On Tuesday, CFRA, a financial research firm, updated its outlook on Spotify Technology SA (NYSE:SPOT), increasing the stock price target from $242.00 to $325.00 while maintaining a Hold rating on the shares. The adjustment follows Spotify's first-quarter earnings report, which revealed a significant earnings beat and strong subscriber growth.
The new stock price target is based on a forward price-to-earnings (P/E) ratio of 67.0 times CFRA's 2024 earnings estimate for Spotify, which is lower than the five-year historical average P/E of 78.0 times. CFRA has also revised its earnings per share (EPS) estimates for Spotify, raising the 2024 forecast to €4.85 from the previous €2.40, and the 2025 estimate to €6.30 from €3.95.
Spotify's first-quarter performance was notable, with the company posting an EPS of €0.97, beating expectations by €0.32. The positive results were attributed to a 20% year-over-year increase in revenue, which was in line with consensus, and a significant expansion in gross margins, from 25.2% to 27.6%.
The number of total subscribers reached 615 million, marking a 19% increase compared to the previous year. This included 239 million premium subscribers, up 14%, and 388 million ad-supported subscribers, which saw a higher growth rate of 22%.
The company's subscriber base is distributed across various regions, with Europe accounting for 38%, North America for 27%, Latin America for 22%, and the rest of the world for 13%. Family and duo plans were highlighted as areas of strong growth.
Looking ahead, Spotify provided guidance for the second quarter, expecting to reach 631 million subscribers, which represents a 2.6% sequential increase. The forecast also includes 285 million premium subscribers, a 19% increase, improved gross margins at 28.1%, and an operating income of €250 million.
Moreover, Spotify is diversifying its growth avenues through audio books and podcasts. The company has also launched Spotify AUX, an in-house advisory agency dedicated to assisting brands in leveraging music to enhance their advertising campaigns.
InvestingPro Insights
Following CFRA's updated outlook and the robust first-quarter performance of Spotify Technology SA, InvestingPro data shows a nuanced picture of the company's financial health and market sentiment. Spotify's market capitalization stands at a substantial $61.67 billion, reflecting its position in the industry.
Notably, the company's revenue has grown 12.96% over the last twelve months as of Q4 2023, with a quarterly revenue growth of 15.95% in Q4 2023, underscoring its strong subscriber growth reported in the earnings.
InvestingPro Tips highlight that Spotify holds more cash than debt, suggesting a solid balance sheet, and analysts are optimistic about net income growth this year. These factors may provide investors with confidence in Spotify's financial stability and future prospects.
Moreover, the stock's high return over the last year, with a 103.53% price total return, aligns with the positive earnings beat and subscriber expansion detailed in the article. Still, the company is trading at a high Price / Book multiple of 20.08, indicating a premium valuation that investors should be mindful of.
For readers looking to delve deeper into Spotify's financials and market performance, InvestingPro offers additional insights and metrics. There are numerous other InvestingPro Tips available for Spotify, which can be accessed through the dedicated page at https://www.investing.com/pro/SPOT. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing a more comprehensive understanding of the company's investment potential.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.