Spotify Technology (NYSE: SPOT) investors had a terrific Tuesday, when a powerful first-quarter report helped to push the stock up 11%.
It didn't last.
On Wednesday, shares of the streaming music company slid by more than 7%, giving back more than half the gains they had gotten out of that upbeat earnings report. However, there's good news, too. According to Canaccord Genuity analyst Maria Ripps, Spotify stock is likely to make back its losses and surge higher again, hitting $370 a share within a year, an almost 25% upside from current levels.
Is Spotify stock a buy?
Spotify reported strong numbers this week: Total subscribers rose by 19% and paying subscribers rose by 14%. And ad revenue from the freeloaders was up by 18% to boot. Overall, revenues were up 20%, and there's probably more good news to come.
Consider that Spotify just raised prices in five of its markets, and plans to do so in the U.S. soon. Higher prices might slow down its growth in paying subscribers, but for users who find its streaming service an essential, and who are basically a captive audience, it's just going to mean more money for Spotify -- and more profits for shareholders. On Monday -- i.e., before earnings -- Ripps predicted that this will be "additive to current estimates for both revenue growth and profitability," and boosted her price target from $315 to $330. After the news came out, she was even more convinced, raising it again all the way to $370.
Yet I have my doubts -- not that Spotify will keep growing. Of that, I have no doubt. Rather, I worry that with the stock trading at 63 times free cash flow, Spotify already has a lot of that growth baked in. Indeed, the stock price seems to assume Spotify will grow even faster than the 38% per year analysts are already predicting.
Personally, I'd prefer to buy Spotify when Wall Street is being overly pessimistic about it -- not overly optimistic. So for the time being, I'd say Spotify is not a buy.
Should you invest $1,000 in Spotify Technology right now?
Before you buy stock in Spotify Technology, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Spotify Technology wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of April 22, 2024
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Spotify Technology. The Motley Fool has a disclosure policy.
