Citi raised its recommendation on Spotify to Buy in a client note published Friday, citing a combination of valuation appeal, forecast upside versus consensus, and a set of upcoming catalysts that could improve investor sentiment.
The bank, via analyst Jason Bazinet, held its price target at $650 per share. Citi said that target reflects "28x 2027 FCF per share."
On the earnings outlook, Citi told clients it anticipates Spotify will run ahead of Wall Street expectations. The firm’s revenue forecast sits approximately 1% to 2% above consensus, a gap Citi attributes mainly to Premium average revenue per user, which it models at about 2% higher than sell-side estimates.
Profitability expectations were also nudged higher. Citi’s adjusted EBITDA projection is roughly 3% above the Street, underpinned by stronger top-line assumptions and gross margin forecasts that are about 1% above consensus.
The note identified several potential catalysts that could sustain or accelerate a rerating of the stock. These include additional price increases in the European Union and the possibility that rival digital service providers also raise prices. Citi says such moves would reduce the risk of share loss for Spotify. The bank also pointed to the potential for "accelerating buybacks," which it believes could be funded by the company’s robust free cash flow and solid balance sheet.
On valuation, Citi described the stock as compelling at current market levels, estimating it trades at "just 21x 2027 FCF per share," on a basis that excludes cash and investments.
However, the bank highlighted two principal risks. First, if Spotify elects to deploy cash to acquire an AI-music startup, investors might view that use of capital less favorably than buybacks. Second, if competitors decide not to raise prices, that outcome could prompt concerns about market share retention and sustained margin pressure over the longer term.
What this means
- Citi’s upgrade reflects a conviction that modest outperformance in Premium ARPU and margins will translate into higher adjusted EBITDA and cash generation than currently modeled by the Street.
- Near-term sentiment drivers include EU pricing actions, competitive pricing dynamics, and the company’s capital allocation choices, especially around buybacks.