Investors should load up on Spotify Technology SA (NYSE: SPOT) if it sells off after earnings later today, says Ben Swinburne.
He’s a senior analyst at Morgan Stanley.
Estimates are for Spotify to report per-share earnings of €2.21 ($2.52) for its Q1 on €4.2 billion in revenue.
This would mean a more than 10% increase in the top- as well as the bottom-line.
Ahead of SPOT’s earnings release, Swinburne rates Spotify stock at “overweight”. His $670 price target indicates potential upside of about 12% from current levels.
Swinburne’s bullish view is particularly exciting, given shares of the streaming giant have already doubled over the trailing 12 months.
Why is Morgan Stanley keeping bullish on Spotify stock?
Morgan Stanley remains positive on Spotify shares as continued “production innovation and business model evolution” could lead to significant positive earnings revisions in the months ahead.
According to Ben Swinburne, investors are underestimating just how big of a lead SPOT really has in terms of engagement over its rivals.
“Spotify users in the US listen to the service 50% more than the next best competitor,” he revealed in a CNBC interview this week.
With movies and TV shows, users often subscribe to a streaming platform that has rights to what they want to watch, and then switch to a different service next month.
But for music, there aren’t that many alternatives. So, the churn is “structurally lower” at Spotify, the analyst added.
SPOT shares could benefit from a push into video podcasts
Ben Swinburne recommends buying Spotify stock on any post-earnings weakness that may show up later today as it’s a “differentiated product” that’s mastered the art of balancing investment and monetisation.
SPOT shares are poised for continued gains in the long run now that it’s “making a big push into video podcasts” as well, according to the Morgan Stanley analyst.
Note that video podcasts reportedly drive higher engagement and lower churn at Spotify.
That said, shares of the company based out of Stockholm, Sweden do not currently pay a dividend, which makes them unsuitable for those interested in setting up a new source of passive income.
Spotify is free from tariffs and recession related overhangs
Finally, Morgan Stanley is constructive on SPOT stock as Trump tariffs threaten the global supply chains and a potential recession by the end of 2025.
Spotify shares remain worth owning this year as media and entertainment subscriptions tend to be “among the most defensive business models” amidst such a challenging macroeconomic backdrop.
Note that Spotify currently generates more than 90% of fits annual revenue from subscriptions.
Other Wall Street shops seem to agree with Morgan Stanley on SPOT shares as well, given the consensus rating on the New York listed firm currently sits at “overweight”.
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