Key Moments
- Citi upgraded Spotify to Buy while reiterating a $650 price target based on “28x 2027 FCF per share.”
- The bank forecasts Spotify revenue and adjusted EBITDA modestly above consensus, driven mainly by stronger Premium ARPU and margins.
- Citi pointed to potential price hikes, competitor moves, and buybacks as key upside catalysts, while flagging AI-related M&A and stagnant rival pricing as risks.
Upgrade Overview and Valuation Framework
Investing.com — Citi raised its rating on Spotify stock to Buy in a note Friday, saying it now sees “lots of reasons to like” shares of the music-streaming platform, including what it views as an attractive valuation, estimates that appear beatable, and a pipeline of potential catalysts.
Analyst Jason Bazinet wrote that Citi is keeping its $650 target price on SPOT, explaining that the target reflects “28x 2027 FCF per share.” According to the note, at recent trading levels the bank believes Spotify is valued at “just 21x 2027 FCF per share,” excluding cash and investments, which it characterized as compelling.
Revenue, ARPU, and Profitability Assumptions
Citi told clients it expects Spotify’s revenue and profitability to outpace current Wall Street projections. The firm said its revenue forecast is “1% to 2% above consensus,” and attributed most of that differential to its outlook for Premium average revenue per user, which it projects to be “2% above sell-side estimates.”
On the earnings front, the bank said its adjusted EBITDA estimate is roughly 3% higher than the Street, supported by its view that both revenue and gross margin will come in around 1% above consensus.
Key Drivers and Potential Catalysts
Citi highlighted several developments that it believes could lift sentiment toward Spotify’s shares in the period ahead. Among these, the bank pointed to “more price hikes in the EU” as a potential tailwind.
The note also referenced the possibility that rival digital service providers move to raise prices, which Citi argued would “lower the risk of share loss at Spotify.” In addition, the firm cited the prospect of “accelerating buybacks,” supported by what it described as robust free cash flow and a strong balance sheet.
| Metric / Factor | Citi View vs. Street | Commentary |
|---|---|---|
| Revenue forecast | “1% to 2% above consensus” | Driven largely by higher Premium ARPU expectations |
| Premium ARPU | “2% above sell-side estimates” | Key driver of the revenue beat vs. consensus |
| Adjusted EBITDA | ~3% above the Street | Backed by higher revenue and gross margin assumptions |
| Gross margin expectations | ~1% above consensus | Supports Citi’s more optimistic profitability outlook |
| Target valuation | “28x 2027 FCF per share” | Basis for Citi’s $650 price target on SPOT |
| Current implied valuation | “just 21x 2027 FCF per share” (ex-cash & investments) | Characterized by Citi as attractive |
Risk Factors to the Bullish Thesis
While upgrading the stock, Citi also outlined two key risks that could weigh on the investment case.
The first is the possibility that Spotify chooses to allocate its cash toward acquiring an AI-music startup. Citi warned that such a move could be viewed less favorably by investors compared with the alternative of returning capital through buybacks.
The second risk the bank identified is that competitors may refrain from raising prices. Citi argued that if rival platforms hold pricing steady, it could trigger worries about Spotify’s market share and add to concerns about long-term margin pressure.
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