Why Analysts Are Getting Aboard the Spotify Train

Jon C. Ogg

Spotify Technology S.A. (NYSE: SPOT) has challenged the traditional model for initial public offerings. Because it had no underwriters and did not rely on any direct market support from large brokerage houses, the music subscription leader is able to receive any sort of analyst coverage that firms want to offer and without any timing Spotify or quiet period restrictions.

Spotify shares have been quite volatile in the limited number of trading days since the IPO. With a 4% gain to almost $150 in early Thursday trading, it has seen a post-IPO trading range of $135.51 to $169.00.

There also have been numerous reports about a reference price of $132, but that was during the peak of the market sell-off this week. This was as Morgan Stanley, which was the lead advisor for Spotify, gave the last reference price in the secondary market that traders were going off as $132.

24/7 Wall St. has tracked numerous analyst calls going into and shortly after the initial public offering. These have been highlighted as follows.

Stifel started Spotify with a Buy rating and assigned a $180 price target, citing a visible path to profitability.

Canaccord Genuity started it with a Buy rating and assigned a $200 price target. It said that Spotify has a market leadership position that will bring growth for many years. The firm sees it having 55% of global subscribers by 2025, versus 40% to 45% currently.

Gabelli started Spotify with a Hold rating on April 4, and its price target was only $130. The firm had questioned the liquidity keeping buyers at bay and that Apple could compete much stronger.

On April 3, Guggenheim issued a new Buy rating with a $175 price target.

Atlantic Securities issued an Overweight rating on Spotify ahead of the IPO.

MKM Partners started the stock around its IPO debut with a Buy rating and a $200 price target. The firm did admit that price discovery in the shares could take some time to settle out due to the manner in which it priced.

Back on March 28, RBC Capital Markets began coverage of Spotify with an Outperform rating and a $220 price target. The firm saw its opportunity as huge with music streaming and a large total addressable market of about $125 billion. RBC also called it the leader in the space, with 71 million paid subscribers and 92 million ad-supported users. The analyst also sees its business model inflecting upward and gaining more market share ahead.

Spotify shares closed down 3.2% at $144.22 on Wednesday and the shares were indicated up 2.5% at $148.55 in Thursday’s premarket. After about 40 minutes of trading, the stock was at $150 mark on almost 2 million shares.