Citi analysts downgraded Spotify (NYSE:SPOT) from Buy to Neutral, maintaining a $190 price target in a recent report. The analysts commended Spotify’s strategy and execution but expressed concerns about the stock’s risk-reward balance.

They pointed out several reasons for caution based on consensus estimates: First, there are expectations of increasing Average Revenue Per User (ARPU) alongside a continuous decrease in churn rates. Second, they mentioned the expectation that paid user additions will keep growing, even as Spotify’s user base expands into developing markets. Furthermore, the analysts noted a decline in the efficiency of Spotify’s model, as seen in the decreasing conversion of Ad-supported Monthly Active Users (MAUs) to Premium subscriptions over the past six years.

This trend is expected to continue, especially as Spotify’s growth shifts towards less developed markets. This shift could pose a risk to the increase in Premium subscribers unless there’s an improvement in the conversion rate from Ad-supported to Premium service.

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