Spotify’s post-earnings selloff created a buying opportunity for investors, according to Deutsche Bank. The bank upgraded the music streaming service to buy from hold Wednesday. It’s $180 price target implies upside of 25% from Tuesday’s close. Spotify on Tuesday reported weaker-than-expected second-quarter revenue and disappointing top-line guidance for the third quarter. The stock tumbled more than 14% on the report. But analyst Benjamin Black said that Spotify’s results are a function of currency fluctuations as opposed to a fundamental company issue, adding the selloff is overdone. SPOT YTD mountain Spotify stock slumped more than 14% after reporting quarterly results on Tuesday. “We came away from the print modestly more constructive, as top-of-funnel metrics continue to outpace expectations, 3Q gross margin guide came in above consensus (though admittedly in line with buyside bogeys), and operating losses narrowed once again,” Black said. The analyst also highlighted the higher subscription cost structure from Spotify going forward as well as investments in podcasts and stronger ad spending as a catalyst for future growth. “While we think improved headline royalty rates are unlikely, we do think lower per-stream guarantees on the ad-supported side and perhaps higher marketplace commitments remain a real possibility, which could potentially present a gross margin upside catalyst from the 4Q onward,” he said. Despite Tuesday’s steep decline, Spotify shares are up more than 77% year to date. — CNBC’s Michael Bloom contributed to this report.
