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Deutsche Bank Upgrades Spotify Stock to Buy
Spotify's Post-Earnings Selloff Creates Buying Opportunity
Deutsche Bank sees Spotify's recent post-earnings selloff as a buying opportunity for investors. The bank has upgraded the music streaming service from hold to buy, stating that the stock's price target of $180 implies a 25% upside from Tuesday's close. While Spotify reported weaker-than-expected second-quarter revenue and disappointing top-line guidance for the third quarter, analyst Benjamin Black believes that these results are primarily due to currency fluctuations rather than fundamental issues within the company. Black believes that the recent selloff is overdone, presenting an attractive entry point for investors.
Positive Indicators and Catalysts for Growth
According to Benjamin Black, there are several positive indicators and catalysts that support a bullish outlook for Spotify. He notes that top-of-funnel metrics continue to outpace expectations, indicating a strong user base. Additionally, the company's 3Q gross margin guide came in above consensus, which is a positive sign. Black also points out that Spotify's operating losses have narrowed, demonstrating improved financial performance. Furthermore, he highlights the company's higher subscription cost structure, investments in podcasts, and stronger ad spending as factors that will drive future growth. He suggests that lower per-stream guarantees on the ad-supported side and potentially higher marketplace commitments could boost gross margins starting from the fourth quarter onward.
Spotify's Performance and Potential
Despite the steep decline in Spotify's stock following the quarterly results announcement, the company's shares are still up over 77% year to date. This indicates strong overall performance and investor confidence in the music streaming service. With Deutsche Bank's upgrade to a buy rating, it signals that they expect Spotify's stock to rebound and continue its growth trajectory. The bank's positive outlook is based on the belief that the selloff was an overreaction to temporary currency fluctuations and that Spotify's underlying business fundamentals remain strong. Overall, the upgrade from Deutsche Bank should increase investor sentiment and potentially attract more buyers, supporting the stock's upward momentum.
Conclusion: Potential Impact on a New Business
The recent upgrade of Spotify's stock by Deutsche Bank presents an interesting opportunity for new businesses in the digital streaming industry. Despite the post-earnings selloff, the bank's confident outlook on Spotify's future growth suggests that the music streaming service remains a strong player in the market. This could have positive implications for new businesses entering the industry.
One key takeaway from Deutsche Bank's upgrade is the bullish outlook on Spotify's user base and top-of-funnel metrics. This indicates that there is still significant demand for music streaming services, presenting a favorable environment for new businesses attempting to enter the market. With Spotify's strong performance and investor confidence, it is clear that there is potential for growth and profitability in this space.
Furthermore, the bank's emphasis on Spotify's investments in podcasts and stronger ad spending signifies an evolving landscape within the industry. For new businesses looking to differentiate themselves, focusing on podcast content and leveraging advertising opportunities could be a strategic move to capture market share and attract users.
The upgrade also highlights the importance of financial performance and fundamentals. By demonstrating improved financials and narrowing operating losses, Spotify showcases the significance of sound business practices. This serves as a valuable lesson for new businesses to prioritize financial stability and operational efficiency to succeed in this competitive market.
Overall, Deutsche Bank's upgrade of Spotify's stock reinforces the promising nature of the digital streaming industry and the potential opportunities it offers for new businesses. By leveraging Spotify's success and understanding the factors driving its growth, aspiring businesses can position themselves for success in this evolving market.
Article First Published at: https://www.cnbc.com/2023/07/26/buy-spotify-shares-after-the-stocks-post-earnings-drop-deutsche-bank-says.html