Spotify stock upgraded following analyst observations of improving margins

Shares of Spotify ticked higher after an analyst upgraded the stock to Overweight, noting the company's commitment to improving margins.

Video transcript

- But speaking of a company that has struggled with their stock price, my Triple Play is Spotify. Shares are moving marginally higher today, up about 1.1%, after an upgrade from Wells Fargo earlier this morning. Analyst Steve Kehol upgrading the stock to overweight from equal weight. He also upped his price target to $180 a share, up from $121. The analyst cited potential margin upside as a catalyst for the upgrade, writing in a new note to clients that the music streamer is off margin probation as its, quote, "commitment to margin improvement is picking up space."

And, guys-- pace, I should say-- but Spotify's declining gross margins, that's been a big pain point for investors. We did see that number beat expectations in its last earnings report. Shares, though, are still off about 65% from those record highs that we saw in February 2021. So do you think this is a story that can really improve for this company?

JARED BLIKRE: I think that with the current interest rate environment, that it is going to be difficult for some of the older streaming players, a lot of these older growth companies just to catapult themselves to the next level. It's a saturated market. They don't have free money anymore-- and not that Spotify necessarily needs it because they have the free cash flow now that they wouldn't otherwise, but I just see this as a different market environment. So I think it's going to be a little bit tough for them to bounce back.

DAVE BRIGGS: Need to cut spending-- they continue to cut, the layoffs. And when you heard from their CEO in the latest earnings report, it was about cutting back on those massive acquisitions that we saw the last couple of years.

JARED BLIKRE: Exactly.

DAVE BRIGGS: Discipline.