Spotify
START - $513 | FINISH - $615
- HORIZON: 3 months (Short-Term)
- FROM: 12 March 2025 | UNTIL: 12 June 2025
- MANAGEMENT ASSESSMENT: 20% growth
- RECOMMENDATION: BUY
TRADING PLAN
● Entry: Enter at or near $512.56 per share.
● Stop Loss: Set the stop loss at $440 to manage potential downside risk.
● Target: $615 by the end of the investment horizon, reflecting an expected 20% upside from the current price.
WHY THESE SHARES HAVE POTENTIAL FOR PROFIT
● Strong Profitability Turnaround: Spotify achieved its first full year of profitability in 2024, after years of operating losses. The company reported an operating profit of €1.4 billion and a net income of €1.1 billion, reflecting a successful shift towards financial sustainability. Free cash flow surged to €2.3 billion, nearly quadrupling from 2023, showcasing improved cost efficiency and disciplined financial management.
● Subscriber Growth & Pricing Power: Spotify’s premium subscriber base continues to expand, surpassing 600 million monthly active users in Q4 2024, driven by strong demand for its music and podcast offerings. The company has successfully raised subscription prices across multiple regions, demonstrating strong brand loyalty and pricing power. Emerging markets present significant growth opportunities, as music streaming penetration remains relatively low compared to video streaming services. With a growing user base and the ability to increase prices without major subscriber losses, Spotify is well-positioned to drive sustained revenue growth in the coming years.
● Diversified Business Model: Spotify is leveraging AI-driven innovations to enhance user engagement and create new monetisation opportunities. Features like AI-generated playlists, AI-powered DJ, and personalised music recommendations are improving the listening experience, and increasing user retention. The company is also expanding revenue streams beyond music subscriptions, including podcast advertising, audiobooks, and premium-tier offerings with exclusive features.
INDICATORS
The share price has pulled back from its all-time high of $652.63 and is now trading around the $500 region. Momentum indicators are in oversold territory, signalling a potential reversal as selling pressure eases. Additionally, the stock remains above the 200-day simple moving average (SMA), indicating that bulls still control the overall trend and suggesting the potential for a renewed upward move.
RISKS
● Overvaluation Risk: Spotify’s current stock price is trading above its fair value estimate of $450, indicating that much of its projected growth may already be priced in. Analysts warn that the recent rally could be overextended, raising the risk of a potential pullback or price correction as market sentiment shifts.
● Slower Subscriber Growth: Spotify has surpassed 600 million monthly active users (MAUs), but as the market matures, subscriber growth may begin to slow. While emerging markets present expansion opportunities, the prevalence of lower-priced subscription plans in these regions could put pressure on average revenue per user (ARPU) and limit overall revenue growth.
● Competition from Big Tech: Spotify faces intense competition from Apple Music, Amazon Music, and YouTube Music, all backed by tech giants with large financial resources. These competitors bundle music streaming with other services, such as cloud storage and video streaming, making it harder for Spotify to differentiate itself and retain users in an increasingly competitive market.
Disclaimer:
*Any opinions, views, analysis or other information provided in this article is provided by BCS Markets SA trading as BROKSTOCK as general market commentary and should not be viewed as advice according to the FAIS Act of 2002. BCS Markets SA does not warrant the correctness, accuracy, timeliness, reliability or completeness of any information provided by third parties. You must rely upon your judgement in all aspects of your investment decisions and all decisions are made at your own risk. BCS Markets SA and any of its employees shall not be responsible for and will not accept any liability for any direct or indirect loss including without limitation any loss of profit which may arise directly or indirectly from use of the market commentary. The content contained within the article is subject to change at any time without notice. BCS Markets SA is an authorised financial services provider FSP No. 51404.
** This article was prepared by BROKSTOCK analyst Maboko Seabi
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