Goldman considers Spotify's potential exhausted and no longer advises buying the stock

Goldman Sachs believes that the growth potential of audio streaming giant Spotify's shares has already been largely exhausted. The investment bank declined to recommend buying its securities after their growth of more than 50% this year. Analyst Eric Sheridan praised Spotify for its plans to launch new premium subscriptions and cut costs, but noted that investors have already factored those changes into the current price.

Goldman Sachs changed its recommendation on Spotify shares from "buy" to "neutral," believing that the company has little room left for growth as investors have already priced in positive expectations, CNBC writes.

Meanwhile, the investment bank raised its target price to $770, which implies a 5.7% rise from current levels.

"Given the stock's performance over the past 12 Ma and the potential for further improvement in operating performance, we are downgrading the recommendation," Goldman Sachs analyst Eric Sheridan wrote.

Spotify's shares were down 5.1% in trading on September 30. Since the beginning of the year, they have grown by 55%.

Spotify is likely to introduce new premium pricing plans by 2030, which should support the company's profits amid continued growth in monthly active users, Sheridan said. The platform has also cut costs, including changing how it pays rights holders. However, the analyst emphasized that much of the cost-saving and revenue-enhancing measures have already been reflected in the share price.

"Spotify's current EV/NTM Gross Profit (market value of the company including debt to expected gross profit over the next 12 months - Oninvest) is about 18.5x, and its EV/NTM Gross Profit-to-Growth ratio (same market value to projected gross profit adjusted for its expected 12-month growth rate - Oninvest) is about 0.85x, according to the FactSet consensus forecast. Both values are notably above the all-time average since the company went public," Sheridan wrote.

"In our view, this valuation premium means that the stable revenue growth and margin improvement factors we expect have already been factored into the current price," he added.

The day before, on September 29, JPMorgan raised its target price on Spotify shares from $740 to $805, reiterating a "buy" recommendation (Overweight). Its estimate implies a nearly 11% growth in the stock.

Additionally, Argus initiated coverage of Spotify with a "buy" recommendation and $845 target price. Its target implies a 16% upside for the stock.

According to LSEG data cited by CNBC, a total of 28 analysts on Wall Street recommend buying Spotify stock, while 12 advise holding.

This article was AI-translated and verified by a human editor