Spotify Technology SA (NYSE:SPOT) has earned a price target hike from Bank of America analysts ahead of its fiscal second quarter earnings report due before the stock market opens on Tuesday, July 23.
The analysts raised their price objective on the music streaming platform to $380 from $370 and repeated their ‘Buy’ rating on their view the company is at an inflection point in profitability and free cash flow.
Spotify shares traded hands at about $315 on Tuesday afternoon.
“Spotify continues to execute on initiatives that put the company on a positive revenue, gross margin, operating income and free cash flow trajectory,” the bank’s analysts wrote in a note to clients.
“We are confident in the sustainability of this momentum highlighted by recent price increases that should partially flow through to gross margin.”
They pointed out that Spotify has raised its prices twice in less than a year in the US and other markets including the UK and Australia, which they believe indicates confidence in the company's ability to grow subscribers and mitigate churn on the platform.
“In addition to price increases, Spotify has monetization and margin expansion opportunities from introducing pricing tiers (e.g., music-only, "Supremium") and features as the company scales new businesses like audiobooks,” they wrote.
They expect Spotify to deliver Q2 results at least in line with guidance on key metrics including revenue, premium subscribers, and monthly active users (MAUs)
The analysts see Spotify reporting revenue of €3.83bn compared to the company’s guidance of €3.8bn guidance and gross margins of 28.1%, in line with guidance.
They forecast MAUs of 631 million and premium subscribers of 245 million, which are also in line with Spotify’s guidance.
They also raised their calendar year 2024 revenue forecast to €15.8 billion from €15.7 billion and operating income to €1.06 billion from €1.05 to reflect recent price increases.