NAIROBI, Kenya – Spotify shares have soared by approximately 70pc since the start of the year, as Wall Street analysts continue to praise the company’s strategic outlook and recent price hikes for its premium US subscription plans.
The upcoming price hikes, effective in July, will see increases ranging from $1 to $3 depending on the plan.
This follows a similar move last summer. Analysts suggest this trend might encourage other music streaming services to follow suit, although consumers may not welcome the higher costs.
“Given the size of these Spotify increases (9pc to 18pc) and the frequency (second time in less than a year), we believe other [streamers] should follow suit,” wrote Morgan Stanley analyst Benjamin Swinburne in a note earlier this week.
He added, however, that competitors “may not have the same pricing power as Spotify and may be more reluctant broadly.”
Spotify’s new pricing structure will see its family plan rise to $19.99 per month from $16.99, Duo plans to increase by $2 to $16.99, and individual Spotify Premium subscriptions cost $11.99 a month, up by $1.
Swinburne, who maintains an Overweight rating on the stock with a $370 price target, noted that the hikes “are larger and earlier than forecasted,” suggesting potential upside to average revenue per user and revenue growth in the latter half of the year.
“We believe Spotify’s strong engagement levels and industry-low churn should allow it to execute these increases and still deliver on net adds expectations,” he said.
For comparison, Apple Music (AAPL) charges $10.99 a month for its individual plan and $16.99 for its family plan, with only one price increase in October 2022.
YouTube Music (GOOGL, GOOG) offers similar rates but includes the service in its YouTube Premium package at $13.99 a month.
Amazon Music (AMZN) is available for free with a $14.99 Prime membership, while its Unlimited plan costs $9.99 a month for Prime members and $10.99 for non-members, with the family plan priced at $14.99.
Spotify has demonstrated significant pricing power, turning a profit in the first quarter and surpassing most key metrics.
The company has also projected higher revenue and operating income for the current quarter.
During the first quarter earnings call in April, Spotify CEO Daniel Ek suggested that further price increases were likely after the minimal impact on growth from last year’s hikes.
“The more value we create, the more ability we will have to then capture some of that value by price increases,” Ek said.
JPMorgan analyst Doug Anmuth, who reiterated his Overweight rating on Spotify shares and increased his price target to $375 from $365, expressed confidence in the price hikes.
“Spotify cited churn in-line with expectations & better than expected gross adds following 2023 price increases, suggesting the company has pricing power,” Anmuth wrote.
“Spotify’s deep data & strong content curation, personalization, discovery, & ubiquity are best-in-class & hard to replicate, making it unappealing for consumers to switch platforms.”
According to market research firm Antenna, fewer than 1.5% of Spotify subscribers canceled their subscription plans in April, with the average churn rate hovering around 2% since the start of the year.
“Looking ahead, we expect a more normalized cadence of price increases across the music streaming industry,” Anmuth added.
“We believe that Spotify maintains long-term pricing power given the company’s reach (615M monthly active users, 239M Premium Subscribers), leading market share, & ability to improve & expand its product offering.”
