmark and Canaccord Genuity have also maintained a positive outlook on Spotify, citing factors such as increased revenue from price hikes and commitment to operational efficiencies.
InvestingPro Insights
As UBS maintains a bullish stance on Spotify Technology SA (NYSE:SPOT), with a raised price target, InvestingPro data and tips provide additional context for investors considering the stock. With a market capitalization of $60.71 billion, Spotify's recent performance includes a significant 6-month price total return of 51.87%, reflecting a large price uptick and strong investor sentiment. Moreover, the company's revenue growth remains robust at 14.31% over the last twelve months as of Q1 2024, outpacing many competitors in the tech sector.
Two noteworthy InvestingPro Tips for Spotify include the company's strong cash position, holding more cash than debt, which suggests a solid balance sheet, and the expectation of net income growth this year. These factors could provide confidence in Spotify's financial health and its potential for future profitability. Furthermore, with analysts predicting the company will be profitable this year, there is a positive outlook on Spotify's earnings trajectory.
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