Wells Fargo Changes Its Stance and Re-rates Spotify: Find Out Why

  • Wells Fargo analyst Steven Cahall upgraded Spotify Technology S.A. SPOT from Underweight to Equal-Weight. He raised the price target from $101 to $124.
  • Following its June 2022 investor day, Cahall gained more compelling insights into SPOT's operating leverage. 
  • Cahall noted the company's belief in accomplishing an operating margin of ~10% in ~5 years, as gross margins in music and podcasting benefit from investments that drive engagement and monetization. 
  • Also Read: Spotify Shares Jump On Analyst Upgrade, Drawing Parallels With Netflix
  • Cahall never doubted SPOT's user and revenue growth, reinforcing their conviction of a more substantial margin inflection. 
  • All of which made Cahall Equal-Weight despite some concerns about earnings power given the power of labels and competition around streaming music. 
  • Executing at or ahead of the margin plan could make Cahall even more bullish. 
  • However, Cahall could reverse its stance if the financial outlook slowly materializes.
  • Price Action: SPOT shares traded higher by 4.76% at $102.72 on the last check Wednesday.

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