Spotify's Steady Stream Of Subscribers And FX Tailwinds: Analyst Sees Upside Risk For 2Q-3Q Expectations

Truist Securities analyst Matthew Thornton reiterated a Buy rating on the shares of Spotify Technology SA SPOT, raising the price target to $170 from $154.

The company will post its second quarter 2023 financial results on July 25, 2023, before the market opens.

Monthly active users in the quarter to be reported are likely to be 530 million, compared with 515 million in the first quarter of 2023. 

For the quarter to be reported, the analyst expects FX to be a modest tailwind to revenue versus guidance based on the weakness of the EUR versus other currencies and particularly the USD (39% of SPOT revenue in 1Q23) and GBP (9% of SPOT revenue in 1Q23).

Also Read: Analyst Predicts Spotify's Margin Growth Amid Cost Optimization and Subscriber Growth Challenges

SPOT shares should benefit from the company's heightened focus on costs/margins, the service being priced below key comps (marginal tailwind to Subs), and the prospect of a price increase later in the year.

Based on mobile app download data and past seasonality, the analyst views 2Q-3Q expectations as very reasonable (see risk as being to the upside).

For the quarter to be reported, the analyst expects 2Q revenues of €3.20 billion, up 12% Y/Y.

Hau expects 2Q23 adjusted EPS of (€0.06) loss; subscribers are expected to grow 15% Y/Y.

Gross margins for the quarter to be reported are expected to expand to 25.5%, compared with 24.6% in the year-ago period.

Big picture, the analyst continues to view SPOT as levered to secular growth of consumption of streaming audio with a large/durable subscription revenue steam.

However, key risks/pushbacks from here likely center around competition (e.g., TikTok plans/ambitions) and valuation/appreciation year-to-date.

Price Action: SPOT shares are trading higher by 3.66% to $159.40 on the last check Monday.