Spotify stock surges after KeyBanc says it's time to buy

MW Spotify stock surges after KeyBanc says it's time to buy

Tomi Kilgore

Analyst Justin Patterson sees evidence suggesting Spotify's business is in a stronger position

Shares of Spotify Technology SA surged Tuesday, after KeyBanc Capital analyst Justin Patterson said it's time to buy into the digital music service, citing more evidence to suggest its business is in a stronger position and "compelling" valuation.

Patterson raised his rating to overweight, after being at sector weight for the past year. He established a stock price target of $340, which implies a 36.5% gain off Friday's closing price of $249.04.

The stock $(SPOT)$ rallied 3.9% in premarket trading, putting it on track to open at a two-month high. Since closing at a 14-month low of $205.08 on Aug. 19, the stock has soared 21.4% through Friday.

Patterson said he didn't recommend buying Spotify's stock over the past year because of concerns over consumer price elasticity, competition and expectations around podcast returns. Since then, however, industry dynamics appear favorable for several reasons:

Patterson said he also believes Spotify's subscribers are valued at about 25% that of a Sirius XM Holdings Inc. (SIRI) subscriber. And while he believes some discount is warranted, investors are undervaluing Spotify's progress with price increases.

"When coupled with favorable app trends and a more solid competitive position, we believe Street 2022-2023 revenue and gross profit forecasts appear too conservative," Patterson wrote in a note to clients. "In our view, this makes risk/reward in [Spotify] compelling."

Spotify's stock has tumbled 20.9% year to date through Friday, while Sirius XM shares have slipped 0.6% and the S&P 500 index rallied 20.8%.

-Tomi Kilgore

$(END)$ Dow Jones Newswires

September 07, 2021 07:50 ET (11:50 GMT)

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