Spotify's Q1 Outlook: Analyst Anticipates Surge in Subscriber Base and Revenue Per User

Zinger Key Points
  • Keybanc ups Spotify target to $350, eyes first-quarter results and long-term revenue growth.
  • Spotify's premium subscriber growth and ARPU boost lead to optimistic 2024 and 2025 revenue forecasts.

Keybanc analyst Justin Patterson maintained Spotify Technology SA SPOT with an Overweight rating and raised the price target from $300 to $350.

Spotify will report its first-quarter fiscal 2024 results before the market opens on April 23. Patterson refined his estimates and framed vital factors to watch. 

The analyst now expects 2024 revenue of €15.4 billion and 2025 revenue of €18.0 billion, which reflects slightly higher ARPU growth. His 2024 operating profit decreases by 20% due to social charges, while 2025 increases by 2% due to higher revenue. 

Finally, Patterson introduced 2026 revenue of €20.6 billion and an operating profit of €2.2 billion, which assumes 14% revenue growth, 29.9% gross margin, and 10.5% operating margin. 

Due to the higher revenue and profitability forecasts, Patterson raised his price target, implying 3.4x 2025E EV/S and 34.7x 2025E EV/FCF.

For reference, the analyst noted that Netflix Inc NFLX saw its EV/S multiple expand by ~50% over five years due to price increases and margin improvement.

For the first quarter, Patterson expects a slight Premium Subscriber beat at 4 million net adds vs. the consensus of 3 million net adds, revenue likely in line at ~€3.6 billion, and a slight upward bias to his and Street’s gross margin of 26.4%.

For the second quarter, Patterson expects a Premium Subscriber of ~7 million (in line with the Street), revenue in line with the above consensus of €3.77 billion, reflecting slightly better ARPU, and a gross margin of 27%.

Spotify stock gained 130% in the last 12 months. Investors can gain exposure to the stock via Global X Social Media ETF SOCL and ProShares On-Demand ETF OND.

Price Action: SPOT shares are trading lower by 0.78% to $301.21 on the last check Friday. 

Spotify Photo by esthermm on Shutterstock

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