A Pivotal Year-End Price Tag For Spotify Stock

Some would argue that its major markets are mature, limiting growth. Yet Pivotal Research Group CEO and Internet, Media and Communications analyst Jeff Wlodarczak believes higher medium to long-term Average Revenue Per User and subscriber forecasts warrants a street-high price target for Spotify shares that is significantly higher than its current trading range.

For Pivotal, which already has the highest target price among all analysts covering audio streaming Goliath Spotify, a $510 year-end target price is now in place.

This is up from its previous year-end estimate of $460 per share.

Investors must like what Wlodarczak has to say, as “SPOT,” which trades on the NYSE, was up by 5.7% within the first hour of Thursday’s trading session to $363.56; trading spiked on word of Pivotal’s street-high target price hike.

With a market cap of $73.04 billion, Spotify is approaching its high reached in mid-February 2021, successfully recovering from a dip below $75 per share seen in mid-December 2022. Since then, “SPOT” has been on fire, with nary a significant dip in value.

“Our basic view remains unchanged,” Wlodarczak writes. “Spotify is the clear winner of the global audio streaming battle as evidenced by their best-in-class user-interface and content recommendation engine, subscriber lead and strong second-quarter results.”

Wlodarczak also likes the Q3 guidance offered from Spotify — “despite the fact they raised their price above competitors in early June,” he notes. “This should allow them to continue to generate solid [Monthly Active Users] and ARPU growth.”

Ultimately, this could generate “sizeable gains” in Free Cash Flow as he expects Spotify’s competitors to raise their pricing tiers to Spotify’s levels in the next three to six months.

But Spotify stands out for its recent move to add long-form music video content, which includes long-form video advertisements. “Spotify and Netflix are proof positive,” he says. “Our new higher forecasts for advertising imply Spotify advertising reaches 15% of revenue (vs. 12% currently) by 2028 versus management’s goal — not unreasonable — of 20%.”

The new $510 target price Spotify would trade at is near $100 billion in enterprise value (up from $99 billion), “which intuitively make sense to us for the clear winner of the global music streaming race on its way to 1 billion MAUs and materially higher ARPU over the next 5-7 years,” Wlodarczak concludes. “We also believe there are material opportunities to significantly expand the social media component of their service and to lever AI into more rapid development of new products, more robust content recommendation and ad targeting.”