Analysts at London-based research firm Redburn initiated coverage of Spotify Technology SA (NYSE:SPOT) Thursday, awarding the streaming-music provider a Neutral rating.
While the analysts said that they see potential in Spotify’s ability to gain revenue from both subscribers and music promoters, the Swedish-based company pays artists a high price in royalties.
Stiff competition from other streaming services, specifically Apple Inc.'s (NASDAQ:AAPL) Apple Music and its growing market share, also contributed to the “hold” rating.
Spotify shares closed basically flat at US$143.99 Thursday.
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The streaming platform has a young base, with 72% of users under the age of 35, according to the research note. Younger consumers tend to have less cash to spare, subscribing and unsubscribing to the US$9.99 premium ad-free service when their budgets allow for the expense.
The analysts were pleased that the service did not take risks on new content, unlike streaming platforms such as Netflix that create their own programming, and instead streams existing music from a variety of artists. Every day, 20,000 tracks are added to Spotify, according to the analysts' report.
“Our fair value is between $127 and $170 per share. It is a narrow range given that Spotify is still an early-stage business; as information on the new launches in Japan, Africa and India becomes available we expect to refine it,” analysts Nick Delfas and Bianca Dallal wrote.
They indicated the stock would be more “compelling” in the US$100 to $120 range.
All things considered, the value range was set at US$25bn to $30bn.