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Analysts raised their rating to Buy from Hold while maintaining a $180 price target, suggesting an about 29% upside from Tuesday’s closing price.
“After the YTD rally, very crowded long positioning, and with the pricing catalyst now in the rearview mirror, we think investors are taking a “shoot first, ask questions later” approach,” analysts explained. “However, we came away from the print modestly more constructive, as top-of-funnel metrics continue to outpace expectations, 3Q gross margin guide came in above consensus (though admittedly in line with buyside bogeys), and operating losses narrowed once again.”
They note revenue guidance was slightly below expectations, mainly due to FX impact. Constant currency growth accelerated to 16% YoY in 3Q, up from 14% in 2Q according to the firm’s estimates. ARPU was down 3% YoY FXN due to product mix shift, likely to persist. However, with pricing as a growth driver, they anticipate ARPU to turn positive from 3Q onwards. Advertising on music and podcasting sides improved in 2Q and continues to show positive results in 3Q.
“All in all, with (1) price increases mostly impacting the model in the 4Q (both in terms of revenue and gross margins), (2) operating cost discipline remaining intact, (3) easing y/y expense compares, (4) ongoing momentum in MAUs and a conservative premium net add guide, and (5) podcast content investments moderating, we think estimates remain biased to the upside and contend that yesterday’s move is overdone,” the analysts added.
