Spotify’s [SPOT] share price has made Bernstein’s playlist. Analysts at the wealth manager upped their rating on Spotify to Buy and set a $280 price target after the music streaming site posted solid third quarter numbers.
What’s notable is that Spotify’s share price briefly broke past that goal last week thanks to those results, while other analysts have pinned even loftier targets for the stock.
Why Spotify’s share price bounced post-earnings
Bernstein’s revised targets came after Spotify posted revenue and user growth numbers that topped expectations in recent third quarter results, even if losses were wider than expected.
Total Monthly Active Users grew 19% year-on-year to 381 million in the quarter, up from 365 million last quarter and near the top end of Spotify’s guidance. Premium subscribers grew 19% year-on-year to come in at 165m, with the company saying that it was ‘pleased’ that the churn rate among these subscribers was down.
Revenue came in at €2.5bn, up 27% year-on-year, with ad-supported revenue notably rising 75% year-on-year to €323m.
"Our ads revenue continues to surpass even our own optimistic expectations," said Spotify CEO Daniel Ek. "This I think, clearly proves the potential for ads to be the second big revenue driver for the future of our business."
During the results Spotify upped its fourth quarter guidance for both revenue and gross margin.
"Multiplied against an increased forecast for long-term Gross Margins, supported by evidence in Q3 results, increases our probability-weighted target price to a level ($280) that is now in-line with the market price,” wrote Bernstein analyst Todd Juenger.
“Our ads revenue continues to surpass even our own optimistic expectations” - Spotify CEO Daniel Ek
Could Spotify's share price hit $385?
Spotify’s share price surged after third quarter earnings were announced, hitting $302.57 by 1 November. However, the share price hasn’t been able to sustain that blistering growth and has fallen just over 3% since then.
Spotify’s share price is down over 11% this year having closed Tuesday’s trading at around $279. February saw the stock hit a high of $365.99, but in the summer Spotify’s share price slumped, trading around the $200 level in mid-August.
Yet considering Spotify has upped its guidance for next quarter, the cool down could present a buying opportunity.
After all, the third quarter results saw other analysts up their price targets on the music streaming service. Keyblanc upped its price target to $310 from $300, Pivotal Research $385 from $300, and Barclays $310 from $300.
$385
Pivotal Research's target for the Spotify stock
Pivotal Research’s price target would see a near 40% upside based on Tuesday’s closing price. Analyst Jeffrey Wlodarxzak raised Pivotal’s price target on Spotify off the back of third quarter results and considers the stock to be ‘very attractive’ based on the outlook for 2022.
According to data from Yahoo Finance, Spotify is looking at earnings of $0.48 for the full year 2022 up from a predicted loss of $0.98 for 2021. Revenue in 2022 is pegged at $13.33bn, up 19.7% from a predicted $11.13bn.
Barclay’s Mario Lu is similarly optimistic, maintaining his firm’s overweight rating on Spotify. The analyst says in a research note that topping expectations on monthly active users and advertising performance should help quell fears around Spotify’s longer growth.
Among the analysts tracking Spotify’s share price on Yahoo Finance, the stock carries a $320.14 price target - hitting this would see a near 15% upside on Tuesday’s close.
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