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Spotify Stock: Analysts are Downgrading Following a Recent Rally

spotify stock

Spotify (NYSE: SPOT) stock price bounced significantly after hitting 52-weeks low of $110 three months ago. The latest SPOT share price rally is backed by stronger than expected third-quarter results. In addition, the company expects to accelerate the trend in the coming quarters. Its CEO had predicted a share price rally after reporting massive growth in the third quarter.

Spotify stock price is currently trading around an all-time high of $160. Its shares grew 31% in the past three months. However, analysts are seeing the share price rally as a selling opportunity. They believe shares have reached the fair value estimates and it’s time to take profits.

SPOT Spotify Technology S.A. daily Stock Chart

Analysts Downgraded Spotify Stock

Bernstein provided Underperform ratings with the price target of $127, which is down from its current price of $150. In addition, Evercore has also downgraded the stock to Underperform with the price target of $115.

The firm says, “risk/reward has tilted back in favor of rewarding shorts.” Although the firm predicts double-digit revenue and subscriber growth, they are not fully optimistic about positive GAAP earnings.

Financial are Supporting Bullish Trend

The company has reported strong third-quarter results. Its revenue of €1,731 million rose 28% year over year in the third quarter. It reported third-quarter premium subscribers of 113M, representing 30% growth from the year-ago period. The premium subscribers were up from the consensus forecast for 111.2M. Its total MAUs jumped by 30% Y/Y to 248 million, up significantly from the high end of its previous guidance.

In addition, its gross margin increased 20 basis points to 25.5%. The company has generated earnings per share of €0.36, up from the consensus estimate by €0.65. Its free cash flows also remained positive for the eighth quarter in a row.

Spotify management expects fourth-quarter total MAUs of 255M-270M while total premium subs of 120M-125M. On the whole, the recent share price rally is presenting a profit-taking opportunity for the short-term value investors.

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Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.