Wolfe says Spotify price increases should provide tailwind to Q4 gross margins

Wolfe Research notes that Spotify has quietly increased prices in Canada, New Zealand, and Ireland. The firm believes the new pricing went into effect on Tuesday, based on pricing listed on Spotify’s website and a blog post in Canada. The common theme for these markets is audiobooks, which created headwinds initially via consumptions costs, now being offset by price hikes. As such, in addition to ARPU tailwinds, Wolfe anticipates these increases will provide an immediate tailwind to gross margins in Q4, and does not expect the labels to earn an explicit revenue split on the incremental ARPU earned. Further, the firm suspects Spotify’s tiering strategy in these markets will also be similar to the U.S. where cheaper “music-only” tiers are available as a trade-down option at pre-price hike levels, but not widely advertised. Wolfe has an Outperform rating on the shares with a price target of $400.