Spotify Has Hit Bottom After Dropping 30% from Its Peak, Top Analyst Says

 

There’s some good news and some bad news for Spotify’s stock.

The good news is that a longtime bear on Spotify (SPOT) is suddenly changing his tune.  The bad news is that the stock has been plunging for months — and without a dramatic and fundamental change in Spotify’s core financials, it may have difficulty recovering.

Just last week, an analyst for Evercore ISI, who has been particularly bearish toward the outlook music streaming leader Spotify, stated that he now believes that the stock has finally bottomed out.  Kevin Rippey continues to target Spotify’s stock price at $110, but, at the same time, he has upgraded the stock’s outlook from “underperforming” to “increasingly balanced.”

Spotify’s stock price fell by 1.2% on October 1st to $112.59, but it rebounded on October 2nd, rising by about the same amount before closing at $113.90.  At the time writing, SPOT is hovering in the $116 range.

Spotify has seen its stock price plummet ever since it reported its second-quarter financial numbers on July 31st, which Wall Street found disappointing.

In a note to his clients, Rippey said that his bearish view Spotify — and his downgrading the stock this past June — were based on its stock price at the time, which was around $150. He thought then that the market was over-optimistically looking at the company’s capacity “to drive gross margin improvement.”

Rippey added that he is still dubious in regards to the company’s ability to substantially expand its gross margin, but now that its stock had fallen more 30% from its earlier highs, he believes that the opportunities for shorting Spotify’s stock have “diminished.”

He went on to say that, as the market continues to re-evaluate stocks that combine strong revenue growth with a decidedly uncertain path to pritability, Spotify could very well continue to experience pricing pressures.

While Rippey is giving the company what is, in essence, a neutral rating, he appears to remain bearish about its future. He believes that streaming services are nothing more than loss leaders for big technology companies such as Apple and Amazon. So, the fact that streaming is Spotify’s only business is causing him to be skeptical it.