Streaming music leader Spotify has been a standout performer among music industry stocks in 2024. And Spotify stock has room to run higher this year as it shows improved profitability, a Wall Street analyst says.
"Spotify is gaining share and has, in our view, uniquely robust pricing power and an underappreciated earnings opportunity," Morgan Stanley analyst Benjamin Swinburne said in a client note Thursday. "Spotify's position of strength in the marketplace is built primarily on music. Audiobooks is an exciting opportunity for Spotify, but it's the earnings cherry on top of the music pie."
Swinburne reiterated his overweight, or buy, rating on Spotify stock with a price target of 370.
On the stock market today, Spotify stock slid 2.6% to close at 296.78. The pullback brings SPOT stock near its 50-day moving average line. So far this year, Spotify stock has stayed above that key support level.
Meanwhile, Spotify stock has formed a flat base with a buy point of 319.30, according to IBD MarketSurge charts.
Swinburne is bullish on Spotify for its continued user growth and "the opportunity to improve monetization largely through price increases."
Spotify's recent foray into audiobooks shows that it can layer on incremental services to its business, Swinburne said.
Spotify Stock Is On IBD Tech Leaders List
On April 23, Spotify beat estimates for sales and earnings in the first quarter. It added 3 million premium subscribers, in line with views, ending the period with 239 million total paying subscribers worldwide.
The audio entertainment service earned the equivalent of $1.05 a share on sales of $3.95 billion in the March quarter. Spotify reports financial results in euros. Analysts polled by FactSet had predicted Spotify would earn 67 cents a share on sales of $3.85 billion. In the year-earlier period, Spotify lost $1.27 a share on sales of $3.34 billion.
Spotify's gross profit margin of 27.6% in the first quarter also was better than expectations. The company's gross margins should improve through the rest of the year thanks to advertising, podcasting and marketplace businesses, he said.
Swinburne sees Spotify's gross margin reaching 28.9% in the fourth quarter.
Spotify stock ranks second out of 21 stocks in IBD's Computer Software-Education and Media industry group. It has an IBD Composite Rating of 87 out of 99, according to IBD Stock Checkup.
Spotify stock is on the IBD Tech Leaders list.
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