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Spotify Is ‘One of the Best Deals’: Stifel

Investopedia logo Investopedia 4/6/2018 Shoshanna Delventhal
Spotify Is ‘One of the Best Deals’: Stifel© John Smith Spotify Is ‘One of the Best Deals’: Stifel

Shares of Spotify Technology S.A. (SPOT) continue to rise on Friday following a bullish note from a team of analyst on the Street that view the on-demand music streaming leader as among the highest value-per-dollar internet services. 

Analysts at Stifel initiated coverage on SPOT, which just hit the public market trading on the New York Stock Exchange (NYSE) this Tuesday in an unusual direct listing. Stifel's John Egbert issued a buy rating and a 12-month price target of $180, implying a 23% upside from Friday morning as shares trade up 1.5% at $146.16.  (See also: How Spotify CEO Daniel Ek Got Rich.)

“We think Spotify's market leadership, emerging markets exposure, favorable user demographics, the secular shift to mobile and digital services, as well as the near-universal appreciation of music, will support Spotify's growth for years to come," wrote the Stifel analyst. He views the platform's all-you-can-listen-to music streaming subscription, which goes for $9.99 per month, as one of the most valuable internet service offerings out there, right behind Amazon.com Inc.'s (AMZN) "all-you-can-order (and more) Prime membership," which goes for $99 a year, and Netflix Inc.'s (NFLX) all-you-can-watch subscription for $10.99 per month.

A Return to 1999's Peaks by 2026?

As a result of its value proposition, Stifel expects the Swedish company to solidify its position at the head of its industry, growing its monthly active users to 300 million by 2021, including 159 million paying subscribers. Egbert highlighted the company's "technology-driven" personalization as offering it a stronger hedge against a growing number of competitors. 

Spotify faces off against tech titans including Apple Inc. (AAPL), which has been doubling down on its software and services segment in order to combat lengthening product replacement cycles and waning smartphone demand, as well as e-commerce and cloud behemoth Amazon.com Inc. (AMZN), which just revealed that its music streaming subscription user base has doubled over six months to reach tens of millions of listeners. 

Stifel sees Spotify on a "visible path to profitability" as its long-term margins improve to upward of 11% by 2024. Spotify's disruption of the music space has been viewed as putting into motion a resurrection of the industry. 

"Though several other streaming music services are contributing to the industry's return to growth, by our estimates Spotify's growth itself could return the global music industry to revenue above its 1999 peaks by 2026," wrote Egbert. (See also: Spotify Stock Offers ‘Netflix-Like Promise’.)

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