Universal Music Group, a massive holding of Bill Ackman, sees stock-price tumble on streaming worries

By Steve Goldstein

Fixing to correct Citi's previous rating of the company.

Shares in Universal Music Group, a big holding of Bill Ackman's Pershing Square Capital Management, lost more than a quarter of their value on Thursday on concerns over streaming revenue.

The company reported a first-half profit surge of 46% to EUR914 million ($991 million), on a 7% rise in revenue to EUR5.53 billion.

Analysts polled by Visible Alpha expected a profit of EUR574 million and EUR5.48 billion in revenue.

But beyond the broader numbers, streaming and subscription revenue growth of 4.1% at constant currencies in the second quarter - the revenue splits are available on a quarterly basis - was well below the more than 10% forecast by analysts.

The subscription and streaming disappointment is particularly difficult for investors since that's a higher-margin business.

During the quarter, physical media at the Taylor Swift and Billie Eilish publisher surged 14.4% at constant currencies, to offset the streaming and subscription disappointment. But analysts say the physical media performance is often lumpy.

Universal Music (NL:UMG), listed in Amsterdam, skidded 27% to EUR20.65, its lowest level in a year.

Citigroup analysts led by Thomas Singlehurst downgraded the stock to hold from buy, citing two concerns. "The first is the unprecedented level of revenue volatility between different revenue lines. The second is that, just as we expected cash conversion to become cleaner, it appears to have got worse with a fairly significant step-up in net content investment," he said.

Barclays cuts its rating to equal-weight from overweight. "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. If paid streaming growth stays lower, we see UMG multiples falling," said analysts led by Julien Roch.

Ackman's Pershing Square, with a 10% stake, was the top shareholder in Universal Music outside of financier Vincent Bollore, according to FactSet data.

Ackman is raising funds for a U.S.-listed closed-end fund that could launch as early as next week. The Wall Street Journal reported its ambitions for funds at launch have already been downsized to $10 billion from $25 billion.

-Steve Goldstein

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

07-25-24 0645ET

Copyright (c) 2024 Dow Jones & Company, Inc.