Spotify stock’s 200% rally just added new fuel

Spotify stock price

Key points

  • Spotify shares have been trading red hot in recent weeks.
  • They still have a long way to go to completely reverse the 2022 decline, but for now the momentum is all upwards.
  • Analyst comments are almost all bullish and there are high expectations for further gains in the near term.
  • 5 titles we like best about Spotify technology

Despite suffering an 80% decline that bottomed out just a year ago, shares of Spotify Technology SA NYSE: POINT they underwent something of a recovery in the following twelve months. Like many other growth-focused technology companies, they were caught up in the tech implosion that followed the Fed raising rates as they struggled to control inflation. But after performing well throughout 2023, they hit new highs in the final weeks of the year, and this momentum has carried into 2024.

With stocks in general enjoying the return of risk appetite, stocks like Spotify are seeing some of their biggest and best rallies ever. The music streaming giant has gained over 200% in just over a year, and as we approach February, those gains aren’t going anywhere.

Bullish comments

Yesterday we witnessed a new upgrade from the UBS team, which increased its rating on Spotify shares from Neutral to Buy, assigning the stock a new price target of $274. Analyst Batya Levi is particularly optimistic about the ability of the company to expand margins this year, which should translate into stronger profits for the foreseeable future. Levi also likes Spotify’s disciplined approach to costs and expense control and he believes the stock has little trouble continuing to make money from here.

UBS’s upgrade follows the bullish stance also taken by Benchmark earlier this month. The team reiterated a buy rating on Spotify shares and gave them a price target of $260, which, even taking recent gains into account, indicates further upside of around 20%. Needless to say, this would put Spotify at its highest level since 2021 and confirm that they are on track to recapture that year’s record high.

All things being equal, it appears the stock has the right mix of tailwinds and catalysts to get there. As mentioned above, the prospect of a rate cut is prompting investors to rush back into stocks, particularly those still recovering from recent sell-offs like Spotify. There was also a solid update last week regarding in-app purchasing of subscriptions and audiobooks on iPhone, which will increase sales and revenue.

And there’s also the ongoing renovation, which is clearly paying off. Layoffs are never pretty to look at, but they do have an effect on a company’s cash position, and Spotify’s announcement last month that it would lay off 17% of its workforce was clearly viewed with optimism by Wall Street. This was the company’s third restructuring in less than a year, but as a result management now expects profits of around €3.18, an increase of more than 55% compared to the previous €2.05.

Getting involved

For those of us on the sidelines, this is all good and exactly the kind of bullish momentum you want to see in a company. The same is true from a fundamental perspective too, with the latest earnings report providing positive value per share for the first time since 2022.

It is worth noting that there are some concerns, especially after the recent rally. With a relative strength index (RSI) of 74, there may be some concerns that the stock is becoming slightly overbought, but in the context of the broader market right now, this is a small risk.

The S&P 500 Index has an RSI of 74, so you could say that Spotify is simply in line with the rest of the market and still has a lot of room to go before it becomes too much and needs to undergo a pullback. Look for stocks to trade, break above $230, and stay there, as this would allow them to consolidate the gains of the last few months, while also giving them a solid foundation to work from for the next phase of the rally.

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