Listen To The Music: Evercore Names 5 Reasons Why Spotify Is A Winner

Streaming music provider Spotify Technology SA SPOT is the market leader, with "significant" growth potential, according to Evercore ISI. 

The Analyst

Evercore's Anthony DiClemente initiated coverage of Spotify's stock with an Outperform and $190 price target.

The Thesis

The bullish case for Spotify is fivefold, DiClemente said in the Monday initiation note:

• Spotify controls 80 percent more paid streaming subscribers than its closest rival.
• Spotify's improving growth and retention metrics bode well for margin expansion over time.
• Spotify's large amount of customer data could be used to create curated, personalized content and tools for artists and labels.
• Spotify should report a beat on subscriber and revenue metrics in its first-ever earnings report after Wednesday's market close.
• Spotify's stock is trading at a "significant discount" to the subscription video leader Netflix, Inc. NFLX at a P/Sales multiple of less than 2.5x on 2019 estimates versus Netflix at more than 7x. 

Bears would point out the following, DiClemente said:

• Competition continues to intensify.
• Music labels could hold on to their "supplier power" for some time.
• Revenue per subscriber is moving lower from promotions like family and student plans.
• Operating losses could persist for some time.
• Aside from EV/sales multiples, it is difficult to properly value the stock.

Spotify holds many levers to generate upside versus current estimates, and even small positive revisions from management would "make big differences" in out-year forecasts, the analyst said.

The multiple positive read-outs outweigh the negative ones for Spotify, and investors should have a "positive" bias at current levels, according to Evercore ISI. 

Price Action

Spotify shares were up 0.77 percent at $161.29 at the time of publication midday Monday. 

Related Links:

Spotify's First-Ever Guidance, Explained

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

Photo courtesy of Spotify.