Guggenheim upgraded Spotify stock to Hold from Sell and lifted the price target to $250 (5.7% upside potential) from $232, citing its low valuation across internet stocks.
On Monday, Guggenheim analyst Michael Morris said that “investors in general underestimate the long-term advertising market growth potential,” as well as “the sustained revenue and profit growth potential” of internet stocks.
Morris added that he has revised his valuation framework for digital media companies like Spotify (SPOT) as he sees a number of similarities between internet and software companies, including core investment in research & development and engineering resources and the creation of high-utility technology platforms. Also, internet companies focus on the consumer rather than enterprise applications, the analyst said.
In addition to Spotify, Morris also upgraded social media network Snap from Hold to Buy and initiated coverage of internet company Pinterest with a Buy rating. (See SPOT stock analysis on TipRanks).
Currently, the Street has a cautiously optimistic outlook on SPOT. The Moderate Buy analyst consensus is based on 12 Buys, 8 Holds and 3 Sells. The average price target of $271.65 implies upside potential of about 14.9% to current levels. Shares have increased about 58.1% year-to-date.