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Spotify Technology S.A. (NYSE: SPOT) has been given a very cautious research note from Credit Suisse. The firm started Spotify with an Underperform rating, and the $120 price target is more than 10% lower than the value today. That also means that Spotify shares would need to fall significantly before the research team at Credit Suisse would become positive, if they have a fair value lower than the current share price.

While Credit Suisse’s “underperform” rating methodology is not universally an outright “Sell” rating equivalent, as Credit Suisse’s ratings are relative to peers rather than versus absolute returns, the firm worries that the long-term estimates from analysts generally look high for the streaming music leader.

Despite an expected growth of revenues and subscribers, Credit Suisse also worries that the risks of ongoing battles over content costs merit concerns about Spotify’s profit potential.

Credit Suisse sees music subscriptions ahead weighing more toward households than individuals. Assuming that Spotify can maintain its current market share against tough competition from the likes of Apple, Amazon and YouTube, the firm does not think that half of all households will be paying for a music service of some kind by 2023. That view seems too aggressive when there is intense competition and many popular free music services.

Another large risk that the content cost trend is not Spotify’s friend. Credit Suisse’s Brian Russo said:

Content costs are variable and currently constitute nearly 70% of Spotify’s revenue, leading to a debate over margin and profit potential. We believe that the following factors bode poorly for Spotify, leaving our forecast below long-term consensus margins: (1) an ongoing regulatory shift toward protecting intellectual property rights and against the power of the largest tech platforms; and (2) our view that music content owners have leverage over distributors, as distributor competition is fierce and the product fairly commoditized.

Friday’s negative research view does note that Spotify trades at the lower end of its peer group at about three times current year expected revenues, but those long-term profit woes are going to weigh on the shares.

With its Underperform rating and downside of more than 10% from current levels, we have to consider that the average Outperform/Buy rating comes with 8% to 10% upside in the current market for Dow Jones industrial average and S&P 500 companies. For more speculative companies, the upside for the risk usually has to be 15% and can be quite more, meaning Spotify might have to go down closer to $100 before Credit Suisse thinks its valuation would merit an Outperform rating.

Spotify shares were last seen trading down 0.9% at $136.36 on Friday morning, in a 52-week range of $103.29 to $198.99. Its consensus target price was $166.19.

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