Spotify Technology is the IBD Stock Of The Day as investors respond positively to the streaming music leader improving its ad-supported free service and its premium subscription service.
The Stockholm-based company on Monday announced upgrades to its service for free users. Spotify said free users globally now will be able to search and play any song they want or play a song shared by a friend or an artist they follow on social media.
Last week, Spotify launched high-quality, lossless music streaming for its paying users.
On the stock market today, Spotify stock neared a buy point of 748.30 from a cup-with-handle base. The 5% buy zone extends to 785.72, based on IBD trading principles.
However, based on IBD analysis, the stock was actionable after breaking above a trendline near 715, as well as a short-term high of 727.
Spotify stock rose 3.8% to close at 743.12.
The company ended the second quarter with 276 million subscribers worldwide, after adding 8 million paying users in Q2. Also, Spotify tallied 696 million monthly active users (MAUs) in the June quarter.
On Monday, KeyBanc Capital Markets analyst Justin Patterson reiterated his overweight, or buy, rating on Spotify stock with a price target of 830.
In a client note, Patterson said the improvements to Spotify's free service should improve advertising revenue and drive free-to-paid conversion.
Spotify Stock Ranks Second In Group
"By making incremental improvements to the user experience and giving listeners a taste of premium features, we believe this could encourage upgrades to paid tiers," Patterson said. "For those listeners that do not convert to paid tiers, we believe incremental listening hours may also benefit advertising load and ad-supported revenue growth."
Before the changes to the free tier, listeners were limited to consuming music through playlists and albums, not a particular song.
"Over the near term, we believe this could drive an uptick in MAUs," Patterson said. "We expect Spotify's updated free tier will receive significant publicity."
Spotify stock ranks second out of 20 stocks in IBD's Computer Software-Education/Media industry group, according to IBD Stock Checkup.
However, it has a middling IBD Composite Rating of 59 out of 99. The Composite Rating scores a stock's key growth metrics against all other stocks regardless of industry group.
Follow Patrick Seitz on X at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.
