Equity valuation

: Spotify

Abstract

The aim of this dissertation is to determine a target price for the shares of Spotify, a Swedish streaming media audio platform, and provide an investment recommendation. The stock has been very volatile in the last 2 years, passing from all time high value of €315 to all time low of €78. Since its IPO it is down of 12,86%. It is therefore of interest to understand if the stock is now trading at a fair price. Three valuation methods are presented, the discounted cash-flow method, comparable company analysis, and customer lifetime value. Within the DCF, a 10 year forecast was computed with the model estimating financials in the period 2023 to 2033. The analyst has made assumptions that best fit the current macroeconomic and geopolitical landscape, considering, for example, increases and impact of inflation, and digitalization of developing countries. The discount rate used was the Weighted Average Cost of Capital using the Capital Asset Pricing Model method to forecast the cost of equity. Within the comparable company analysis, multiples utilized were computed on a forward-looking and backward-looking basis, these being: EV/Sales; EV/EBITDA; P/S; EV/GP. With regards to Customer Lifetime value, the mode was run on the period 2020-2040, with forecast of Spotify financials extended by 7 years compared to the DCF. The research results in a SELL investment recommendation, with a target price set of €118,18, representing a 9,18% overvaluation relative to the price the stock was trading at on July 27th, 2023 (€130,91).

Date of Award	17 Oct 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	José Carlos Tudela Martins (Supervisor)