Shares of Spotify (SPOT) have soared as Wall Street bulls continue to praise the company’s prospects following new price hikes for its premium US subscriptions. The stock is up about 70% since the beginning of the year.
The upcoming price increases, which will begin in July and range from $1 to $3 depending on the plan, follow previous increases on certain plans implemented last summer. Analysts say the move could mean more increases for other music streamers – much to the chagrin of consumers.
“Given the size of these Spotify increases (9% to 18%) and the frequency (second time in less than a year), we believe that other [streamers] should follow suit,” Morgan Stanley analyst Benjamin Swinburne wrote in a note published earlier this week. Still, competitors “may not have the same pricing power as Spotify and may be more cautious overall.”
Spotify’s family plan increases from $16.99 to $19.99 per month. Duo plans, which allow two users to share an account, will increase by $2 to $16.99. Spotify Premium subscriptions now cost $11.99 per month, up from $1.
Swinburne, who has a $370 price target and an Overweight rating on the stock, said the coming rate hikes are “larger and earlier than forecast.” This suggests a potential upside for average revenue per user and revenue growth in the second half of the year.
“We believe Spotify’s strong engagement levels and low churn should allow it to make these increases while still delivering on net addition expectations,” he said.
For comparison, Apple Music’s individual plan (AAPL) costs $10.99 per month, while the family plan costs $16.99. Prices have only increased once, in October 2022. Meanwhile, YouTube Music (GOOGL, GOOG) offers the same cost for its respective subscriptions, although it is also an included option for customers who subscribe to YouTube Premium, which has a monthly fee of $13, 99 amounts.
Likewise, Amazon Music (AMZN) is free with a $14.99 Prime membership, but Prime members who want access to the Amazon Music Unlimited plan will have to pay an additional $9.99 per month. The individual plan costs $10.99 for non-Prime members, while the monthly family plan costs $14.99.
Spotify ‘has pricing power’
Spotify turned a profit in the first quarter, beating most of its key metrics. It also led to higher sales and operating income for the current quarter.
Over the past year, Spotify has committed to price increases, in addition to multiple layoffs and other initiatives to improve profitability. The company said it would be more deliberate about future investments after spending billions in its bid to enter the crowded podcast market.
During the company’s first-quarter earnings call in April, Spotify CEO Daniel Ek hinted at plans to raise prices again after last year’s increases had “minimal impact on growth.” He also confirmed that the platform will offer different subscription levels to attract as many users as possible, including a music-only level and an audiobooks-only level.
“The more value we create, the more opportunities we will have to capture some of that value through price increases,” Ek said at the time.
JPMorgan analyst Doug Anmuth, who reiterated his Overweight rating on shares and raised his price target to $375 from $365, said he believes the price increases will result in “favorable economics for Spotify.”
“Spotify cited churn in line with expectations and better-than-expected gross adds following 2023 price increases, indicating the company has pricing power,” Anmuth wrote on Monday. “Spotify’s deep data and strong content curation, personalization, discovery and ubiquity are best-in-class and difficult to replicate, making it unattractive for consumers to switch platforms.”
According to market research firm Antenna, less than 1.5% of Spotify subscribers canceled their subscriptions in April. The average churn rate has fluctuated around 2% since the beginning of the year.
“Looking ahead, we expect to see a more normalized price increase in the music streaming industry,” Anmuth said. “We believe Spotify will maintain its long-term pricing power given the company’s reach (615 million monthly active users, 239 million premium subscribers), leading market share and ability to enhance and expand its product offering expand.”
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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