Deutsche Bank analysts provided their outlook on Spotify Technology S.A. (NYSE:SPOT) ahead of the company’s Q3 earning announcement, lowering their price target to $105 from $115 and maintaining their hold rating.
The analysts expect the main focus to center on trends in advertising, podcasts, and gross margin dynamics. The analysts believe that for the Q3, we could see constrained ad-supported gross margin given continued investments in podcast content and limited advertising revenue upside given the tightening of budgets amidst the worsening macro environment.
According to the analysts, these dynamics likely have continued into the Q4, and thus could put pressure on the Q4 ad-supported revenue guide, likely limiting gross margin upside guidance beyond the current consensus of 25.2%.
Looking to fiscal 2023, the analysts believe gross margin trends could modestly inflect positively as podcasting revenue ramps (assuming podcast gross margin turns positive in Q4/23) and as the Lyrics investment is lapped.