Morgan Stanley lowered its price target for Spotify (NYSE:SPOT) to $650.00 from $775.00 on Wednesday, while retaining an Overweight rating on the music streaming company. The firm also reinstated Spotify as a Top Pick, saying the company "enters this next chapter from a position of strength, aiming to build the first truly intelligent media platform."
At the time of the note, Spotify shares were trading at $476.02 and had returned 8.06% over the past week. According to InvestingPro data cited in the note, the stock appears slightly overvalued relative to its Fair Value assessment. InvestingPro also classifies Spotify as a "prominent player in the Entertainment industry" and assigns a "GREAT" overall financial health score of 3.11, indicating what the data-provider views as solid fundamentals to support the company’s strategic shifts.
Morgan Stanley framed the move as occurring amid a period of significant change at Spotify. The bank highlighted CEO Daniel Ek’s transition to a Chairman role and the company’s active embrace of generative AI capabilities. Analysts at Morgan Stanley expect Spotify to showcase additional AI-driven products and personalization enhancements at its analyst day planned for May.
On operational metrics, Morgan Stanley pointed to evidence that Spotify’s improved free tier has driven higher engagement, contributing to what the firm described as "top of funnel outperformance." That characterization was tied to the company’s strong user metrics: Spotify reported its largest-ever quarterly increase in monthly active users in fourth-quarter 2025, adding 38 million new accounts. The firm also noted that both fourth-quarter monthly active user net additions and first-quarter guidance exceeded estimates, underlining better-than-expected user momentum.
Financially, the research note reiterated outlooks for continued revenue strength. Spotify posted revenue growth of 11.89% over the last twelve months and an impressive five-year revenue compound annual growth rate of 18%. Morgan Stanley said gross margin expansion remains on track, with benefits from price increases expected to outpace net content cost growth in 2026.
However, the bank singled out operating margins as "perhaps the only area lower than our expectations." To reflect that gap, Morgan Stanley increased its projections for marketing and research and development expenses in 2026. The firm attributed its lower price target in part to a "broader comp group de-rating," yet maintained its Overweight view with a valuation roughly equivalent to 30 times estimated 2027 free cash flow per share.
The note comes amid a wave of analyst updates that show differing assessments of Spotify’s prospects. Independent commentary singled out the company’s fourth-quarter results and subsequent guidance as key validation points for several brokers. Guggenheim described the quarter as a "broad-based beat" and moderated its price target to $720 while retaining a Buy rating and noting higher capital costs.
Other firms also provided updated views: IndeRes upgraded Spotify to Buy and raised its price target to $595, citing strong fourth-quarter performance and better-than-expected profitability and user growth. Citizens left its Market Outperform rating intact with a $800 price target, emphasizing structural advantages. MoffettNathanson lifted its target to $514 and pointed to Spotify’s ability to expand gross margins despite upcoming label renewals. Meanwhile, Goldman Sachs trimmed its price target to $670 but kept a Buy rating after updating operating estimates.
Taken together, the analyst activity reflects a mix of optimism about user growth, AI-led product opportunities and margin expansion, alongside concerns around operating profit conversion and sector valuation dynamics. Investors and market observers will likely watch May’s analyst day for further detail on AI initiatives and product roadmaps that Morgan Stanley and others cited as central to Spotify’s next phase of growth.
Summary
Morgan Stanley cut its Spotify price target to $650.00 from $775.00 but maintained an Overweight rating and reinstated Spotify as a Top Pick. The bank highlighted strong user growth, continued revenue momentum and planned AI product rollouts, while noting operating margin pressures that led to higher 2026 expense forecasts. A range of other analyst revisions produced price targets from $514 to $800 and mixed ratings, illustrating divergent views across the broker community.
Key points
- Morgan Stanley lowered its Spotify price target to $650.00, kept an Overweight rating and reinstated the company as a Top Pick - sectors impacted include Technology and Entertainment.
- Spotify reported its largest-ever quarterly monthly active user gain of 38 million in Q4 2025 and produced revenue growth of 11.89% over the last twelve months, with a five-year revenue CAGR of 18% - relevant to investor sentiment and digital media monetization strategies.
- Analyst adjustments across firms produced a wide range of price targets - from $514 at MoffettNathanson to $800 at Citizens - reflecting varied assumptions about margins, label costs and capital intensity.
Risks and uncertainties
- Operating margin pressure: Morgan Stanley noted operating margins were "perhaps the only area lower than our expectations," and increased marketing and R&D expense projections for 2026 - this affects profitability in the Entertainment and Tech sectors.
- Sector valuation dynamics: The lower price target was attributed in part to a "broader comp group de-rating," creating uncertainty around relative valuations for media and streaming peers.
- Content and label renewal timing: While some analysts pointed to gross margin expansion, upcoming label renewals were specifically mentioned by MoffettNathanson as a pressure point for margin assumptions.