"Given the magnitude 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 stated in a note published earlier this week. However, competitors "may not have the same pricing power as Spotify and may be more reluctant broadly."
Spotify's family plan will increase to $19.99 per month from $16.99. Duo plans, which allow two users to share an account, will rise by $2 to $16.99. Spotify Premium subscriptions will now cost $11.99 a month, an increase of $1.
Swinburne, who maintains a $370 price target and an Overweight rating on Spotify shares, indicated that these hikes "are larger and earlier than forecasted." This points to potential upside for average revenue per user and overall revenue growth in the second half of the year.
"We believe Spotify's strong engagement levels and industry-low churn should allow it to implement these increases while still meeting net addition expectations," he noted.
In comparison, Apple Music (AAPL) charges $10.99 per month for individual plans and $16.99 for family plans, with its last price hike in October 2022. Meanwhile, YouTube Music (GOOGL, GOOG) has similar pricing for its plans, and it is also included in the YouTube Premium subscription, which costs $13.99 monthly.
Similarly, Amazon Music (AMZN) is available for free with a $14.99 Prime membership. However, Prime members who want Amazon Music Unlimited will pay an additional $9.99 per month. The individual plan costs $10.99 for non-Prime members, while the family plan is priced at $14.99 monthly.
Spotify 'has pricing power' Spotify posted a profit in the first quarter, surpassing most of its key metrics and forecasting higher revenue and operating income for the current quarter. Over the past year, Spotify has committed to price increases, multiple rounds of layoffs, and other initiatives aimed at improving profitability. The company stated it would be more strategic about future investments after spending billions on expanding its podcast market presence.
During the first-quarter earnings call in April, Spotify CEO Daniel Ek hinted at plans for further price hikes following last year's increases, which "had minimal impacts on growth." He also confirmed the platform would offer various subscription tiers to attract a broader user base, including music-only and audiobook-only tiers.
"The more value we create, the more ability we will have to then capture some of that value through price increases," Ek stated.
JPMorgan analyst Doug Anmuth, who reiterated his Overweight rating on Spotify shares and raised his price target to $375 from $365, believes the price increases will result in "favorable unit economics for Spotify."
"Spotify cited churn in line with expectations and better than expected gross adds following the 2023 price increases, suggesting the company has pricing power," Anmuth wrote on Monday. "Spotify’s extensive data, strong content curation, personalization, discovery, and ubiquity are best-in-class and 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 plans in April, with an average churn rate hovering around 2% since the start of the year.
"Looking ahead, we anticipate a more normalized cadence of price increases across the music streaming industry," Anmuth added. "We believe Spotify maintains long-term pricing power given its reach (615 million monthly active users, 239 million Premium Subscribers), leading market share, and ability to improve and expand its product offering."
