StoneX cuts Spotify to Hold on margin pressure, label costs

Investing.com -- StoneX analyst Mark Zgutowicz downgraded Spotify to Hold from Buy in a new note to clients, citing limited catalysts for revenue per user over the next year alongside rising payments to record labels.

The shares are down 0.8% premarket on Thursday.

Zgutowicz told investors that he remains strongly convinced of Spotify’s long-term network effects but sees difficult financial optics over the coming 12 months.

He pointed to ongoing step-ups in per-subscriber minimums with major labels, which raise royalty costs on plans where those minimums bind, including discounted plans.

“We believe PSMs implemented over the past couple years have largely been shielded by Spotify’s premium price increases, the last of which anniversaries in Jan. ’27,” Zgutowicz wrote. “Absent another broad premium price increase in CY27 –noting already three increases in the last three years– we expect less gross-margin expansion in ‘27E than consensus anticipates.”

On product catalysts, the analyst said Spotify’s AI Remix remains a work in progress, lacking full major label participation. Spotify has agreements with Universal Music Group, Merlin and Kobalt, but Warner Music and Sony remain holdouts.

“We doubt it would generate meaningful paid uptake without at least one more major and therefore would not underwrite a scaled rollout before mid-‘27E,” he said, adding that paid AI covers and remixes could strengthen the labels’ negotiating hand.

StoneX trimmed its third-quarter revenue estimate to 4.98 billion euros, slightly below guidance of about 5 billion euros. It cut its fourth-quarter and 2027 premium gross margin forecasts by 40 and 30 basis points, to 35.4% and 35.3%.

Original Article

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