Spotify shares are up 54% YTD. Why is it not too late to buy them?

Analyst Oppenheimer upgraded shares of streaming music platform Spotify from "neutral" to "outperform" and now expects them to rise by almost 20% more. He believes Spotify will overtake major competitors like Meta, YouTube, Amazon Prime and Netflix in audience growth by driving users away from traditional radio. Oppenheimer also named the expected launch of a new premium subscription and monetization of the free plan as possible growth drivers.

Oppenheimer analyst Jason Helfstein upgraded Spotify's stock from Perform (on par with the market) to Outperform (above market) and set a target price of $800, CNBC reports. Oppenheimer's new target implies that the company's securities could rise another nearly 19% from the closing price on July 23. Helfstein believes Spotify has the greatest potential for global audience growth among the major Internet companies - overtaking Meta, YouTube, Amazon Prime and Netflix. "We believe Spotify will be the beneficiary of a sustained trend toward digital audio, and the company's subscription model is actually more effective than commonly believed," the Oppenheimer analyst said.

Among the key drivers of Spotify's growth, the analyst notes that the company has the longest monthly active audience (MAU) growth potential among major Internet companies. According to him, the music platform is able to attract the majority of listeners who refuse traditional radio (in the fourth quarter Spotify reported 675 million MAUs against the expected 664.3 million). It is also expected to launch a premium Superfan subscription with higher pricing, which should drive revenue growth. In addition, Spotify is likely to start monetizing its free or minimum subscription more aggressively, which could open up a multi-billion dollar revenue stream for the company. Oppenheimer also noted that Spotify is already benefiting from improved conversion from the free to paid version in iOS following a recent court ruling against Apple that simplified the mechanisms for switching from the Spotify app directly to paying for subscriptions in the App Store.

Oppenheimer's analyst believes that Spotify is capable of growing revenue through both new users and existing users. He forecasts a compound annual revenue growth rate of 16% through 2030, driven by a 9% growth in the subscriber base and a 21% increase in average revenue per user (ARPU).

Spotify shares jumped nearly 4% to $699.5 in trading on July 24. Since the beginning of the year, the company's market value has grown by 54%. By comparison, the main U.S. stock index S&P 500 has added about 8%.  

A day earlier, on July 23, Deutsche Bank analyst raised his target price on Spotify shares from $700 to $775 and reiterated a "buy" recommendation. His new target suggests the company's stock is up another 15% from its last closing price on July 23.

More than 60% of analysts who gave ratings to Spotify's stock advise investors to buy it (Buy and Overweight ratings). Another 30% are neutral with a Hold rating, while the remaining 10% suggest selling. Still, the Wall Street consensus target price of $646 for Spotify shares suggests they'll fall another roughly 4% from their July 23 close.

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