Shares of Spotify SA (NYSE:SPOT) sold off on Wednesday after the music streaming service reported its first-quarter results.
The Spotify Analyst: KeyBanc Capital Markets analyst Justin Patterson reiterated an Overweight rating on Spotify stock and lowered the price target from $235 to $210.
The Spotify Thesis: Spotify's first-quarter monthly active user number of 422 million and revenue were above consensus estimates, and the subscriber count of 182 million was in line, Patterson said in a note.
Stripping off a one-time benefit and the Russia impact, MAU for the first half of 2022 were tracking toward 30 million, exceeding the previous high achieved during the onset of the pandemic, the analyst said.
"We believe this supports our view that Spotify is still early in the S-curve and does not face the same challenges as Netflix, Inc. (NASDAQ:NFLX)," he said.
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The FC Barcelona sponsorship is likely to serve as a new vector to engage consumers, Patterson said, adding that he's impressed with podcast engagement growth, particularly in Latin America and the rest of the world.
On the flipside, ad-supported revenue trailed expectations, partly due to the macroeconomic uncertainty around and partly due to a mis-model risk from lapping M&A comps, the analyst said. While Spotify expressed confidence in 30% year-over-year growth, the analyst said he believes this is likely a "show me" area for investors.
The downward price target adjustment accounts for a slower gross margin ramp, according to KeyBanc.
SPOT Price Action: After Wednesday's drubbing, Spotify stock was rebounding by 1.56% to $98.02 Thursday morning, according to Benzinga Pro data.
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