KeyBanc Upgrades Spotify On Improving Unit Economics

Spotify Technology’s SPOT business has strengthened and the current industry dynamics appear favorable, according to KeyBanc Capital Markets.

The Spotify Technology Analyst: Justin Patterson upgraded the rating for Spotify Technology from Sector Weight to Overweight, while establishing a price target of $340.

The Spotify Technology Thesis: Spotify seems to be growing faster than YouTube Premium, with net subscriber adds for Spotify estimated at around 22 million, versus only 15 million for YouTube, Patterson said in the upgrade note.

In terms of app rankings, Spotify is “extending its lead over peers,” the analyst wrote. “From mid-August onward, Spotify's rank has inflected, which we attribute to a mix of promotions and key content releases,” he added.

“2Q results support Spotify's pricing power,” Patterson noted. He further added that app store changes “could benefit distribution.”

“SPOT subs are valued at ~25% that of a SIRI sub. While some discount is warranted, we believe investors are understating Spotify's progress with price increases, improved Ad-Supported monetization (partially driven by podcast), and improving gross profit per subscriber,” the analyst said.

SPOT Price Action: Shares of Spotify Technology had risen by 4.14% to $259.35 at the time of publication Tuesday.

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