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Should Investors Buy the Dip in Spotify Stock?

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On Monday, Spotify (NYSE:SPOT) stock lost 4.1% and closed at $260.26 with a market cap of $48.8 billion. The stock fell after Bernstein analyst Todd Juenger downgraded it to “underperform” from “market perform.” However, the analyst increased its target price on the stock from $134 to $172. 

According to a report from TheFly, “The market has added $20B of value to Spotify since the Joe Rogan podcast announcement…However, the analyst continue to believe it is unlikely that Spotify will generate much earnings from podcasts. He sees 37% potential downside in Spotify shares at current levels.” 

On the flip side, J.P. Morgan analyst Doug Anmuth increased its target price on Spotify stock from $185 to $305 and maintained an “overweight” rating. According to a report from TheFly, “The stock is up sharply since the Joe Rogan podcast deal in mid-May, but there is further upside as podcasts help Spotify drive ad revenue on owned and licensed content, premium subscriptions and gross margins, Anmuth tells investors in a research note. 

The analyst says the strong secular shift in streaming music, combined with Spotify’s emerging podcast traction, gives him more confidence in upside to estimates over the next few years.” 

Analysts’ recommendations and target price

Among the 27 analysts following Spotify stock, 16 recommend a “buy,” six recommend a “hold,” and five recommend a “sell.” Analysts have an average 12-month target price of $214.65 on Spotify. The target price implies a return of -17.5% based on the closing price of $260.26 on Monday. The consensus target price for the stock has risen from $170.00 in June—a growth of 26.3%.

Growth projections for Spotify

In the first quarter of 2020, Spotify posted an adjusted EPS of -$0.20 compared to -$0.79 in the same quarter a year ago. The adjusted EPS beat analysts’ consensus estimate of -$0.49. Spotify generated sales of $1.85 billion—a growth of 22.3% from the first quarter of 2019. The company missed analysts’ consensus sales expectation of $1.86 billion.

Wall Street analysts expect Spotify to report an adjusted EPS of -$0.33 on total revenue of $1.93 billion in the second quarter of 2020. Analysts also expect the company’s revenues to rise by 17.9% YoY (year-over-year) in 2020 to $7.98 billion. The sales could rise by 21.6% YoY in 2021 to $9.70 billion. The adjusted EPS would rise from -$1.03 in 2019 to -$1.00 in 2020. Analysts also expect an adjusted EPS of -$0.19 in 2021. 

Stock performance

Spotify’s stock price has fallen by 1.8% in the trailing five-day period, while it has risen by 77.9% in the trailing 12-month period. The stock is trading 5.1% below its 52-week high of $274.30 on July 2. The stock was also trading 138.4% above its 52-week low of $109.18 on March 16, 2020. On a year-to-date basis, the stock has risen by 74.0% as of Monday.

Based on the closing price on Monday, Spotify stock was trading 15.1% above its 20-day moving average of $226.18. The stock is also trading 37.4% above its 50-day moving average of $189.39 and 61.0% above its 100-day moving average of $161.68. With a 14-day relative strength index score of 71, Spotify stock is overbought.

The stock has a middle Bollinger Band level of $226.18, while its lower Bollinger Band level is $158.41. On Monday, the stock closed near its upper Bollinger Band level of $293.95, which also suggests that it’s overbought.

Spotify stock fell 1.2% in pre-market trading at 7:25 AM ET today. At the same time, the S&P 500 futures fell 0.64%, while the Dow futures fell 0.78%.

To learn more, read Why Jim Cramer Thinks Spotify Stock Looks Like the Next Netflix, Spotify’s New Podcast Deals Should Boost Revenues, and Spotify Keeps Focusing on Podcasts with Joe Rogan Deal.

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