Spotify Technology SA (NYSE:SPOT) Upgraded by Wells Fargo

Spotify Technology SA (NYSE:SPOT) stock fell 6.91% (As on June 16, 11:27:18 AM UTC-4, Source: Google Finance) though Wells Fargo analyst Steve Cahall upgraded the company to equal weight from underweight and increased his price target from $101 to $124 a share while the bank’s analysts “bake some healthy Show Me into our thinking.”. Wells Fargo said Spotify has room to improve its margins. The streaming music and podcast company “laid out a more profitable company than we have modeled historically,” Cahall wrote in a note to clients. “Given the strength in user and revenue growth we’re willing to concede some margin expansion opportunity, and give management time to execute.” At the same time, Cahall warned that now the company “must execute to keep us convinced or turn us more bullish.” “We’ve never doubted SPOT’s user and revenue growth, so we can be convinced of a stronger margin inflection,” Wells Fargo’s Cahall said. “We could turn more bullish if the margin story really starts to shine through. On the other hand, if margin progress feels like it’s being pushed out then we may have to revisit our long-term outlook.” Cahall noted the company’s belief in accomplishing an operating margin of ~10% in ~5 years, as gross margins in music and podcasting benefit from investments that drive engagement and monetization.

Meanwhile, during the first quarter of 2022, the company reported revenue of €2,661 million grew 24% Y/Y in Q1 (or 19% Y/Y on a constant currency basis) and was above the guidance. Premium Revenue grew 23% Y/Y to €2,379 million (or 18% Y/Y constant currency) while Ad-Supported Revenue grew 31% Y/Y to €282 million (or 22% Y/Y constant currency). Within Premium, average revenue per user (“ARPU”) of €4.38 in Q1 was up 6% Y/Y (or up 3% Y/Y constant currency). Total MAUs grew 19% Y/Y to 422 million in the quarter, up from 406 million last quarter.

During the quarter, the company had announced the acquisition of Podsights, a leading podcast advertising measurement service that helps advertisers better measure and scale their podcast advertising. Additionally, the company had acquired Chartable, a podcast analytics platform that enables publishers to know and grow their podcast audiences through promotional attribution and audience insight tools. At the end of Q1, the company had 4.0 million podcasts on the platform (up from 3.6 million at the end of Q4).

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