Zacks Investment Research Drastically Downgrades Spotify from ‘Strong Buy’ to ‘Hold’

Wall Street. Photo: Natalie Murphy
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Wall Street. Photo: Natalie Murphy
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photo: Natalie Murphy

Spotify became a less-certain bet on Wall Street this morning, thanks to a pronounced downgrade by Zacks Investment Research.

Shares of Spotify (NYSE: SPOT) have recovered somewhat over the past few days, though nagging profitability concerns are dragging overall performance.  Now, another leading Wall Street analyst is saying it out loud.

In a note shared this morning, Zacks Investment Research took a drastic shift in their Spotify rating, moving the stock from ‘Strong Buy’ to ‘Hold’.  The pronounced reevaluation is heavily influenced by growing concerns among investors that Spotify lacks a robust, long-term profitability path, especially with mega-rivals like Apple Music and Amazon Music continuing to gain ground.

The sharp downgrade follows a similar move by Evercore. In late June, the investment analyst dropped SPOT from ‘In Line’ to ‘Underperform’ based on continued pessimism over Spotify’s long-term financial outlook. In the report, Evercore analyst Kevin Rippey asserted that investors had overstated Spotify’s ability to make money from podcasts as well as its services to musicians. He slashed the company’s price target to $110.

Tellingly, shares of SPOT are currently below $120, a drop of more than 27% from mid-summer highs of nearly $158. Dialing back to 2018 highs of near $200, and SPOT’s dip is closer to 43%.

Earlier this year, Apple Music surpassed Spotify in terms of paid subscribers in the U.S., as first reported by Digital Music News. It was an enormous benchmark in the world’s largest music industry market and signaled the very serious threat that Spotify now faces.

Still, analyst sentiment on Spotify remains mixed.

Rippey, for example, recently upgraded the stock’s outlook from “underperforming” to “increasingly balanced,’ while stating that the stock had finally bottommed out.  Not exactly a ringing endorsement, though others are more bullish.

Raymond James and SunTrust Banks are among the more optimistic of the bunch, with a dozen major analysts rating the stock as a ‘Buy’ and two recommending ‘Strong Buy’ positions. Gone, however, are the frothy $200+ pricing projections – these days, analysts seem a lot wiser on streaming industry economics.