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Why Spotify Stock Is Going Down Today

By Rich Smith - Feb 23, 2021 at 2:37PM

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One single downgrade seems to be ruining a good day for the streaming service.

What happened

Shares of music streamer Spotify Technology (SPOT 1.42%) are following all the other tech stocks down on Tuesday. Its stock is off 5.1% as of 2:05 p.m. EST -- and maybe that's understandable. But it's still not right.

So what

On the one hand, sure, tech investors look spooked today by a sudden broad-based morning sell-off in tech stocks. And yes, it's also true that Spotify in particular got some bad news, when StreetInsider.com reported that analysts at Atlantic Equities have downgraded the stock to neutral.

Those are valid points -- but consider the counterpoints.

Firstly, yes, Atlantic downgraded Spotify to neutral, but it also set a price target of $370 on Spotify stock that currently costs just $333 and change. If you ask me, that's hardly bearish news.  

Second, contradicting Atlantic's downgrade, analysts at Rosenblatt Securities reiterated their buy rating on Spotify today and set a $425 price target, saying "it's hard not to see Spotify's global dominance continue."  

Third and finally, Morgan Stanley also reiterated a buy-equivalent rating on Spotify today -- admittedly with only a $350 price target that's below Atlantic's, but still above where Spotify trades today.  

Cartoon characters confused by stock chart arrow falling and crashing into floor

Image source: Getty Images.

Now what

Already, I think you'll agree that's at least two votes to one in Spotify's favor -- and all three analysts agree that the stock looks underpriced today. Topping off the good news, Spotify itself revealed in guidance at "Stream On" today that it is looking to grow sales more than 20% this year (a number that is ahead of analyst estimates), improve gross profit margins by 500 basis points, and potentially exceed 10% operating profit margins. Long term, says the company, it is targeting a global audience of 1 billion monthly average users of its services.  

For long-term investors in Spotify stock, that may be the best news of all.

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