KeyBanc analyst Justin Patterson reiterated an Overweight rating on Spotify Technology SA (NYSE:SPOT) with a price target of 410, up from $400.

Patterson updated his model and framed vital factors to watch ahead of the print.

Given recent pricing changes, the analyst noted that the consensus may be too aggressive on third-quarter Premium Subscriber net adds.

While Patterson is mindful that near-term net add guidance can weigh on the stock, he noted that this misses the bigger picture.

The consensus appears too conservative on 2025 – 2026 revenue growth, gross margin, and operating margin, and valuation remains favorable for a consumer staple with pricing power, as per the analyst.

The analyst raised his 2024, 2025, and 2026 revenue by ~1% annually.

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Patterson now expects 15.6 billion euros, 18.3 billion euros, and 20.9 billion euros, reflecting higher Premium revenue from pricing and plan mix.

While the analyst's 2024 operating profit forecast declines by ~4% to 1.0 billion euros (margin of 6.5%) on higher social charges, his 2025 and 2026 operating profit forecasts increase by 2% and greater than 1% to reflect higher gross margin and operating leverage.

Patterson expects second-quarter MAUs to be in line at 631 million and an upward bias to his and Street Premium Subscribers of 245 million, equating to net adds of 16 million and 6 million, respectively.

The analyst expects second-quarter revenue to be likely in line at ~3.8 billion euros—he expects Premium and Ad-Supported growth of +20% and +17% year-on-year, respectively.

Patterson projects a gross margin of 28.3% versus a consensus of 28.1%. The analyst expects an operating margin below consensus due to social charges.

Patterson expects third-quarter revenue of 3.95 billion euros—4.0 billion euros, compared to his and the Street's forecasts of 3.97 billion euros and 4.0 billion euros. The lower forecast vs. consensus reflects more modest Ad-Supported revenue.

Patterson projects softer MAU and Premium Subscriber net adds, given price increases.

He is skeptical that Spotify guides to Visible Alpha consensus for 20 million MAU net adds and 6 million Premium Subscriber net adds. He noted that 16 million and 4 million, respectively, are more likely.

Patterson projects a gross margin of 28.9%.

The analyst projects an operating profit of over 300 million euros. Given margin improvement, he noted that operating profit could exceed 300 million euros by 5-10%.

Patterson noted that the degree of upside will be dictated by whether Spotify chooses to reinvest in marketing and whether there are any legal costs related to industry disputes.

SPOT price action: Spotify shares traded lower by 0.38% at $310.38 at the last check on Wednesday.

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Photo courtesy of Spotify