TLDR
- Spotify (SPOT) fell 6.62% on Thursday after a technical glitch hit Premium users, exposing them to ads and making accounts appear downgraded to the free tier.
- The incident raised concerns about user churn and platform reliability.
- Institutional investor Alecta Tjanstepension Omsesidigt trimmed its position in SPOT, adding to selling pressure.
- Evercore ISI cut its price target on SPOT from $700 to $650, though it kept its Outperform rating.
- The stock is down 11.02% year-to-date, and InvestingPro data suggests it is currently overvalued relative to its Fair Value.
Spotify stock fell 6.62% on Thursday, pulled lower by a combination of a platform bug, an analyst price target cut, and institutional selling.
The trouble started when a technical glitch hit Premium subscribers, suddenly serving them ads and making their accounts appear to have dropped to the free tier. For a company whose premium subscription model is central to its business, a bug like this is more than just a tech headache.
The glitch rattled confidence in platform reliability at a sensitive time, with quarterly earnings approaching. Any hint that paying users might reconsider their subscriptions gets attention fast.
Selling pressure built through the session. Reports emerged that Alecta Tjanstepension Omsesidigt, an institutional investor, had trimmed its position in SPOT. Other holders appeared to lock in gains as well, adding weight to the decline.
Evercore ISI Cuts Price Target
Evercore ISI moved its price target on SPOT lower on Monday, dropping it from $700 to $650. The firm kept its Outperform rating and actually raised its financial estimates for the company at the same time.
The cut reflects updated assumptions around a stronger dollar and higher tax rates, not a loss of confidence in the business. Evercore ISI now projects gross margins of 35.4% for 2028, above the Street consensus of 34.9%.
The firm said it believes the market still under-appreciates Spotify’s Two-Sided Marketplace — the tools sold to artists and labels for advertising and promoting music on the platform.
Other analysts have also been adjusting their targets. Cantor Fitzgerald has a $525 price target with a Neutral rating. Guggenheim sits at $600 with a Buy. Jefferies and Benchmark both hold Buy ratings at $650 and $760 respectively.
That’s a wide spread in analyst views, which reflects the ongoing debate about how to value Spotify’s growth trajectory against its current price.
Valuation Concerns Linger
InvestingPro data flags the stock as currently overvalued relative to its Fair Value, even after Thursday’s drop. SPOT is now down 11.02% year-to-date.
Five analysts have revised earnings estimates upward recently, and the company carries a PEG ratio of 0.47, suggesting the market may not be fully pricing in expected growth.
Spotify’s gross profit margin sits at 32% over the last twelve months. The company has been working toward expanding that number, and analyst projections suggest it can.
Operating income in Q4 came in ahead of prior estimates by 8%, or 1% excluding social charges, according to Cantor Fitzgerald’s read of the results.
On the AI front, Jefferies noted that Google’s launch of the Lyria 3 music generation feature in the Gemini app is worth watching, but maintained its Buy rating, suggesting it sees the development as manageable for Spotify.
The stock closed Thursday at a market cap of $106.4 billion, with average daily trading volume of around 2.86 million.
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