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Spotify Upgraded to Outperform by Wolfe Research
Investing in Spotify
Wolfe Research analyst Zach Morrissey has upgraded Spotify to outperform from peer perform, indicating a price target of $190 in a note to clients. This price target suggests that the stock may surge up to 21.2% after Tuesday's close. Morrissey believes that Spotify's performance is highly scalable and possesses a vast product capability in the music streaming industry, which improves its market dominance.
Secular Tailwinds and Business Growth Potential
According to Morrissey, Spotify's growth potential in both emerging and developed markets has yet to reach its full potential, which bodes well for the music streaming platform's financial performance. He also stated that Spotify may expand its gross and operating margins and experience a top-line growth due to the rise in advertising revenue and price increases. Moreover, the company's data on active users' minutes and subscriptions may indicate that the market saturation is not yet in sight.
The Impact of the Pandemic and Potential Obstacles
Due to the pandemic-related changes on digital consumer behavior, Morrissey stated that Spotify has been able to drive active users' through international expansions and core market growth. Also, Spotify should perform better than its peers in a weakened macro environment. Morrissey did warn of potential challenges that include the lack of valuation support and issues with drop-offs in subscriptions due to saturation or price increases.
Spotify's upgrade to outperform by Wolfe Research indicates that the company's business potential is expected to grow, which may drive its financial performance positively. Morrissey identified several factors that may propel the stock, including the company's lead in the music streaming industry and potential expansion into new markets.
The news of Spotify's upgrade to outperform is a clear indicator of the strong growth potential of the music streaming platform, particularly in emerging and developed markets. For a new business following Spotify's model in the music streaming industry, this trend offers opportunities for expansion in untapped markets and the potential to scale the business beyond current expectations. However, it is crucial to recognize that obstacles may hinder business growth potential, particularly in a weakened macro environment. Thus, businesses must balance their expansion goals with market saturation and price increases to compete effectively. As mentioned earlier, valuation support may also be lacking, and businesses must navigate this challenge through pricing strategies that align with customers' willingness to pay. It is critical to note that the pandemic's impact on digital consumer behavior has been a game-changer for businesses across industries, and new companies must be agile enough to adapt to similar changes in the future. Overall, the growth potential of Spotify is an encouraging sign for businesses looking to venture into the music streaming industry, but careful navigation is necessary to overcome the potential obstacles.
