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Spotify (NYSE:SPOT) shares have edged higher premarket Monday after the stock was lifted to Overweight at Wells Fargo and Atlantic Equities.
Wells Fargo analysts also raised the firm’s price target for Spotify shares to $180 per share from $121, stating that SPOT’s commitment to margin improvement is picking up pace.
“When we upgraded SPOT to Equal Weight it was predicated on management showing progress against margin targets. Opex is demonstrating leverage as OI losses improve, and we think SPOT will be break-even in 1Q24,” they wrote.
The analysts added that this is during an ad recession, so podcasting is “likely a bit behind.”
“We see margins and valuation as upward bound with margin delivery rerating SPOT. We’re ahead of Street on gross and op margins for ’23-’25 (e.g. ’24 OM/GM 28%/2% vs Street 27%/-0.4%),” they said.
Meanwhile, at Atlantic Equities, analysts raised the firm’s price target on Spotify to $160 from $110 per share.
They noted that the upgrade is “based on 1.5x forward 12m revenue, well below historical levels, and supported by DCF work.”
The analysts also believe investors will be “heartened” to see non-music initiatives finally drive margin expansion, and that industry fourth-quarter results show that “the ad market has now bottomed, driving improved confidence in estimates and multiple expansion.”
Spotify shares are up 2.7% in premarket trading.
