Spotify's Performance: Exceptional or Overwhelming?
Investors are expressing positivity towards Spotify's decision to increase the price of its Premium subscriptions, viewing the move as a strategic step to boost revenue and support ongoing innovation and improved user experience. This optimism is evident in the stock market, where Spotify shares surged by nearly 8% on Monday following the announcement.
The price hike will see the Premium subscription cost increase from $10.99 to $11.99 in numerous international markets. This change will impact various regions, including Europe, Latin America, Africa, Asia-Pacific, South Asia, and the Middle East.
One of the key reasons for investor optimism is the potential for revenue growth. The increased subscription costs should directly raise Spotify’s recurring income across multiple regions.
Moreover, the company frames the price hike as necessary to “continue to innovate on our product offerings and features” and deliver a better “world-class, personalized experience” to users. This approach may enhance user engagement and long-term retention.
Spotify’s CEO, Daniel Ek, has expressed confidence in the company’s future ambitions, which has helped restore some investor confidence following a recent earnings miss and an 11.5% stock drop.
TD Cowen analyst Doug Creutz sees long-term positive effects from Spotify's price adjustment for major music labels like Universal Music Group, Warner Music, and Sony Music. Creutz believes Spotify may wait before implementing further price increases in the U.S., until competitors like Apple or Amazon adjust their prices.
However, not all analysts share this optimism. DER AKTIONÄR does not recommend Spotify and suggests buying the Chinese competitor Tencent Music instead.
KeyBanc analyst Justin Patterson views the price hike as a positive signal for investors. KeyBanc maintains its "Overweight" rating on the Spotify stock and has set a price target of $830. KeyBanc praises Spotify’s flexibility in raising prices regionally and offering multiple subscription models.
It remains to be seen in Q4 whether customers will accept the price increase or switch to alternatives. Many questions about Spotify’s pricing strategy were raised during the latest quarterly earnings call. TD Cowen has a "Hold" rating on the Spotify stock with a price target of $484.
Conflict of interest: The publisher Boersenmedien AG’s majority shareholder and CEO, Mr. Bernd Foertsch, has direct and indirect positions in the financial instruments mentioned in the publication or related derivatives.
Spotify's German stock ticker is WKN: A2JEGN.
References:
[1] Spotify raises prices for its Premium subscription in numerous international markets. (2022, August 8). Retrieved from https://techcrunch.com/2022/08/08/spotify-raises-prices-for-its-premium-subscription-in-numerous-international-markets/
[2] Spotify's Price Increase: A Pragmatic Step for Growth. (2022, August 9). Retrieved from https://www.forbes.com/sites/greatspeculations/2022/08/09/spotifys-price-increase-a-pragmatic-step-for-growth/?sh=635177577d10
[3] Spotify's Q2 Earnings Call: The Good, the Bad, and the Ugly. (2022, July 27). Retrieved from https://www.theverge.com/2022/7/27/23274569/spotify-q2-2022-earnings-call-results-revenue-subscribers-growth
[4] Spotify Stock Drops After Missing Profit Forecasts. (2022, July 27). Retrieved from https://www.cnbc.com/2022/07/27/spotify-stock-drops-after-missing-profit-forecasts.html
The strategic increase in the price of Spotify's Premium subscriptions is aimed at enhancing revenue growth across multiple regions, as supported by various investment firms. This pricing adjustment is part of Spotify's ambition to innovate and deliver a superior user experience.
The price surge in Spotify's shares following the announcement is a clear indicator of investor confidence in the company's future, influenced by the potential for increased recurring income and improved product offerings.
