Universal Music Sheds $16 Billion in Market Value After Subscriptions, Streaming Growth Disappoint

By Mauro Orru

Universal Music Group lost roughly $16.38 billion in market value after the record label behind Taylor Swift, Billie Eilish and Ariana Grande posted revenue growth from subscriptions and streaming services well below what analysts had expected.

Shares in Amsterdam plunged more than 25% on Thursday, bringing the group's market value down to about 36.80 billion euros ($39.90 billion), according to FactSet. Universal's market value stood at roughly EUR52 billion on Wednesday.

The world's largest music company reported revenue of EUR2.93 billion for the three months to the end of June, up 9.6% on year at constant currency. Analysts had forecast revenue of EUR2.89 billion, according to consensus estimates compiled by Visible Alpha.

However, revenue from subscriptions and streaming grew just 4.1%, well below analysts' forecasts of more than 10%. Subscription and streaming services boomed at the height of the pandemic as listeners turned to digital platforms to enjoy their favorite artists when coronavirus restrictions brought live concerts to a standstill. However, growth has cooled in recent years.

"Investors bought UMG mostly for low-double-digit growth in paid streaming, in our view, the main basis for the rich valuation UMG trades at," Barclays analysts write in a note to clients. "If paid streaming growth stays lower, we see UMG multiples falling."

Universal said revenue from subscriptions increased 6.9% at constant currency to EUR1.14 billion, citing growth in its global subscriber base and the benefit of price increases across streaming platforms. Spotify Technology, Apple and Amazon.com all raised prices for their music streaming services in recent years, bringing in additional subscriptions revenue for record labels like Universal.

However, streaming revenue contracted 3.9% at constant currency to EUR343 million. Chief Financial Officer Boyd Muir said in an earnings call that while Spotify, YouTube and others had continued to report healthy growth in subscribers, other platforms Universal partners with had seen a slowdown in new subscriber additions.

Last-minute deal changes also added pressure on revenue, Muir said. Meta Platforms is no longer licensing premium music videos from Universal as of May and the record label also lost some revenue during its monthslong tussle with TikTok.

Universal's physical revenue, which includes CD and vinyl sales, grew more than 14% at constant currency to EUR357 million thanks to a favorable release schedule that fuelled vinyl sales in the U.S. and Europe. Taylor Swift, Billie Eilish, Seventeen, Morgan Wallen and Ae! group were among the top sellers for the quarter.

Adjusted earnings before interest, taxes, depreciation and amortization--a key profitability metric for Universal--climbed to EUR649 million from EUR590 million, generating a 22.1% adjusted margin. Analysts had forecast EUR645.4 million in adjusted Ebitda, according to Visible Alpha.

Write to Mauro Orru at mauro.orru@wsj.com

(END) Dow Jones Newswires

July 25, 2024 06:09 ET (10:09 GMT)

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