Given the unit’s price, there’s little doubt that an upgrade of the cartridge AND phono stage, would provide a major upgrade in sound. It was nice of them, to provide a bypass for their built-in phono stage, so you can.
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There are many, inexpensive phono stages available, that would work with the MM cart, provided. ie: https://www.musicdirect.com/equipment/phono-preamps/?category=Phono%2520Preamps&sort=popularity%... Personally, I'd do the cartridge first.
The LP-120 will make a wonderful gift and a serve as an entry into the vinyl experience. I was very much into vinyl myself, however have have switch to digital around 2011. I believe this TT ships with the AT-95E cartridge. I would get familiar with the TT's sonics as is prior to investing in the upgrades. In the meantime research moving magnet cartridges as I believe this type best suits this TT budget wise. MM cartridges load parameters are met by most budget phonostages. Research phonostages paying attention to cartridge output (mV) relative to phonostage gain (dB). Synergy between these devices is key.
Given you will have a new cartridge compatible with your TT I would consider upgrading the phonostage 1st. I believe the phonostage provided within the TT to be the weakest link. I would look into phonostages with 40db gain or higher. Many have flexible gain settings. Buying phonostage separate from cartridge may allow an increase in budget for each. After identifying those of interest start another thread here asking opinions.
Hope to hear from you after Christmas! Good luck in your vinyl quest.
I have recently bought the at lp120, and rega fono mm preamp. but there was veiling of high freq despite. read online. found that the bypass switch itself degrades HF and people were ripping that circuit board out. even a video or two online on how to do. so...returned the at lp120 and got instead the brand new at lp120x. AT says it has "improved preamp frequency response" . have verified that's true, but the bypass phono out is also no longer degraded HF response. the turntable sounds way better going out to my rega fono mm than the older model did, in short, it's a better sounding tt than the 120. then I upgraded the cart to ATVM540ML. now the tt sounds FANTASTIC and better with many of my older albums (80's) than their cd counterparts.
I LOVE my at lp120x now!