Analysts Are Upgrading These 5 Stocks

1. Spotify Technology S.A. (NYSE:SPOT)

Number of Hedge Fund Holders: 57

Shares of Spotify Technology S.A. (NYSE:SPOT) rose nearly two percent on Monday, February 6, after receiving an upgrade from Wells Fargo. Analyst Steven Cahall improved his ratings for the entertainment services provider from “Equal-Weight” to “Overweight,” citing Spotify’s commitment to margin expansion.

Cahall expects the company to beat gross profit margin estimates in the coming years. The analyst also raised his price target for Spotify Technology S.A. (NYSE:SPOT) from $121 per share to $180 per share. The upgrade came a week after Spotify Technology S.A. (NYSE:SPOT) announced better-than-expected user growth for the fourth quarter.

Separately, investment management firm Rowan Street Capital also talked about Spotify Technology S.A. (NYSE:SPOT) in its fourth-quarter 2022 investor letter. Here’s what the firm said:

“We have written a few times (Q2 ’20 Letter, Q2 ’21 Letter, Q2 ’22 Letter) about Spotify Technology S.A. (NYSE:SPOT) and it still remains our favorite idea that is currently extremely mispriced by the market, in our view.

Spotify is estimated to end 2022 with 479 million monthly subscribers. Management thinks that their subscribers can get 1 billion over the next 4-5 years. The paid subscribers are estimated to end 2022 at 202 million. Therefore, based on today’s price, we are paying only $74 per paid subscriber. Now, let’s assume that Spotify can get to only 5 euros in ARPU (they are at 4.63 euros currently), then they would be collecting 60 euros per paid subscriber over a 12 months period, which makes our current payback period of only 1.2 years. This may not be an ideal comparison, but just for some context, Netflix is currently selling for $590 per user and traded as high as $1,400 per user in 2021. According to the “Netflixed: the epic battle for America’s eyeballs” book by Gina Keating, the founder/CEO of Netflix Reed Hastings offered $200 per subscriber to Blockbuster back in 2007. Blockbuster’s management was insulted by such a low-ball figure and rejected his acquisition offer — the rest was history…” (Click here to read the full text

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