Spotify's Mobile App Momentum and Margin Focus To Surge in Q3, Analyst Says

Truist analyst Matthew Thornton reiterated a Buy rating on Spotify Technology S.A. SPOT with a price target of $176.

 Mobile app download (MADs) momentum continued in 3Q. The analyst views the second half consensus as set very reasonably across MAUs (based on MADs data set), subscribers (based on funnel/conversion data set), revenue (FX a tailwind), gross margin, and operating income. 

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The re-rating reflects continued MAD momentum and focus on margins/monetization.

The analyst flagged churn/subscribers posting solid first half adds and 3Q price increase, gross margin (progress toward 30% target by ≤2027) given new deals with select Labels, operating income (progress toward >10% long-term), anything on a premium/HiFi tier, audiobooks ramp, ad business/market/trends, podcasts, impact of ongoing rollout of new UI, marketplace, and progress on change to DSP-Label payout structure.

Thornton projects Q3 revenue of €3.34 billion vs. consensus of €3.32 billion, Q4 revenue of €3.65 billion vs. consensus of €3.69 billion.

The analyst estimates FY23 revenue of €13.21 billion vs. consensus of €13.25 billion.

Price Action: SPOT shares traded higher by 1.96% at $156.57 on the last check Monday.