Spotify downgraded at Goldman on valuation as growth priced in

Investing.com -- Goldman Sachs downgraded Spotify Technology to Neutral from Buy, saying much of the music streaming company’s growth potential is already reflected in the share price after a sharp rally over the past year.

GS expects Spotify to grow revenue at a mid-teens percentage pace over the next three to four years, helped by steady subscription price increases, new pricing tiers and rising paid user numbers, particularly in emerging markets.

Advertising revenue is also expected to pick up from 2026 as Spotify builds out its ad-buying tools and monetises video podcasts.

Profit margins will rise too as Spotify improves the economics of its core music business, spreads fixed podcast costs over a larger revenue base and scales higher-margin ad sales.

Music royalty payments as a share of revenue could fall from about 71% this year to 64% by 2030. Advertising could grow more than 16% a year between 2025 and 2028.

With Spotify shares up 120% since July 2024, compared with a 20% gain in the S&P 500, Goldman Sachs said it now sees “balanced risk and reward”.

It raised its price target to $770 from $765.

SensorTower data points to solid user gains ahead of Spotify’s third-quarter earnings, with U.S. monthly active users up 2% year-on-year in the July-September period and international users up 9%.

Goldman said its forecasts already assume about 5% annual growth in average revenue per paid user through 2030, implying regular price increases of around 6% a year, as well as about 1 to 1.5 percentage points of margin expansion each year.

It added that while Spotify’s valuation multiple has expanded, it does not see the shares as expensive relative to expected earnings growth.

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