Spotify Technology stock has witnessed tremendous growth this year, almost doubling in value. However, the stock took a significant hit after an analyst downgraded the popular music and audio streaming service, warning of its uncertain future.
As of Wednesday’s close, Spotify stock (ticker: SPOT) had surged 95% year to date, outperforming the S&P 500’s 11% rise. Nevertheless, there was a 2.3% drop in shares during Thursday morning trading, following a bearish assessment by Monness, Crespi, Hardt & Co. analyst Brian White.
White downgraded Spotify stock from Buy to Neutral, no longer providing a specific price target for the shares. He expressed concerns over the potential risks associated with Spotify’s recent price hikes in the face of a broader downturn in the market.
“We are stepping to the sidelines given this strong outperformance and our mounting concerns surrounding the potential collateral damage from this downturn,” said White.
Despite this downgrade, Wall Street as a whole remains bullish about Spotify. In fact, among 26 analysts surveyed by FactSet, the average rating for the stock is still Buy. However, there are indications that even optimistic analysts believe the stock may have already reached its peak. The average target price of $166.34 suggests an 11% upside from current levels, despite the significant gains already made this year.
White acknowledged Spotify’s positive long-term prospects, including its efforts to enhance its platform, tap into the digital advertising market, expand its audio offerings, and improve cost efficiency. However, he emphasized that competition in the industry is intense, profit margins are slim, and he believes Spotify may face challenging times ahead.
It remains to be seen how Spotify will navigate these uncertainties and whether it can continue its impressive growth trajectory amidst tough competition.
Note: To understand more about the outlook for Spotify stock or the broader market, please refer to a financial advisor.