Photo Credit: Citigroup HQ in Lower Manhattan by Beyond My Ken / CC by 4.0
Citi upgrades its Spotify valuation to ‘Buy’ after a series of analyst downgrades, with SPOT shares down 40% since July.
Citigroup upgraded its Spotify stock (SPOT) rating to ‘Buy’ on Friday, noting that it sees “lots of reasons to like” the streaming company’s stock, citing “attractive valuation,” beatable estimates, and several upcoming catalysts. According to analyst Jason Bazinet, Citi is maintaining its $650 target price on SPOT, which he says reflects “28x 2027 FCF per share.”
The bank told its clients that it sees Spotify’s revenue and profitability maintaining a lead ahead of Wall Street expectations, with a revenue forecast “1% to 2% above consensus.” This, it says, is driven primarily by the streamer’s Premium average revenue per user, which is “2% above sell-side estimates.”
Further, Citi said that its adjusted EBITDA projection is about 3% higher than the consensus, supported by stronger revenue and gross margin expectations that are approximately 1% above Wall Street expectations.
As far as potential upcoming catalysts, Citi mentioned several developments that could boost SPOT’s favor, including “more price hikes in the EU,” possible price hikes from competitors that could “lower the risk of share loss at Spotify,” and the prospect of “accelerating buybacks” to be supported by a strong balance sheet and robust free cash flow.
Overall, Citi argues that Spotify’s valuation is compelling, and estimates the stock trades at “just 21x 2027 FCF per share,” excluding cash and investments at current levels. That said, the bank still cautioned on two notable risks: the possibility that Spotify deploys its cash to acquire an AI-music startup—a less favorable outcome for investors than buybacks—and the potential for rival streaming platforms to avoid hiking their prices.
Citi’s valuation follows Goldman Sachs changing its tune on Spotify stock, shifting back to a ‘Buy’ rating, but still maintaining a reduced target price.
