Morgan Stanley names this music stock a top pick, cites rising engagement and the industry's superstar year

Published Thu, Oct 12 20236:53 AM EDTUpdated Thu, Oct 12 202311:27 AM EDT

The gold rush in 2023 for Taylor Swift and Beyoncé's music should continue to bode well for shares of Spotify Technology , according to Morgan Stanley. Analyst Benjamin Swinburne named the music streaming company a top pick and reiterated his buy rating. Heightened engagement levels and ongoing innovation should fuel further market share gains and help the company hold onto pricing power, he added. "For investors, this rise in consumer engagement coincides with an industry 'grand bargain,' leading to [digital service provider] price increases, new payment models, and a collaborative approach to AI," Swinburne wrote. "Overall, these factors increase the appeal of investing in music and live entertainment, in our view." Spotify has nearly doubled in 2023 as investors rotate back into the growth trade, and the streaming stock may have even more room to run. The firm upped its price target to $190 from $185 a share, implying about 21% upside from Wednesday's close. In the near term, Swinburne remains confident in the company's ability to retain pricing power and anticipates an acceleration in revenue growth during the fourth quarter. He's also bracing for an expansion in gross margins in the new year due in part to an improvement within its podcast business. SPOT YTD mountain Spotify shares have nearly doubled since the start of 2023. Product improvements, combined with Premium subscriber and average revenue per user growth, should also enable Spotify to weather a difficult macro environment. Consensus estimates, he added, have also failed to take into account intermediate-term gross margin and earnings before interest and tax expectations. "Spotify is not only the market leader, but it may be gaining share thanks to its superior product offering," Swinburne said. The analyst's note comes as Taylor Swift's blockbuster The Eras Tour has taken the world by storm in 2023. The record-breaking event has sold out stadiums, led to an expensive resale ticket market and heads to theaters this weekend as a concert film that has already broken records, surpassing $100 million in ticket sales . — CNBC's Michael Bloom contributed reporting.