Spotify Hit With Double Downgrade As Upside Optionality Looks Fully Priced In

Shares of Spotify Technology SA's SPOT have soared about 75% in the year-to-date period, rendering valuation less attractive.

The Spotify Analyst: UBS analyst Eric Sheridan double downgraded shares of the music streaming platform from Buy to Sell but increased the price target from $189 to $204. The upwardly revised price target reflects positive short- and long-term themes.

The Spotify Thesis: Spotify shares are now pricing in the entirety of upside optionality that UBS is modeling for the coming years, including subscriber and engagement growth, shift in engagement habits and possible improvement in unit economics, Sheridan said in a note.

Podcasting, according to the analyst, is likely to broaden the company's user base, engagement trends and long-term utility but is unlikely to alter its cost of content dramatically.

While Sheridan sees no material risk to published operating estimates in the coming quarters, he doesn't see pronounced upside that could expand the valuation multiple from current levels.

App downloads have declined both year-over-year and quarter-over-quarter in all geographies, Sheridan said, citing UBS Evidence Lab analysis. Consumption has also slowed across all geographies, except in Australiasia.

UBS raised its second-quarter premium subscriber net adds from 6.6 million to 6.9 million, while maintaining its monthly active user estimate unchanged at 12.3 million.

SPOT Price Action: Spotify shares were slipping a bit to $259.71.

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