Keybanc analyst Justin Patterson maintained Spotify Technology SA SPOT with an Overweight and raised the price target from $125 to $140.
The analyst found evidence of resilient subscription business with pricing power, improved expense discipline, and inflection of unit economics.
The analyst believes that the progress toward this achievement is a meaningful catalyst throughout the year and believes that it will be a catalyst for break-even profitability for 2024 E compared to the previous loss of €128 M.
Barclays analyst Mario Lu maintained an Overweight and raised the price target from $131 to $145. The 4Q results beat expectations across nearly every metric, and the 1Q OI guide continues the meaningful improvement expected in FY 23 along with GM expansion. The analyst believes the company's shift from growing at all costs to a combination of speed and efficiency will be applauded by investors.
Morgan Stanley analyst Benjamin Swinburne maintained an Overweight and raised the price target from $105 to $130.
Swinburne points out that the case for SPOT is that 2023 will be the year that this business finally marries the strong user and revenue growth trends it has had for years with a ramp towards meaningful profitability, even after the 40% YTD appreciation.
The analyst saw rising optimism that it can drive low to mid-teens ex-FX revenue growth over the next several years, a faster gross profit growth, and generate positive operating income and FCF beginning in '24 '25.
He raises his gross profit estimates by just 1 - 2%, but he sees a smaller operating expense growth, increasing his adjusted EBITDA estimates more substantially.
Credit Suisse analyst reiterated Neutral with a $120 price target. Spotify saw healthy user growth, and the investment phase is shifting to a return to margin expansion in 2023 via belt tightening, both encouraging.
The key is when Spotify decides to raise the price, their success in improving revenue shares with content providers, what level of pricing power the service has, how the competition will evolve, and how sustainable their focus on cost efficiency will be.
The analyst did not see positive EBITDA until 2025, and at almost 40 x the FCF estimate of 2025, their business model as a renter of their product continues to generate little cash flow despite their scale.
SPOT shares traded higher on the last check Wednesday, by 2.28%, at $115.30.