Spotify Leads Potential Price Increase Wave in Audio Streaming Services

Following new pricing increases for its premium US membership plans, Wall Street bulls continue to laud Spotify's (SPOT) outlook, which has led to a spike in the company's shares. The stock has increased by almost 70% since the beginning of the year.

The impending price increases, which start in July and range from $1 to $3 depending on the plan, come after certain plans' earlier increases from the previous summer. To the dismay of customers, analysts predict that the action may result in further rises for competing music streaming services.

Morgan Stanley analyst Benjamin Swinburne noted that given the size (9% to 18%) and frequency (second increase in less than a year) of Spotify's price hikes, other streaming services are likely to follow suit. However, competitors might lack Spotify's pricing power and could be more hesitant to raise their prices.

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

Swinburne, with a $370 price target and Overweight rating on Spotify shares, indicated that the upcoming price hikes are larger and earlier than anticipated. This points to potential growth in average revenue per user and overall revenue in the second half of the year.

He believes Spotify's strong user engagement and low churn rates should enable the company to implement these price increases while still meeting expectations for net subscriber additions.

In comparison, Apple Music's individual plan costs $10.99 per month, with a family plan at $16.99, having raised prices only once in October 2022. YouTube Music, included with YouTube Premium at $13.99 per month, has similar pricing for its individual and family plans.

Amazon Music Pricing and Spotify's Strategic Moves for Growth

Similar to this, a $14.99 Prime membership grants access to Amazon Music (AMZN), but Prime users who wish to subscribe to the Amazon Music Unlimited plan must pay an extra $9.99 each month. For non-Prime members, the monthly family plan is $14.99, while the individual plan costs $10.99.

Spotify beat on the majority of its key KPIs and generated a profit in the first quarter. Additionally, it predicted increased operating income and sales for the current quarter.

In an effort to enhance profitability, Spotify has committed to price hikes over the past year in addition to many rounds of layoffs and other measures. The business announced that, following its billion-dollar foray into the congested podcast sector, it will be more deliberate about its future investments.

In April, Spotify CEO Daniel Ek confirmed the platform will offer multiple subscription tiers to attract as many users as possible, including a music-only tier and an audiobook-only tier, and hinted at plans to raise prices again following last year's hikes that "had minimal impacts on growth."

Reiterating his Overweight rating on the shares and raising his price target from $365 to $375, JPMorgan analyst Doug Anmuth expressed his belief that the pricing hikes will lead to "favorable unit economics for Spotify."

In April, less than 1.5% of Spotify users terminated their subscriptions, according to market research company Antenna. Since the year's beginning, its average churn rate has been consistent at 2%.

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