On April 28, Spotify stock fell over 12 percent after the company reported its first-quarter earnings results. Investors were disappointed because the music streaming giant missed user growth estimates in the quarter. Spotify also reduced its 2021 user growth outlook. What’s the forecast for SPOT stock in 2021? Is it a good buy or should investors stay away?
In the first quarter, Spotify’s sales jumped 16 percent YoY to $2.6 billion. The company’s free cash flow improved to about $50 million compared to negative $25 million in the first quarter of 2020. This is mainly because the company’s premium subscriptions rose 21 percent YoY to 158 million.
What happened to Spotify stock after its Q1 earnings?
Spotify stock tumbled 12 percent after the streaming music and podcast company reported its first-quarter earnings results. The company’s MAUs (monthly active users) rose 24 percent YoY to 356 million. However, Spotify missed Wall Street’s estimate for MAUs of 360 million. This is mainly because Spotify faces competition from Amazon and Apple. Spotify stock is up 1.7 percent in the pre-market trading session on April 29.
Spotify’s stock news
Spotify has lowered its 2021 outlook for MAUs to between 402 million and 422 million—down from a previous estimate of 407 million–427 million. The lower growth outlook comes despite Spotify’s significant content investments. In May 2020, the company paid $100 million to lure famous podcast host Joe Rogan to sign an exclusive contract.
Spotify’s premium subscribers could reach 172 million–184 million for 2021. The company’s gross margin could grow to 24 percent–26 percent.
Spotify’s stock forecast
According to Market Beat, analysts' average target price is $295.57 for Spotify stock, which is 15.1 percent above its current price. Among the 31 analysts tracking Spotify, 14 recommend a buy, 13 recommend a hold, and four recommend a sell. Their highest target price of $425 is 65.5 percent above the stock's current price, while their lowest target price of $130 is 49.4 percent below.
After Spotify’s first-quarter earnings results, Pivotal Research upgraded the stock to buy from hold and maintained its target price of $340. The analyst thinks that there's significant user growth left in music streaming globally and mentioned that Spotify is “clearly best in class.”
Spotify stock looks like a good buy.
At almost 34 percent below its 52-week high, Spotify stock gives investors exposure to the audio streaming space at a bargain. Spotify trades at an NTM EV-to-sales multiple of 3.96x, which looks attractively priced compared to other technology stocks. Tencent Music Entertainment Group (TME) and Sirius XM (SIRI) are trading at NTM EV-to-sales multiples of 5.3x and 4.0x, respectively.
Goldman Sachs picks music stocks
In 2021, Goldman Sachs thinks that music industry revenues will grow by 21 percent. Live events are expected to resume after the COVID-19 pandemic. The analyst thinks that the boom in streaming on Spotify and other audio platforms will continue. Goldman Sachs also thinks that Universal Music Group (UMG) and Sony will benefit from this rebound.
UMG is set to spin out from its owner Vivendi and plans to go public by the end of 2021. The analyst expects UMG’s revenues to grow at a CAGR of 10 percent between 2022 and 2025. Sony is also expected to benefit from the growth of audio streaming and new monetization opportunities through Sony Music.