Spotify's Potential For Subscriber Growth, Margin Expansion Turns Credit Suisse Bullish

Spotify Technology SPOT could outpace the consensus estimates for monthly average users and subscribers through 2021 and has brighter prospects for margin expansion, according to Credit Suisse. 

The Spotify Analyst: Brian Russo upgraded Spotify from Neutral to Outperform and raised the price target from $215 to $315.

The Spotify Thesis: The upside to consensus estimates comes from Spotify’s exclusive podcasts and a recent partnership with mobile carrier MTS in Russia, Russo said in the upgrade note.

"The Joe Rogan Experience" podcast, which will become exclusive to Spotify in January, “could drive an incremental 5m subs by the end of next year,” while other exclusive podcasts could lend further upside, the analyst said.

“Our conversations with MTS lead us to believe at least 1m of these (the Russian company’s 60 million smartphone subs) are likely to become paying Spotify subs in 2021.” 

The higher probability of major labels participating in the company’s Marketplace improves the prospects for margin expansion, he said.

“If Spotify can capture 5% of the big 3 label’s marketing budget, we estimate it would translate into 150bps of gross margin expansion.” 

SPOT Price Action: Spotify shares were trading 4.48% higher at $256.32 at last check Thursday.

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