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

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