The company continues to post growth rates well in the double digits.
Spotify‘s (SPOT -2.46%) recent second-quarter earnings release was music to the ears of many investors. The streaming service convincingly beat the average bottom-line estimate while delivering robust growth where it counted. In the wake of that release, several analysts raised their price targets on the high-profile music streamer. One even went so far as to upgrade his recommendation on its stock.
A recommendation change and big price target boost
Less than 24 hours after Spotify posted its Q2 results on Monday, Goldman Sachs (NYSE: GS) prognosticator Eric Sheridan changed his recommendation on the stock to buy from his previous neutral. Additionally, he raised his price target to $425 per share from his preceding level of $320.
Sheridan wrote in a new note that the company is “the clear global audio platform leader.” He believes this will translate into continued user growth and rising engagement, and consequently stronger pricing power. The analyst also said that restructuring efforts by management are starting to pay off, and the company’s very robust free cash flow should give it scope to return capital to shareholders within the next 18 months.
Those quarterly results revealed a 20% year-over-year leap in total revenue to 3.8 billion euros ($4.1 billion) on the back of a 14% increase in total monthly active users (MAUs) — a key customer metric for the company — to roughly 626 million souls. Net income, meanwhile, flipped to a profit of 274 million euros ($298 million) from the rather deep year-ago loss of 302 million euros ($328 million).
No. 1 on the charts
The Goldman Sachs analyst was entirely accurate in describing Spotify’s powerful market position. Its offerings are very compelling, hence the large and growing user base, and while it’s not yet a high-margin business, it absolutely has the potential to become one in the coming years. To me, this stock is a no-brainer play on the future of music distribution, which will be driven by the kinds of services Spotify is so adept at delivering. I’d be a buyer of Spotify.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Spotify Technology. The Motley Fool has a disclosure policy.