Earlier today, Citi retraced its bullish outlook on Spotify (NYSE:SPOT) as the firm downgraded the stock from Buy to Hold. Shares of the streaming giant fell 1.54% in Friday’s trading session at the time of writing.
Indeed, analysts led by Jason Bazinet told investors that while they still like Spotify’s strategy and execution, they no longer feel the risk-reward ratio is appealing. As a result, the firm is cautious about the expectations of continued churn decline and rising average revenue per user.
Furthermore, the analysts highlighted that the conversion of Ad-supported MAUs to Premium gross adds has dropped over the last six years, and Wall Street expects this to continue. Bazinet interprets this as “Spotify’s model is becoming less efficient as growth shifts to less developed markets.” Indeed, he believes this “may pose some risk to Premium gross adds unless conversion rates from the Ad-supported to Premium service improve.”
Nevertheless, the analysts praised Spotify’s execution in past years, noting healthy revenue growth and discipline with expenses. Despite the downgrade, the bank maintained its price target of $190 and didn’t change estimates.
Is SPOT a Good Stock to Buy?
Overall, analysts have a Moderate Buy consensus rating on SPOT stock based on 17 Buys and 9 Holds assigned in the past three months, as indicated by the graphic below. After a 126% rally in its share price over the past year, the average Spotify price target of $188.28 per share implies 3.61% upside potential.
