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The Power Of Spotify Playlists Could Ward Off Aggressive Labels, Analyst Says In Upgrade

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The Power Of Spotify Playlists Could Ward Off Aggressive Labels, Analyst Says In Upgrade

Despite rolling back its “hateful content” policy on May 30, which had banned rappers R. Kelly and XXXTentacion from being placed on popular playlists, Spotify Technology (NYSE: SPOT) has demonstrated the power it has in promoting artists.

This power was confirmed by a recent European Commission report, which led Buckingham Research Group to upgrade the streaming service's stock. 

The Analyst 

Buckingham’s Matthew Harrigan upgraded Spotify from Neutral to Buy and raised the price target from $175 to $195.

The Thesis

As the music streaming company with the largest market share and a strong foothold among young people, Spotify is the new gatekeeper to the music industry.

The report found that a song merely being included on one of Spotify’s top playlists can increase the number of streams it receives by millions. Placement on the “Today’s Top Hits” list can have an impact of as many as 20 million views.

While these numbers may not be significant for the biggest mega-stars like Kendrick Lamar or Taylor Swift, it is a definite boon for emerging artists and even other established names.

The European Commission report suggests that Spotify is unlikely to be trampled on by the major record labels seeking higher royalties, Harrigan said. 

Many Spotify users are “wedded” to their playlists, which can be created in a number of ways, including automatically through artificial intelligence, the analyst said. The lack of ease with which playlists can be recreated on other streaming services further implies the hold Spotify has over the market, he said. 

The analyst is also looking forward to seeing how Spotify’s recent FCC device filing will materialize. A hardware device could monetize its strong brand though a smart speaker or in-car player, much like what Apple Inc. (NASDAQ: AAPL) has done with its Apple Music and HomePod, which can only interface with Apple’s own service.

Price Action

Spotify shares were up more than 1 percent off the open Thursday at $167.12. 

Related Links:

Spotify Is 'Leading A Crowded Field,' But Churn Remains A Concern

Analyst Says Sell Spotify As Shares Are Too Expensive Right Now

Latest Ratings for SPOT

DateFirmActionFromTo
Apr 2021Pivotal ResearchUpgradesHoldBuy
Apr 2021JefferiesInitiates Coverage OnBuy
Apr 2021Evercore ISI GroupAssumesOutperform

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