The shares of streaming music giant Spotify Technology (NYSE: SPOT) rose as much as 11.4% on 4th January and by the time the market shut shop, SPOT was up 8.6%
After an under-performing December, where stock that crashed to an all-time low, in December, trading briefly at $119.89, Spotify shares bounced back with more than 10% increase bringing it to $121.47.
Analysts, however, predict that it is likely that the stock’s gain reflects a big increase for the overall market on Friday, particularly for growth stocks like Spotify.
MKM Partners analyst Rob Sanderson, calling this as a comeback, explained that one of the reasons why Spotify experienced an exaggerated decline was the company had skipped the conventional IPO process which includes institutional investors buying large blocks of shares. This move particularly came to light when the Spotify stocks experienced a downturn. Smaller investors cut-and-run much faster than established institutions, which didn’t help Spotify.
“We conclude that the valuation reset is mainly attributable to a drastic change in risk appetite, perhaps amplified by an investor base with fewer ‘anchor’ investors than peers. A generous portion of IPO shares are typically allocated to tier-one, blue-chip funds intending to be long term holders and accumulators of the stock.”
But aside from MKM, other analysts are quietly bullish on Spotify. Many have softened their price targets, with $200-plus projections quietly ‘adjusted’ to reflect the sobriety of the current markets. But for the most part, analysts are maintaining ‘Buy’ ratings on the stock, while nervously watching the action from the sidelines.