Shares of Spotify Technology SA are down 2.6% in Monday morning trading after Guggenheim analyst Michael Morris downgraded the stock to sell from neutral. While he sees comparisons to Netflix Inc. , especially as Spotify dives deeper into original podcasts, Morris also worries that "the market is now pricing shares for blue-sky growth, which has made the risk-reward unattractive even as Spotify pursues attractive and achievable opportunities." He raised his price target to $223 from $170 in conjunction with the downgrade, a target change that he said was based on a 10% discount to his Netflix target valuation, blending 5 times 2024 estimates for net revenue and 19 times 2024 estimates for enterprise value to operating income before depreciation and amortization. "We expect investors to compare Spotify to Netflix in grounding valuation; however, we see the Netflix operating model as significantly more unique (global video product capability, >$80 billion to be invested in controlled video content over the next five years) and scalable (no variable label royalty payout), which is why we apply a discount for Spotify," Morris wrote. Spotify shares have more than doubled over the past three months as the S&P 500 has risen 18%. Read More...
Shares of Spotify Technology SA are down 2.6% in Monday morning trading after Guggenheim analyst Michael Morris downgraded the stock to sell from neutral. While he sees comparisons to Netflix Inc. , especially as Spotify dives deeper into original podcasts, Morris also worries that “the market is now pricing shares for blue-sky growth, which has made the risk-reward unattractive even as Spotify pursues attractive and achievable opportunities.” He raised his price target to $223 from $170 in conjunction with the downgrade, a target change that he said was based on a 10% discount to his Netflix target valuation, blending 5 times 2024 estimates for net revenue and 19 times 2024 estimates for enterprise value to operating income before depreciation and amortization. “We expect investors to compare Spotify to Netflix in grounding valuation; however, we see the Netflix operating model as significantly more unique (global video product capability, >$80 billion to be invested in controlled video content over the next five years) and scalable (no variable label royalty payout), which is why we apply a discount for Spotify,” Morris wrote. Spotify shares have more than doubled over the past three months as the S&P 500 has risen 18%.
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