By Angela Palumbo

Spotify Technology's earnings helped push the already well performing stock even higher. That is a reason for concern, according to Rosenblatt Securities.

Spotify shares closed at a record on Tuesday after the music streaming company said it added more subscribers than Wall Street expected during the fourth quarter. The company also reported its first full-year profit.

In a research note on Tuesday, Evercore analyst Mark Mahaney wrote that there are similarities between what is happening at Spotify and at Netflix. Though the companies operate in different entertainment media, both sell subscriptions, and both have maintained subscription growth even after rolling out price increases.

Mahaney, who rates Spotify at Outperform with a price target of $700, wrote that "both companies have created very strong consumer value propositions -- aka great products -- that consumers are willing to pay more for over time." Netflix has original shows such as White Lotus and Stranger Things that have amassed large fan bases, and Spotify offers a vast assortment of music, along with audiobooks for paying subscribers.

Netflix stock has jumped 79% over the last 12 months while Spotify has surged 159%.

Mahaney isn't the only analyst who's optimistic about Spotify's future. Of the 40 surveyed by FactSet, 27 say the stock is a Buy, 10 rate it at Hold, and three say the stock is a Sell.

"With additional bundling and price increases likely to come, we anticipate continued supportive top-line and margins favorability," Deutsche Bank analyst Benjamin Black wrote on Wednesday. He rates the stock as a Buy with a $700 price target.

Rosenblatt analyst Barton Crockett is singing a different tune. Crockett downgraded shares of Spotify to Neutral from Buy on Wednesday.

"Spotify is executing very well, but revenue growth -- after an impressive step up in 2024 -- is poised to decelerate in 2025," Crockett wrote in a research note. "Explosive operating margin expansion -- driven by headcount reductions and leverage on copyright royalties as a percent of revenues -- is normalizing to more regular levels."

Still, he increased his price target to $658 from $473, which implies a 5.8% increase from the stock's closing price on Tuesday. "In this environment, there's less scope for multiple expansion and earnings upside," he said.

Shares of Spotify were flat in afternoon trading on Wednesday at $621.86.

Write to Angela Palumbo at angela.palumbo@dowjones.com

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February 05, 2025 12:48 ET (17:48 GMT)

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