Two More Firms Downgrade Spotify Shares — But the Recovery Continues

Despite a turbulent 2018, Spotify appears poised to do well on Wall Street in 2019.

Last summer, Spotify’s stock came close to breaking $200 on the New York Stock Exchange.

But as prices fell around the world during a turbulent global market meltdown, tech stocks weren’t spared.  This included Spotify.

Ahead of the New Year, the company’s stock experienced a near 50% plunge.  By late December, Spotify remained points away from trading at under $100.

Nearing record lows, multiple banks and investment firms turned against the company.  JPMorganChase, Zacks Investment Research, Nomura, Barclays, and Wells Fargo all either downgraded their view of Spotify’s shares or notably trimmed their price targets.

Not all analysts remained pessimistic, however.

According to MKM Partners analyst Rob Sanderson, investors, banks, and firms have nothing to worry about.  Spotify’s stock has already scraped bottom.

Doubling down on his ‘Buy’ rating as well as issuing a hefty price target of $200, Sanderson wrote,

We continue to see the music industry as highly investable and view SPOT as the platform positioned to create the most value for the music ecosystem, and its own investors, over the next decade.

Following his report, the stock quickly rebounded.  In fact, other major investment firms saw how Spotify could potentially turn things around.

Trimming the streaming music giant’s price target to $170, Morgan Stanley maintained its Overweight rating.

Finding that its users have “great loyalty to the platform,” Spotify has the highest reported satisfaction.  Two-thirds of all music streaming also happens in playlists, which the company has dominated.

Morgan Stanley also found one key area where Spotify can dominate its competitors – podcasts.

Spotify’s users “love podcasts more than any other subscriber group.”  Users who pay for the service listen to 5.2 hours of podcasts per week.  That’s 48 minutes more than users on Apple Music.  Yet, most users haven’t consumed podcasts on Spotify.

The company wrote,

While Spotify’s paid users spend more time listening to podcasts than others, Apple remains the platform with highest overall podcast listening – underscoring the importance of podcast leadership for Spotify long-term.

Yet, that hasn’t convinced every major investment firm and bank.

Downgrading its shares from Buy to Neutral, Guggenheim has recently slashed the company’s price target to $120, down from $190.  The firm believes Spotify is now fairly valued at that price.

According to analyst Michael Morris, the company is unlikely to reach its planned revenue growth of 25-35%.  Spotify may have difficulty reaching gross margins of 30-35% for the full year of 2018.

In addition, Deutsche Bank also lowered its price target from $135 to $125.

Yet, the stock has outperformed both Guggenheim and Deutsche Bank’s expectations.

Currently, Spotify is trading at $138.26.

This has led to a resurgence of optimism among equity firms in the company’s shares.

Redburn Partners recently upgraded Spotify to Buy.  Setting a $164 price objective, Zacks Investment Research upgraded from Hold to Buy.  Reducing its price target from $200 to $190, Pivotal Research upgraded shares from Hold to Buy.

The stock now has an average consensus rating of Buy, with an average price target of $189.75.



One Response

  1. Duke

    I never thought that any firm on Wall Street understands the music business. I definitely believe that they don’t understand the way this whole thing works. None of them understand streaming revenue and how much money the artist actually makes and in reality they don’t care they just look at the bottom line of a company. Why anybody would think Spotify is worth $200 a share is beyond me