Stock price expected to continue outperforming Netflix! Spotify receives bullish outlook from institutions, raised to $205.

According to Zhītōng Finance and Economics APP, in the U.S. stock market this year, the stock prices of two digital media companies have outperformed their traditional media counterparts - Spotify (SPOT.US) and Netflix (NFLX.US). However, as the second-quarter financial reports are about to be released, Wall Street investment firm KeyBanc believes that music streaming giant Spotify has shown stronger stock performance than video streaming giant Netflix, and is more likely to continue its strong upward trend. The firm recently raised its target price for Spotify to $205 and maintained a "buy" rating.

Analyst Justin Patterson from KeyBanc pointed out that competitors in the media industry such as Disney (DIS.US), Warner Bros. Discovery (WBD.US), Paramount (PARA.US), Comcast (CMCSA.US), Universal Music (UMGNF.US), and Warner Music (WMG.US) have significantly lagged behind Netflix and Spotify in terms of stock performance in 2023, with the two streaming giants seeing increases of 50% and 110% respectively.

This trend not only applies to the current year, but also on a narrower timeline since the second quarter of this year, Netflix and Spotify have outperformed these digital media companies and the S&P 500 index, a benchmark for the U.S. stock market.

According to the analyst, the stock prices of these digital media companies have benefited from streaming catalysts: for Netflix, important catalysts include cracking down on password sharing (i.e., paid sharing) and the company's executives exploring future revenue sources such as streaming advertising revenue; for Spotify, these catalysts include cost reduction, pricing adjustments, and the introduction of new subscription plans.

However, KeyBanc analyst Patterson expressed a stronger preference for Spotify and maintained a "buy" rating, citing one of the main reasons being his belief that the company will achieve profitability across the board in 2024 and beyond, although this point is still doubted by many investors.

As for Netflix, KeyBanc analyst Patterson gave it a "market perform" rating, stating, "In contrast, we believe investors have priced in the free cash flow volatility resulting from the crackdown on password sharing and may be overly optimistic about this unique event occurring in 2024."

He raised the expected revenue for Netflix in 2023 and 2024 by 1% and 2% respectively, and increased the expected earnings per share by approximately 5% and 6%, reflecting the impact of password sharing crackdown on Netflix. Similarly, he raised the expected free cash flow for 2023 and 2024 to $3.9 billion and $6 billion respectively, surpassing market expectations, and stated that revenue expectations are trending upward. Despite this, according to the analyst's latest expectations, Netflix's (2024) P/E ratio is 29.8 times. "We believe that the correction cycle is increasingly reflected in the stock price, while future risk factors (such as reduced new content during strikes and early pullbacks) are being overlooked."

As for Spotify, although the analyst slightly lowered its revenue expectations for Spotify in 2023 and 2024 by 0.3% to reflect the timing of price increases, the analyst expects Spotify's operating profit in 2024 to increase from the previous 59 million euros to 84 million euros due to cost savings and improved gross margins.

Analyst Patterson stated that based on the expected growth in profits, he has raised Spotify's target price to $205, which means a potential increase of up to 19% in the next 12 months.