Spotify Technology SA (NYSE: SPOT) shares are currently trading $196.03 — up 0.96% in the past 24 hours. The spike occurred after the digital music service announced mass layoffs, or roughly 17% of its workforce.
This is Spotify’s third reduction in the last year.
Spotify CEO Daniel Ek mentioned in an email to staff that the company is significantly reducing costs due to excessive hiring in 2020 and 2021, when funding was abundant for tech companies.
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Approximately 1,500 jobs are being cut in this latest round, according to CNBC.
Morgan Stanley analyst Benjamin Swinburne named the company as a Top Pick, and reiterated the Outperformance rating for SPOT shares.
Morgan Stanley raised Spotify’s price target from $200 to $230.
“The journey towards profitability has just begun, we see upside to consensus earnings estimates, and believe the business is capable of $3bn+ EBITDA in ’26E in a bull case (2.5x above consensus),” Swinburne wrote in an analyst note.
Moreover, the analysts highlight Spotify’s accelerated growth due to its “superior product, pricing power, and continued industry growth.”
The focus now revolves around profitability, earnings potential, and business quality. “Notably, Spotify’s recent 17% reduction in headcount, totaling 23% for the year, emphasizes its pursuit of profitability and adherence to financial guidance,” Swinburne said.
Morgan Stanley’s upward adjustments in forecasts exceed the consensus, projecting a bullish $310 per share, reflecting a potential 60% increase. This forecast implies a trading range of 18-19x/25x ’26E EBITDA/FCF, discounted to year-end 2024.
In addition to Morgan Stanley’s insights, Macquarie Equity Research analyst Tim Nollen echoed the sentiment of Spotify’s focused approach towards profitability and efficiency. He asserted that these strategic actions are pivotal for the company’s trajectory.
“We reiterate our OP rating, raise our ’24 estimates and raise our TP from $210 to $232,” Nollen said.
Macquarie Equity Research estimated the severance costs of the layoffs ranging between €130 million to €145 million. This corresponds to approximately five months’ worth of severance pay for affected workers and could potentially yield annualized cost…
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