Stock price target revised
Evercore analyst Kevin Rippey downgraded Spotify (SPOT) stock from “in-line” to “underperform” on June 24, 2019. Rippey claimed that it would be difficult for Spotify to improve gross margins in the coming quarters and the company would miss analyst earnings estimates.
Rippey also stated that though Spotify leads the market in terms of paid subscribers, the growing competition in the music streaming space will negatively impact its leverage with music labels.
Evercore reduced Spotify’s 12-month price target from $125 to $110. Spotify is currently trading at $150.04, which means Rippey expects the stock to decline by 26.7% in the next 12 months.
Stock recovered on June 24
Spotify stock fell from $148.31 to $142.50 in the early trading hours on June 24 following this downgrade. However, the stock recovered over 5.0% from its low for the day.
Spotify stock has gained 19.5% this month. The recent rally has driven the stock higher and it is now up 32.2% year-to-date. Spotify stock is currently trading 45.3% above its 52-week low of $103.29 and 24.6% below its 52-week high of $198.99.
Spotify stock was publicly listed on April 3, 2018, and it closed trading on $149.01 per share that day. The stock then fell 30.7% by the end of December. The broader market rally coupled with investor optimism has driven the stock higher in the first six months of 2019.
If Spotify fails to meet Wall Street estimates, the stock will lose significant market value and wipe out the recent gains. Are investors over-optimistic about Spotify’s profit margins? Will Spotify beat Wall Street estimates in the next three quarters?