Spotify surges 9% after Goldman sets Street-high price target on podcast potential

• Spotify surged as much as 9% on Thursday after Goldman Sachs raised its price target from $205 to a Street-high of $280 on the potential podcasts can have on Spotify's business.
• "Exclusive podcast deals, acquisitions, and new podcast monetization functionality" will help Spotify drive share gains of the global podcast audience and serve as a differentiator to attract music subscribers to the company, Goldman said in the note.
• The firm believes recent moves by Spotify set the company up for a favorable risk/reward profile as it signs exclusive deals with Joe Rogan and Kim Kardashian West.
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Spotify surged as much as 9% to an all-time-high on Thursday after Goldman Sachs published a note on the company and raised its price target from $205 to a Street-high $280, representing potential upside of 21% from Wednesday's closing price.

Goldman said that Spotify's recent acquisition of exclusive podcast deals with heavyweights like Joe Rogan and Kim Kardashian West should "drive share gains of the global podcast audience, advance the development of Spotify's audio advertising technology platform, help reverse declining average revenue per user trends, and serve as a differentiator to drive music subscribers to Spotify," according to the note.

Goldman acknowledged that there are considerable risks to Spotify's strategy of acquiring high-profile exclusive podcasts, but given the nature of the underdeveloped podcast market, the risk-reward profile for investors who own Spotify is favorable.

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In addition to acquiring Joe Rogan's podcast, which has around 9 million YouTube subscribers, and striking a deal with Kim Kardashian West for an exclusive criminal justice podcast, Spotify has inked several podcast-related deals including The Ringer, Anchor, and Gimlet Media.

Goldman said that Spotify's podcast strategy "may take years to generate meaningful financial returns."

Still, the firm raised its second quarter monthly-active-user growth estimates to 19 million, adding that Sensor Tower aggregate app downloads for the period suggest around 18 million new monthly active users.

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Goldman raised its 2020 to 2022 revenue and adjusted Ebitda estimates by 3% and 5%, respectively.

Downside risks to Spotify include competition, supplier concentration, and unfavorable label re-negotiations, according to Goldman.

Spotify surged as much as 9% to $264.87 in Thursday trades, and is up more than 75% year-to-date.

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