Key Points
- Shares of Spotify have been trading red-hot in recent weeks.
- They still have a long way to go to undo 2022’s drop completely, but the momentum is all upward for now.
- Analyst comments are almost all bullish, and expectations are high for further gains in the near term.
- 5 stocks we like better than Spotify Technology
Despite suffering an 80% drop that only bottomed out a year ago, shares of Spotify Technology S.A. NYSE: SPOT have been undergoing something of a resurgence in the twelve months since. Like many other growth-focused tech companies, they were caught up in the tech implosion that followed the raising of rates by the Fed as they battled to control inflation. But having performed well throughout 2023, they pushed onto fresh highs in the final few weeks of the year, and that momentum has carried through to 2024.
With equities in general enjoying the return of risk-on sentiment, stocks like Spotify are seeing some of the best and biggest rallies ever. The music streaming giant has now gained over 200% in little more than a year, and as we round the corner into February, those gains aren’t going anywhere.
Bullish comments
Yesterday, we saw a fresh upgrade from the UBS team, who upped their rating on Spotify shares from Neutral to Buy while giving the stock a new price target of $274. Analyst Batya Levi is particularly bullish on the company’s ability to expand margins this year, which should result in a stronger bottom line for the foreseeable future. Levi also likes how disciplined Spotify has been when it comes to costs and controlling expenses and sees the stock having little problem continuing to gain from here.
UBS’s upgrade follows the bullish stance taken by Benchmark earlier this month, too. The team there reiterated their Buy rating on Spotify shares and gave them a price target of $260, which, even accounting for recent gains, is pointing to a further upside of around 20%. Needless to say, this would put Spotify at their highest level since 2021 and confirm they’re well on their way to reclaiming that year’s record high.
All things equal, it’s looking like the stock has the right mix of tailwinds and catalysts to get it there. As mentioned above, the prospect of a rate cut is sending investors rushing back into stocks, especially those still recovering from recent sell-offs like Spotify. There was also a solid update last week with regards to in-app purchasing of subscriptions and audiobooks on iPhones, which will boost sales and revenue.
And there’s also the ongoing restructuring, which is clearly paying dividends. Layoffs are never nice to see, but they do have an effect on a company’s cash position, and last month’s announcement from Spotify that they were planning to let go 17% of the workforce has clearly been viewed bullishly by Wall Street. It was the company’s third restructuring in less than a year, but as a result, management is now forecasting earnings to land around €3.18, an increase of more than 55% from the previous €2.05.
Getting involved
For those of us on the sidelines, this is all good stuff and exactly the kind of bullish momentum you want to see in a company. The same is true even from a fundamental perspective, with the last earnings report delivering a positive EPS reading for the first time since 2022.
It’s worth noting that some concerns do exist, especially after the recent rally. With a relative strength index (RSI) reading of 74, there might be some concerns that the stock is becoming a little overbought, but in the context of the broader market right now, this is a small risk.
The S&P 500 index has an RSI of 74 itself, so you could say Spotify is simply in line with the rest of the market and has a ton of room yet to run before it becomes stretched and due for a pullback. Look for shares to trade, break through $230, and stay there, as this would allow them to consolidate their gains from recent months while also giving them a solid foundation to work from for the next stage of the rally.
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