The stock's recent rally indicates that investors are overoptimistic about how gross margin will develop and about the outcome of negotiations with music labels, analyst Kevin Rippey in New York said in a June 24 report.
The stock is up about 20% in the past month. Spotify on Monday closed 1.2% higher at $150.12 on the New York Stock Exchange.
Rippey pared his price target to $110 from $125.
The analyst said that in the medium term, he didn't think Spotify could generate the kind of gross profit it would need to meet Wall Street estimates.
While Spotify leads the industry in subscriptions, competition is sharp, reducing the company's leverage with music labels, the analyst said.
At March 31, Spotify had 217 million monthly active users and 100 million subscribers.
In April, Spotify reported a first-quarter net loss of €142 million ($161.7 million), or €0.79 a share, narrowed from a loss of €169 million, or €1.01 a share, in the year-earlier period. Revenue rose 33% to €1.51 billion from €1.14 billion.