TLDR
- Morgan Stanley upgraded Spotify to Top Pick status with an Overweight rating and $800 price target, citing 20% upside potential
- The firm projects 14-15% revenue growth and 40% EBIT growth through 2028, backed by a 90% subscription model
- Spotify launched a new pricing cycle this fall with increases of 14-17% in Australia that could serve as a template for other markets
- The company improved its free tier with one hour of on-demand listening, which could drive user growth and Premium conversions
- AI integration is expected to deliver tangible financial benefits, with a US price increase anticipated by Q1 2026
Morgan Stanley added Spotify to its Top Pick list this week. The firm maintained its Overweight rating and $800 price target on the stock.
Analyst Benjamin Swinburne sees roughly 20% upside from current levels. He highlighted accelerating growth and AI tailwinds as key drivers.
The streaming company started a new pricing cycle this fall. Morgan Stanley believes this positions Spotify to speed up growth next year.
“We remain OW SPOT shares and see ~20% upside to our $800 PT,” Swinburne wrote in the note. The firm expects revenue growth to strengthen beyond current market expectations.
Morgan Stanley projects upside to consensus EBIT estimates. The bank expressed optimism about Spotify’s ability to turn AI into real financial benefits over the coming years.
Free Tier Changes and Premium Pricing
Spotify recently upgraded its free tier with one hour of on-demand listening. Swinburne called this change meaningful for driving monthly active user growth and Premium subscriber additions.
The company tested price increases of 14 to 17 percent in Australia. Morgan Stanley views this as a potential template for bundled markets in 2026.
A US price increase is expected by the first quarter of next year. This follows the pattern Spotify has established in other regions.
The firm’s base case projects a 14 to 15 percent compound annual revenue growth rate through 2028. In its bull case scenario, Morgan Stanley sees 16 to 17 percent growth over the same period.
Margin Expansion and Cash Flow
Morgan Stanley forecasts about 40 percent EBIT compound annual growth through 2028. This projection is backed by Spotify’s subscription model, which exceeds 90 percent of its business.
The firm expects EBIT in 2028 to beat consensus estimates by over 10 percent. Product enhancements and price increases should drive margin expansion.
The $800 price target implies shares would trade at 27.5 times 2030 estimated free cash flow per share. Morgan Stanley estimates 2027 free cash flow per share of $22 to $23.
In a bull case, free cash flow per share could reach $27 by 2027. This would represent strong cash generation from the streaming model.
Benchmark Co. also maintained a Buy rating on October 16. That firm kept its $800 price target on the stock.
Swinburne is a five-star analyst with a 12.0% average return and 56.73% success rate. He focuses on the Communication Services sector.
The analyst covers companies including T-Mobile US and Paramount Skydance. His track record shows consistent performance in the media and entertainment space.
Morgan Stanley pointed to product innovations and market share gains as growth drivers. The combination of pricing power and AI capabilities supports the bullish thesis.
The firm sees Spotify maintaining revenue growth in the low-to-mid teens. This growth rate should continue as the company expands its Premium offerings and improves its free tier experience.
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