Will Spotify Stock Go to $375? 1 Wall Street analyst thinks so.

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Spotify technology (NYSE: SPOT) reported great achievements, growing revenue 20% year over year, posting positive operating profits for the third quarter in a row and also returning to net profitability. The company also added 3 million paying subscribers during the quarter, or about 1 million per month.

Reacting to the news, Benchmark analyst Matthew Harrigan added $50 to his on Wednesday price targetwith shares valued at $375 per share – and Spotify's growing size were one of the main reasons.

Is Spotify Stock a Buy?

Harrigan, quoted on StreetInsider on Wednesday, highlighted “meaningful music-only profitability” at the music streaming specialist, with a total gross profit margin of almost 28% in the first quarter and that mark likely to be reached in the second quarter. As the analyst argues, Spotify's growing size gives the company “economic leverage with labels” that should help it negotiate favorable royalty rates for music, as well as favorable terms when paying for podcasts (and eventually audiobooks).

How much money can Spotify save from lower rates? According to DittoMusic.com, Spotify currently pays royalties of $0.006 per stream – or 6/10 of one cent. That doesn't sound like much, but Amazonfor example, only pays $0.004 per stream, and YouTube gets away with just $0.001!

Considering that Spotify has twice as many subscribers as Amazon Music and three times as many as YouTube Music, it seems strange that it pays relatively more. But this does suggest that Spotify has good reasons to negotiate cheaper streaming rights as the company grows even bigger. This in turn should continue to improve the company's operating margins and almost certainly guarantee that it will achieve annualized net profitability this year.

Make no mistake: after doubling in share price over the past year, at a valuation of 65 times free cash flow and over 90 times forward earnings, I think Spotify shares are far too expensive to buy today. But as far as the company is concerned, it is firing on all cylinders and will likely continue to grow in value.

At the right price, actually would be a buyer.

Should You Invest $1,000 in Spotify Technology Now?

Consider the following before buying shares in Spotify Technology:

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Spotify Technology. The Motley Fool has one disclosure policy.

Will Spotify Stock Go to $375? 1 Wall Street analyst thinks so. was originally published by The Motley Fool

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