Spotify Technology Rallies After Earnings: 'Ample Capacity For Capital Returns'

Shares of Spotify Technology SA SPOT were climbing Wednesday after the company reported upbeat third-quarter earnings.

Here are some key analyst takeaways.

• Macquarie Equity Research analyst Tim Nollen maintained an Outperform, while raising the price target higher from $395 to $500.
• Goldman Sachs analyst Eric Sheridan reiterated a Buy, while lifting the price target from $430 to $490.
• Bank of America Securities analyst Jessica Reif Ehrlich reaffirmed a Buy rating, while raising the price target from $430 to $515.

Check out other analyst stock ratings.

Macquarie Equity Research: Spotify Technology's quarterly revenue grew by 19% but marginally missed expectations, Nollen said in a note. Premium subscribers of 252 million and MAUs (monthly active users) of 640 million were both ahead, he added.

The company's gross margins expanded to 31.1%, from 26.3% in the year-ago quarter, driven by "improved podcasting profitability, Marketplace strength, and shifting product mix to audiobooks vs music," the analyst stated. Management's revenue growth guidance of 14% for the fourth quarter "is hindered by lapping price increases and FX headwinds," he further wrote.

Nollen raised the operating income estimate for 2024 from 1.2 billion euros ($1.28 billion) to 1.4 billion euros , which is more than three times the consensus coming into the year.

Goldman Sachs: Spotify Technology's forward commentary reflected "strength in premium partially offset by advertising softness," Sheridan said. The company's third-quarter results and fourth-quarter guidance reflect "healthy user trajectory" on the back of "platform/product enhancements aided by marketing spend," he added.

Spotify Technology's operating income grew to a record high, "reflecting gross margin expansion and disciplined cost measures," the analyst wrote. Management expects the trends to continue into the new year and their fourth-quarter guidance reflects "healthy exit rates for the overall business,” he further stated.

BofA Securities: Spotify's third-quarter results were "very strong," with gross margin, operating income and free cash flows "well above our forecast," although revenue was modestly below, Ehrlich said. The third-quarter gross margin and fourth-quarter guidance implies that the company has reached its "intermediate gross margin target of 30%" earlier than expected, she added.

"Premium subscribers and MAU growth were also healthy in the quarter, driven by growth in all regions and aided by a recalibration of marketing activities and top of funnel health," the analyst wrote. Given its balance sheet and free cash flow generation, Spotify Technology seems to have "ample capacity for capital returns in the near future," she further stated.

Price Action: Shares of Spotify had jumped 7.64% to $451.49 at the time of publication on Wednesday.

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