On Wednesday, BofA Securities adjusted its outlook on Spotify Technology SA (NYSE:SPOT), raising the price target to $315 from the previous $265 while maintaining a Buy rating on the stock. The firm expressed confidence in Spotify's first-quarter 2024 performance, anticipating it to meet or exceed its guidance, which includes expected revenue, premium subscriber numbers, and monthly active users (MAUs).
Spotify has undergone significant restructuring since early 2023, including a headcount reduction of approximately 25%. These changes have set the company on a positive course, with improvements in gross margins, operating income, and free cash flow (FCF). BofA Securities identified Spotify as reaching an inflection point, which has been reflected in the company's share price over the last 18 months.
The firm believes in the sustainability of Spotify's momentum, attributing it to several factors, including subscriber growth, monetization strategies such as potential price increases, the scaling of its advertising business—especially through podcasting—and continued operating leverage.
Moreover, BofA Securities highlighted Spotify's strong balance sheet and the trajectory of its FCF, suggesting that the company has the capacity to initiate a share repurchase program. The firm anticipates that this could serve as an additional catalyst for Spotify's shares in the second half of the year, particularly following the announcement of a new Chief Financial Officer (CFO).
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