Despite 'Challenging' Economics, Goldman Sachs Is Bullish On Spotify

Streaming music provider Spotify Technology SA (NYSE: SPOT) is the leader in the online music space and has plenty of room for further growth ahead, according to Goldman Sachs.

The Analyst

Goldman Sachs' Heath Terry initiated coverage of Spotify's stock with a Buy rating and $190 price target.

The Thesis

Spotify has shown impressive growth metrics over the past five years having grown its revenue 44 percent annually to more than $12.5 billion in 2017, Terry said in a note. Looking forward, the company should see 22 percent growth over the next five years from streaming customers with potential further upside from not only the $28 billion advertising-supported music market but the $32 billion concerns and events space.

Terry said part of the bullish case for Spotify rests on its ability to grow average revenue per user after falling an average of 12 percent in each of the past two years. While the same trend is expected to continue over the coming two years from promotions like Students and Family, overall subscriber growth will "significantly benefit." After two years, it's likely labels will push streaming music companies to implement a "tighter definition" on family plans, which would stabilize average revenue per user over the longer-term.

Price Action

Shares of Spotify were trading higher by 1.4 percent at $162.27 Monday afternoon.

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