Tuesday, 23 April 2024

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Spotify maintains Outperform stock rating and target amid price hike By Investing.com

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On Wednesday, Evercore ISI upheld its positive outlook on Spotify Technology SA (NYSE:), maintaining an Outperform rating and a $285.00 price target for the company’s shares. The affirmation follows reports that Spotify may implement a price hike of $1-$2 per month in various markets, including the UK and Australia, by the end of April.

Moreover, there is anticipation of a possible price increase in the U.S. later in the year, aimed at offsetting costs associated with the company’s Audiobook feature.

Spotify is reportedly restructuring its subscription model, transforming the existing $11/month plan into a basic tier, which will include only Music & Podcasts. Customers wishing to access Audiobooks will need to pay an additional fee.

This shift is part of a broader strategy to diversify pricing options for subscribers. The move comes shortly after Spotify’s announcement on April 2 that it will extend Audiobook access to premium subscribers in Canada, Ireland, and New Zealand beginning April 9, adding to the countries where the feature is already available.

The proposed pricing strategy could significantly benefit Spotify by reinforcing the company’s confidence in its value proposition and its ability to adjust pricing and subscription tiers. This approach may also address some concerns investors have regarding the monetization of Audiobooks.

While the potential price increase comes on the heels of a previous price adjustment in July 2023, the introduction of a basic tier without Audiobook content could mitigate any potential increase in subscriber churn.

Evercore ISI suggests that if the price increase is broadly implemented, it could add approximately $1 billion to Spotify’s revenue in 2025, which would represent a 5% increase over current estimates. This change could also lead to an approximate $300 million boost in EBITDA, suggesting a 15% increase over current projections and a 1% improvement in EBITDA margin for 2025.

These estimates are based on a predicted 9% average rise in ARPU from the price increase across various subscription plans and an expected 30% of subscribers opting for the new basic tier, drawing parallels with Netflix (NASDAQ:)’s tier trade-down rates. The forecast also assumes a 30% incremental EBITDA margin from the revenue increase, consistent with Spotify’s performance in the previous fiscal year.

InvestingPro Insights

In light of Evercore ISI’s positive stance on Spotify Technology SA (NYSE:SPOT), it’s valuable to consider the…

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