Shares of audio streaming and media services provider Spotify (NYSE:SPOT) hit a snag on Monday as management announced price hikes for its premium subscription plans. Primarily, the move aligns with the enterprise’s efforts to bolster profitability amid a difficult economic environment. However, that same environment also imposes a difficult balance for SPOT stock, which tightropes between financial and consumer concerns.
According to a Reuters report, Spotify earlier today raised prices across several countries, including the U.S. and the U.K. “The move will result in a $1 price increase for Spotify’s U.S. plans, with the premium single now starting at $10.99, duo at $14.99, family at $16.99 and the student plan at $5.99,” the news agency stated.
Unfortunately, investors took a dim view regarding the matter, sending SPOT stock down 5% in the late morning session. Still, it’s not an entirely unexpected decision.
Per Reuters, rival services by Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) have all issued price hikes this year. Further, YouTube – under the Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) umbrella – also raised prices last week on its monthly and annual premium plans.
SPOT Stock Slipped as the Industry Faces Tough Decisions
In all fairness, it would be inaccurate to characterize SPOT stock as a troubled investment. Since the beginning of this year, shares have approximately doubled in market value. Still, Monday’s red ink represents a significant departure from SPOT’s robust performance so far in 2023.
Fundamentally, management likely felt it had little choice but to raise prices for its premium plans. According to investment data aggregator Gurufocus, SPOT stock benefits from a solid top-line trend. On a per-share basis, Spotify’s three-year revenue growth rate clocks in at 15.2%. This stat ranks better than 64.93% of companies listed in the interactive media space.
At the same time, the company’s trailing-year operating and net margins sits at 6.66% and 6.51% below zero, respectively. While the Spotify brand continues to gain prominence, it consistently produces red ink on the bottom line. As of the first quarter of 2023, Spotify’s retained losses amount to $4.15 billion.
Throughout this year, management announced layoffs in a bid to improve profitability. Naturally, the price hikes align with this goal. However, the move may be a double-edged sword as it may alienate consumers for the same reason why Spotify made the decision: an ambiguous economic backdrop.
Analysts Remain Optimistic
For now, analysts remain bullish on SPOT stock, pegging shares a consensus moderate buy. This assessment breaks down as 17 buys, seven holds and zero sells. However, the average price target lands at $171.75, representing only 5% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
