Analyst Eric Sheridan, working at Goldman Sachs, has decided to maintain a positive outlook on Spotify Technology SA by keeping a Buy rating on the company's stock and increasing the price target to $430, up from $425. As Spotify gears up for its third-quarter 2024 earnings report, Sheridan delved into current industry data, addressed important investor debates, and pointed out the potential revenue boost expected from a deluxe tier offering in the future.
Sheridan pointed out that Spotify's stock has been performing exceptionally well compared to the S&P 500, with a significant outperformance of 13% since the last earnings report and a striking 142% gain over the past 12 months in contrast to the S&P's 35%. The analyst attributed this positive trend to Spotify's dominant position in the global audio platform market, foreseeing continued growth in user numbers, engagement levels, and pricing power for the foreseeable future.
Following a cost restructuring in late 2023, Spotify is now displaying promising gross and operating margin improvements, aligning with the company's strategic goals set over the past few years. Sheridan highlighted efficiencies, revenue scaling in specific segments, and returns from previous investment cycles as key drivers for anticipated margin enhancements in the coming years. Additionally, he mentioned the possibility of Spotify adopting a shareholder return policy in line with its industry peers in the technology, media, and telecommunications (TMT) sector.