Analyst Downgrades Spotify, Citing Stock Gains Since Joe Rogan Podcast Deal

Asa Mathat for Vox Media
Spotify CEO Daniel Ek

But Bernstein's Todd Juenger raises his stock price target from $134 to $172.

Bernstein analyst Todd Juenger has downgraded his rating on the stock of music streaming giant Spotify from "market perform" to "underperform," citing its run-up since a big podcasting deal with Joe Rogan.

But he raised his stock price target from $134 to $172. The stock in premarket trading Monday was down slightly at $269, giving it a market capitalization of about $51 billion.

Spotify, led by CEO Daniel Ek, had on May 19 unveiled its multiyear Rogan deal. The day before that, the shares had closed at $161.43. "The market has added about $20 billon of value (+70 percent) to Spotify" since then, Juenger wrote in his Monday report. "We continue to believe it's unlikely Spotify will generate much earnings from podcasts."

The analyst acknowledged though that "we failed to previously appreciate" the logic that, if Spotify succeeds in securing exclusivity on popular podcasts, "it may naturally lead to increased share of paid music streaming, if consumers choose to consolidate their listening into one app." Added Juenger: "Ardent bulls would argue for additional positive follow-on impacts, believing this will propel Spotify to become increasingly dominant."

Overall, he increased his forecasts for bear, bull and base case scenarios for the company. 

But he highlighted that while "we don't disagree with the logic of how podcast could improve market share, it's just a matter of degree." And Juenger argued: "There are two important impediments we believe the bulls are missing." One is "geographic limitation" given that "all of these expensive, exclusive podcasts are only relevant in the U.S.; The other is the competitive response. "If this is such a big opportunity with important downstream network effects, do we really expect formidable competitors like Apple, Amazon, Google and Tencent will passively sit back and let Spotify capture it, unchallenged?" Juenger asked.

He concluded: "Our bull case ... still indicates a target price of $285, not much upside to current market." His base case scenario would get him to a $154 stock price, while his bear case would value the company at $71.

Said Juenger: "A 10 percent/70 percent/20 percent weighted blend of our three cases yields our blended target price of $172, which is 37 percent downside to current market price."