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Wall Street praises Spotify price hikes — and notes other audio streamers should follow suit

Spotify (SPOT) shares have surged as Wall Street bulls continue to praise the company's outlook on the heels of fresh price hikes for its premium US subscription plans. The stock is up about 70% since the start of the year.

The upcoming price hikes, which begin in July and are between $1 and $3, depending on the plan, follow previous hikes of certain plans implemented last summer. Analysts say the move could mean more increases for other music streamers — much to the chagrin of consumers.

"Given the size of these Spotify increases (9% to 18%) and the frequency (second time in less than a year), we believe other [streamers] should follow suit," Morgan Stanley analyst Benjamin Swinburne wrote in a note published earlier this week. Still, competitors "may not have the same pricing power as Spotify and may be more reluctant broadly."

Spotify's family plan will rise to $19.99 per month from $16.99. Duo plans, which allow two users to share an account, will increase by $2 to $16.99. Spotify Premium subscriptions will now cost $11.99 a month, an increase of $1.

Swinburne, who boasts a $370 price target and Overweight rating on shares, said the upcoming hikes "are larger and earlier than forecasted." This suggests potential upside to average revenue per user and revenue growth in the second half of the year.

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"We believe Spotify's strong engagement levels and industry low churn should allow it to execute these increases and still deliver on net adds expectations," he said.

To compare, Apple Music's (AAPL) individual plan costs $10.99 a month, while its family plan sits at $16.99. It's only raised prices once, in October 2022. Meanwhile, YouTube Music (GOOGL, GOOG) boasts the same costs for its respective plans, although it's also an included option for customers who subscribe to YouTube Premium, which carries a monthly cost of $13.99.

Similarly, Amazon Music (AMZN) is free with a $14.99 Prime membership but Prime members who want access to the Amazon Music Unlimited plan will have to pay an additional $9.99 a month. The individual plan costs $10.99 for non-Prime members, while the monthly family plan clocks in at $14.99.

Spotify turned a profit in the first quarter and beat on most of its key metrics. It also guided to higher revenue and operating income for the current quarter.

Over the past year, Spotify has committed to price increases in addition to multiple rounds of layoffs and other initiatives to improve profitability. The company said it would be more intentional about future investments after spending billions on its push into the crowded podcast market.

During the company's first quarter earnings call in April, Spotify CEO Daniel Ek hinted at plans to raise prices again after last year's hikes "had minimal impacts on growth." He also confirmed the platform will offer various subscription tiers to attract as many users as possible, including a music-only tier and an audiobook-only tier.

"The more value we create, the more ability we will have to then capture some of that value by price increases," Ek said at the time.

The Spotify logo hangs on the facade of the New York Stock Exchange with U.S. and a Swiss flag as the company lists it's stock with a direct listing in New York, U.S., April 3, 2018.  REUTERS/Lucas Jackson
The Spotify logo hangs on the facade of the New York Stock Exchange with American and Swiss flags as the company lists its stock with a direct listing in New York, April 3, 2018. (REUTERS/Lucas Jackson) (REUTERS / Reuters)

JPMorgan analyst Doug Anmuth, who reiterated his Overweight rating on shares and boosted his price target to $375 from $365, said he believes the price increases will result in "favorable unit economics for Spotify."

"Spotify cited churn in-line with expectations & better than expected gross adds following 2023 price increases, suggesting the company has pricing power," Anmuth wrote on Monday. "Spotify’s deep data & strong content curation, personalization, discovery, & ubiquity are best-in-class & hard to replicate, making it unappealing for consumers to switch platforms."

According to market research firm Antenna, fewer than 1.5% of Spotify subscribers canceled their subscription plans in April. Its average churn rate has hovered around 2% since the start of the year.

"Looking ahead, we expect a more normalized cadence of price increases across the music streaming industry," Anmuth said. "We believe that Spotify maintains longterm pricing power given the company’s reach (615M monthly active users, 239M Premium Subscribers), leading market share, & ability to improve & expand its product offering."

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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