Morgan Stanley's Bullish Forecast for Spotify

Morgan Stanley's Spotify Analysis

Morgan Stanley has recently included Spotify (NYSE: SPOT) among its top recommendations. The firm emphasized that the price dynamics are strong alongside accelerating growth and favorable winds supported by artificial intelligence.

The investment firm maintains an Overweight rating for Spotify and has set a target price of $800 per share. Analyst Benjamin Swinburne stated, "With the support of artificial intelligence, we see a potential increase of about 20% in the stock."

Swinburne noted that Spotify is embarking on a new pricing cycle this Fall and is poised to accelerate growth next year. He highlighted the positive contribution of artificial intelligence to the company’s growth.

Morgan Stanley anticipates that the company's revenue growth will strengthen and expects positive EBIT figures above expectations.

The investment bank also expressed optimism that Spotify could translate artificial intelligence into real financial gains.

Among the company's recent moves are improvements to both its free and Premium tiers. Swinburne stated, "Updates in the free tier offer users the capability to listen on demand for one hour. This could increase the number of monthly active users and recoveries to Premium."

The price increases in Australia, which vary between 14% to 17%, indicate that this model could serve as a blueprint for other markets by 2026. Additionally, a price hike in the United States is expected in the first quarter of next year.

The investment thesis projects a 14-15% annual compound revenue growth rate through 2028. The high scenario ranges from 16-17%. At the same time, a roughly 40% EBIT annual compound growth rate is expected by 2028. These forecasts are supported by a subscription model of over 90%.

Morgan Stanley anticipates that the stock price will trade at 27.5 times free cash flow for the 30th year. For 2027, free cash flow per share is expected to be $22-23, with the best scenario being $27.