Spotify's Value To Consumers Earns It A Bullish Rating From Stifel

Spotify Technology S.A. SPOT stock traded on a public market for the first time Tuesday, and Stifel sees three reasons why investors should be buyers.

The Analyst

Stifel's John Egbert initiated coverage of Spotify's stock with a Buy rating and $180 price target.

The Thesis

Spotify is the largest streaming music provider by multiple metrics, and the case for buying the stock is threefold, Egbert said in the initiation note.

The company's unlimited and on-demand streaming platform for $9.99 a month one of the best deals on the internet on a value per dollar basis. This should help the company boost its membership from 160 million monthly active users as of the fourth quarter of 2017 to 300 million MAUs by 2021, 159 million of which are paying subscribers, Egbert said. 

Spotify has built a large platform despite facing competitive threats from some of the largest companies in the world, the analyst said. The company's competitive edge in the on-demand music streaming landscape will likely remain in place due to its  various points of distribution, differing user preferences, local market incumbents and technology-driven personalization and scale, Egbert said. 

Spotify's growth over the years needs to be accompanied with a path toward profitability, and this should occur by the end of the decade, the analyst said. Spotify will likely reach IFRS operating income profitability by 2020 and reach $1.23 billion in operating profit by 2024, with a longer-term operating margin profile of more than 11 percent, according to Stifel. 

Price Action

Shares of Spotify were trading higher by 5 percent premarket Thursday. 

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Posted In: John EgbertSpotify MAUStifelStreaming musicAnalyst ColorPrice TargetInitiationAnalyst Ratings