Morgan Stanley Takes Bullish View On Spotify, Says User Base Could Reach 200M By 2022

Streaming music provider Spotify Technology SA SPOT is well-positioned to take advantage of the ongoing "music renaissance" and can more than double in size over the coming years, according to Morgan Stanley.

The Analyst

Morgan Stanley's Benjamin Swinburne initiated coverage of Spotify with an Overweight rating and $190 price target.

The Thesis

Over the past two years alone, subscription streaming profiles grew by over 100 million users globally, with Spotify accounting for 40 percent of that growth, Swinburne said in a Monday note. Spotify's growth came at a time when it already controlled 40 percent of the streaming music market. Encouragingly, the company's growth profile ahead remains vast based on the following, the analyst said: 

  • A total of 1.3 billion smartphone users across the 65 markets where Spotify competes.
  • Per-capita spending on music remains a "fraction" of its late 1990s peak.

Spotify's large opportunity ahead implies the company can grow its premium user base from 70 million today to around 200 million by 2022, Swinburne said. The platform's personalization is driving user engagement, he said. 

Spotify's long-term gross margin guidance of 30-35 percent is achievable, but will only be seen after a "very slow ramp," the analyst said. Spotify's current "modest" gross margin is "not an impediment" to driving healthy and growing free cash flow generation in the near-term, according to Morgan Stanley. 

Price Action

Spotify shares were set to open up 1.3 percent at $162.05 Monday. 

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