Evercore: Spotify's Risk-Reward Profile Makes Bull Thesis 'Difficult' To Justify

Heading into Spotify Technology SA SPOT's fourth-quarter earnings report Feb. 6, the streaming music company is "playing an uncertain tune" and investors are encouraged to "remain off the dance floor," according to Evercore ISI. 

The Analyst

Evercore ISI's Anthony DiClemente maintained an In-Line rating on Spotify with an unchanged $125 price target in a Jan. 9 note. 

The Thesis

Ongoing concerns surrounding competition, pricing power and content costs are likely to ease as Spotify approaches its Q4 print, DiClemente said in the note.

Third-party data from SensorTower suggests Spotify is seeing pressure from Apple Inc. AAPL Music and other rivals, the analyst said. If Spotify comes up short on metrics, the Street's current 2019 outlook will look "increasingly aggressive," as it calls for no slowdown in subscriber growth, he said. 

Spotify may have benefited in Q4 from a weaker euro, although any benefits may be countered by growth in lower-priced regions, DiClemente said. Family plans continue to be a drag on organic average revenue per user, he said. 

Despite a certain degree of caution heading into Spotify's print, the company should show growth levels that are sufficient to support the view that it retains a "leading position in a large and growing" in the music space, according to Evercore.

 Nevertheless, it is difficult to conclude ahead of an uncertain Q4 and full year that Spotify stock offers a compelling enough risk-reward profile for investors relative to its music and video streaming peers, in the sell-side firm's view. 

Price Action

Spotify shares were up 2.41 percent at $129.67 at the time of publication Tuesday. 

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