Evercore Slams Spotify Stock With Scathing Bear Note

Shorts have been targeting Spotify recently

Jun 24, 2019 at 9:55 AM
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Spotify Technology SA (NYSE:SPOT) is trading lower this morning after a bruising bear note from Evercore ISI. The brokerage firm downgraded SPOT stock to "underperform" from "in line," and slashed its price target by $15 to $110 -- a nearly 26% discount to last night's close -- saying it doesn't see any way the music streaming service can meet Wall Street's elevated gross profit estimates.

In reaction, SPOT shares are down 0.6% to trade at $147.40, and could be headed for their first back-to-back losses since mid-June. More broadly, the stock has been rallying since its late-May low near $120, and topped out at a roughly eight-month high of $154.30. Plus, the equity is fresh off a four-week win streak, and is eyeing its first monthly win since February.

Skepticism has been ramping up, with short interest rising 27% in the two most recent reporting periods. Spotify's bearish bandwagon is far from full, though, considering the 4.26 million shares controlled by shorts accounts for just 4% of the stock's available float.

Some of these bears may have initiated an options hedge recently to guard against any additional upside risk. The out-of-the-money July 160 call has seen one of the biggest increases in open interest over the past two weeks, and data from Trade-Alert indicates some of the out-of-the-money calls were bought to open.

Regardless of whether the calls are being used as a hedge or a traditional bullish bet, now is an attractive time to purchase premium on Spotify. The stock's Schaeffer's Volatility Index (SVI) of 34% ranks in the 11th annual percentile, meaning short-term SPOT options are pricing in relatively low volatility expectations.

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