Spotify Technology SA (NYSE:SPOT) is expected to deliver third quarter results largely in line with management’s outlook, according to UBS analysts who repeated their ‘Buy’ rating on the streaming service ahead of the report.
The analysts set a $850 price target, which implies upside of nearly 29% from Friday’s closing price of about $660.
Spotify’s Q3 report is expected to “reflect moderating FXN revenue growth due to lapping prior price increases and flat annual margins as investments in the partnership program and other features to enhance the platform continue,” according to UBS.
The analysts forecast €4.2 billion in revenue, up 11% year-over-year on a foreign-exchange neutral (FXN) basis, consistent with Spotify’s guidance.
They also expect 6 million premium subscriber net additions, above management’s guidance of 5 million, “driven by better data in ROW and higher conversion to paid given the recent app store changes.”
UBS expects premium revenue to rise 12.5% FXN, compared with 15.9% in the prior quarter, with flat average revenue per user (ARPU) at €4.53.
Advertising revenue growth is projected to slow to 2.6% FXN from 4.6% in the second quarter “as the overall market remains soft.”
Gross margins are expected to remain flat year-over-year at 31.1%, as “the continued benefit of price ups for the audiobook bundle and marketplace growth is offset by investments in the partner program, higher publishing rights and audiobook consumption.”
Operating income should come in above guidance, with UBS estimating €525 million versus management’s €485 million outlook, helped by lower social charges following a 9% pullback in Spotify’s stock during the quarter.
Looking ahead, UBS said it expects fourth quarter guidance to show “accelerating FXN revenue growth supported by partial help from recent price increases and a continuation of double-digit subscriber growth.”
The analysts forecast Q4 revenue of €4.5 billion, up about 13% FXN, and gross margins of 32.7%, flat year-over-year but up sequentially on seasonally higher ad-supported margins.
The firm also anticipates full-year 2025 margins of 31.8%, an improvement of 150 basis points, and sees “further potential upside in 2026 as this year’s investments are monetized through higher premium pricing.”
“We remain constructive on Spotify shares as we expect upcoming price increases, new tiers/product features and a ramp in advertising to support further acceleration in revenue growth while margins continue to expand,” the analysts concluded.