Analyst Raises Spotify to 'Buy' on Company's 'Healthy Growth Trajectory'

After cutting its year-end price target for Spotify by $10 to $190, Pivotal Research financial analyst Jeffrey Wlodarczak updated its rating for the streaming music service from “hold” to “buy,” in a research note to investors Friday. Spotify stock “materially underperformed” broader markets, but it remains the “clear global leader” in music streaming, said Wlodarczak, positioning the company “in the 3rd inning of a very healthy growth trajectory.” Pivotal expects most consumers to move to subscription streaming in “all you can eat” models for their music consumption over time. The analyst left forecasts in place for a “relatively conservative” three million new premium monthly average users (MAU) in Q3, which compared to the company’s guidance of 2 to 5 million. Google trend data, it said, points to closer to 4 million-plus premium user adds in the quarter. For Q4, Pivotal held to its forecast of 9 million net new premium MAUs. The music streamer’s value could rise materially from current levels as long as subscriber growth remains strong, customer usage increases and churn declines, and there’s not a significant change in the competitive environment, Wlodarczak said. Apple and Google pose risks to Spotify, but the market is still in early days, he said, and Spotify operates “the most attractive streaming service with a heavy investment in discovery differentiating the service.” Pivotal expects “alternative ancillary revenue streams will emerge” as Spotify leverages its “increasingly large" global pay platform. Other risks include potential subscriber misses causing stock volatility; a concentration of power at companies that control Spotify’s music content; larger, well-funded competitors’ ability to use their other businesses to subsidize music and drive penetration; and Google’s and Apple’s control of “virtually all smart phones in the world.” Spotify shares closed up 6.2 percent Friday at $158.49.