Spotify's latest move to expand its audiobook offerings to subscribers isn't without risks, according to Redburn Atlantic. The firm downgraded the music streaming giant to neutral and lowered its price target to $160 from $170. Redburn's new forecast implies less than 1% downside from Friday's $160.53 close. Spotify stock has surged more than 103% in 2023. SPOT YTD mountain Spotify year to date Analyst Agnieszka Pustula said Spotify's new audiobook offer doesn't fit into the firm's original forecast for margin expansion and will instead serve to be dilutive, while simultaneously stoking competition from Amazon. "We estimate immediate audiobook royalty costs to reach c€80 million for the launch in the UK and Australia, with an additional €180m in costs for the US," Pustula. "In total this could erase 200bp of gross margin. Furthermore, we estimate that new subscribers that immediately take up audiobooks would generate negative gross margins." The analyst added that while the new offering is "strategically important" over the long-term, Spotify is risking giving Amazon even more of an advantage in audiobooks if the e-commerce giant responds by bundling Audible with Amazon Music. "Amazon's Audible is currently the market leader in audiobooks and there is a risk it would bundle it up with music, diminishing the competitive advantage and the pricing power of Spotify," Pustula said. — CNBC's Michael Bloom contributed to this report.
