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Music streaming platform Spotify saw its stock jump more than 1% yesterday following an analyst upgrade from UBS. Citing the company’s ongoing work to optimize operations and control costs, the investment bank raised its rating on Spotify to “Buy” from “Neutral.”
UBS analysts were particularly impressed with management’s commitment to efficiency initiatives, which they believe will lead to steadily expanding gross margins and bottom-line results over the coming years. Strong subscriber growth, regular price hikes, and growing ad sales were also called out as positives for Spotify’s financial trajectory.
A major factor in the improved outlook is progress in the lucrative podcast market. Analysts expect Spotify to reach the break-even point for its podcast segment in the first half of 2024, providing a boost to profitability in ad-supported areas of the business. Continued optimization of podcasting combined with benefits from new record label deals make 2025 an especially promising year by UBS’s estimates.
Where profitability once held Spotify’s valuation back, analysts now see reasons for greater investor confidence and support. With operating income firmly in the black and growth on par with peers, UBS upped its price target significantly to $274 per share, reflecting its brighter view on Spotify’s risk-reward outlook. The company’s focus on operating efficiencies appears to be paying off both strategically and in how the story is received on Wall Street.
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