Spotify stock (SPOT) may see its ‘darkest days ahead,’ according to analysts from Monness, Crespi, and Hardt. The investment firm cut the stock to Neutral from Buy and refused to assign the stock a target price. Here’s why.
Monness, Crespi, and Hardt analysts told investors that the sharp SPOT rally in 2023 may bring plenty of uncertainty for the rest of the year. “Spotify’s stock has enjoyed a strong rebound this year, racking up a gain more than double the average increase for our coverage universe in 2023—rising 95%,” the investment firm explained.
“Given this strong outperformance and our mounting concerns surrounding the potential collateral damage from this downturn, we are stepping to the sidelines on Spotify.”
“Spotify is riding a favorable long-term trend, enhancing its platform, tapping into a large digital ad market, expanding its audio offerings, and improving its cost structure,” Monness analyst Brian White noted. “However, competition is fierce, margins thin, and we believe the darkest days of this downturn are ahead of us.”
White further advises that the price hikes from Spotify’s services could result in ‘incremental headwinds’ for consumers, in part due to his belief in a pending economic downturn.
That last part is noteworthy given the strong belief within the music industry that streaming music subscribers are willing to absorb higher prices. That includes figures like Warner Music Group Robert Kyncl, who’s been pushing hard for streaming platforms to aggressively bump their prices. But what if consumers bump back?
Spotify will report its Q3 2023 earnings on October 24—White says he expects to see 9% annual growth on sales of €3.32 billion. White also estimates Spotify’s monthly active users will grow to 574 million, which will help drive Premium revenue growth. Spotify’s own expectations place it at 224 million Premium subscribers with 572 million total monthly active users, slightly below White’s estimates.
SPOT stock had a median target price of $171, according to 29 analysts offering a 12-month price forecast. The highest estimate settled at $242.45, while the lowest stands at $103.65. The stock closed on Friday at $154.64 and has hovered there for most of September 2023. The stock is still up from the low of $97 in January 2023, yet still has not recaptured its pandemic peaks when the company was riding high on its podcast hopium.