Why Spotify Technology Shares Are Gaining Today

Spotify Technology SA SPOT shares are trading higher after the company and Universal Music Group UMGNF announced an expansion for promotional and social tools for UMG artists.

Additionally, a new agreement with Universal Music Publishing Group (UMPG) will enable Spotify to distribute music videos in the US.

Daniel Ek, Founder & CEO of Spotify, said: “UMG has consistently been a progressive partner on behalf of their artists and songwriters, contributing to our product development efforts of experimental tools and adopting them early to help artists stand out.” 

“The forthcoming features will put more power in the hands of artists and their teams to help them authentically express themselves, efficiently promote their work, and better monetize their art,” the CEO added.

Meanwhile, KeyBanc Capital Markets analyst Justin Patterson reiterated the Overweight rating on Spotify with a price forecast of $300.

As Spotify approaches quarter-end, Patterson sees encouraging app download and Google Search query trends.

This supports that Spotify is on track for net adds of at least 77 million MAUs and 25 million Premium Subscribers, the analyst adds.

With monetization levers (e.g., pricing, new plan types, and advertising) also ramping, Patterson views Spotify as supporting a mid- to high-teens growth profile with improving operating margins.

Spotify’s app download trends accelerated from October 2023 through February 2024 (+22% year over year). 

While March is tracking slightly decelerating (+18% year over year), the trendline as encouraging, the analyst highlights.

Google Search trends moderated on a year over year basis both in the U.S. and globally. 

Per the analyst, advertiser diversity on podcasts is increasing. Using Spotify’s The Bill Simmons Show as a proxy, the analyst underscored eight different advertisers per podcast, with an increased diversity of advertisers. 

While digital audio advertising is still in the early innings, the analyst highlighted broader advertiser adoption and The Trade Desk’s bullishness on the audio advertising space.

According to the analyst, investors still doubt whether revenue growth can sustain the mid-teens post-price increase and whether gross margin can continue expanding.

On revenue, pricing (both through new plans and price increases) and advertising can support revenue growth, Patterson adds. 

On gross margin, the analyst sees podcast cost savings and leverage from monetization levers driving a path to 29% gross margin in 2025.

Price Action: SPOT shares are trading higher by 2.01% to $265.44 on the last check Thursday. 

Photo by esthermm on Shutterstock