Universal Music Group’s announcement last month that second-quarter revenue was up about 10% year over year didn’t stop the market from reacting negatively.
Wall Street analysts disappointed that UMG’s subscription streaming revenue ‘only’ grew Annual growth of 6.9% during this quarter. Several institutions have downgraded the company’s stock rating, and UMG’s stock price remains at 17% Earnings were lower than before the second quarter.
One man who isn’t worried about Universal Music Group’s single-digit subscription revenue growth — or the ensuing stock price plunge — is Bill Ackerman.
Ackerman’s Pershing Square Holdings, Inc., Owns approx. 10% Universal Music Group recently announced its interim financial report for the first half of 2024.
“We think UMG is underperforming [in Q2] This will prove to be short-term and will not impact our view of Universal Music Group’s mid- to long-term growth prospects,” the company wrote in its financial report.
It also said it believed music “has a long way to go in its future growth as it remains under-monetized relative to historical and other forms of media”.
Pershing Square also said in a report released last week that the stock market has overreacted to UMG’s subscription streaming revenue growth.
The company added: “Similar to investors’ initial overreaction to concerns about the potential negative impacts of artificial intelligence, UMG shares quickly recovered as the market better understood the risks of artificial intelligence, and we believe that as investors better understood UMG’s path to higher revenue growth and renewed confidence in the long-term health of the industry could see the company’s stock price rise significantly from current levels.
pershing square boss Bill AckermanIn a letter to PSH shareholders printed at the top of the report, he described the current stock market environment this way: “The stock market has surprised investors by exhibiting huge single-stock price swings for even the largest companies. The overall results are even slightly lower than expected, or small mistake Certain business metrics are closely watched, and Universal Music Group is one example in our portfolio.
Elsewhere in the interim report, Pershing Square told shareholders it “expected[s] The industry is improving monetization through new products and services,” noting “better segmentation of customers,” such as “higher price tiers and higher subscription prices.”
Spotify CEO Daniel Ek confirmed during the streaming company’s earnings call last month that the company was developing a pricier “Deluxe room” tier, costs approximately $17/$18 per month.
Universal’s leadership team cited a statistic during its second-quarter earnings call that suggests one in five Spotify users might be willing to pay for the pricier “Super Premium” tier.
Chief Financial Officer and Chief Operating Officer, UMG Boyd Muir “Our research and analysis suggests that up to 20% of the current subscriber base could upgrade to the ultra-premium tier at significantly higher prices for a compelling product configuration that offers enhanced functionality,” analysts told analysts and access to exclusive content.”
It is expected that Spotify’s “luxury” tier may include additional product features, such as a “super fan” experience and HiFi audio.
Meanwhile, commenting on the possibility of further increases in music subscription prices, Pershing Square noted in its report that “there is ample room for upside in the coming years, as music subscription prices have remained flat for nearly a decade until some recent rise”.
It added: “As the industry matures in developed markets, ad-supported users who receive free music can now charge a monthly subscription fee, as is typical in the video streaming industry.”
MBW asked Universal and its rivals earlier this month whether they would soon reverse Spotify’s free ad-supported tier.
In the second quarter of 2024 (the three months to the end of June), UMG beat analyst expectations, posting US$3.15 billion (€2.932 billion), growth across all sectors including recorded music, publishing, etc. Annual growth of 9.6% Calculated at a fixed exchange rate.
Another key highlight of the quarter: Adjusted EBITDA growth Annual increase of 11.3% to 649 million euros ($699 million).
Despite strong overall revenue, UMG’s subscription streaming revenue fell short of analysts’ expectations, and as mentioned, revenue rose Annual growth of 6.9% (At a fixed exchange rate). Some analysts expect annual growth of about 11%.
Analysts at Guggenheim, Citi, Barclays and Wells Fargo downgraded Universal Music Group’s stock following the second-quarter announcement.
On the day after the company’s results were released (July 25), UMG’s share price fell by more than 23% on Euronext Amsterdam.
Pershing Square has some 10.25% UMG is the third largest shareholder, after Concerto Partners, a consortium led by Tencent (holding about 20% of the shares) and former Vivendi President Vincent Bolloré (holding 18% of the shares).
In a statement to PSH shareholders at the top of the company’s interim financial report, Pershing Square Chairman Rupert Morley noted, “Each of PSH’s portfolio companies continued to perform well in the first half of the year. business progress and their intrinsic value remains sound.
However, Morley noted that “subsequent poor performance [PSH’s] The NAV relative to the S&P 500 was driven primarily by a sharp decline in the share price of Universal Music Group, PSH’s largest holding company.
Bill Ackman Pershing Square Capital Management The initial public offering (IPO) of its new U.S.-based closed-end investment management fund was terminated.
The divestment follows a regulatory review by the U.S. Securities and Exchange Commission (SEC), which is expected to request more details about the closed-end fund before approving the IPO price.
You can read Pershing Square’s full first half 2024 investor update on UMG:
Universal Music Group’s shares fell sharply after it reported results last month. While the company’s overall revenue growth of 10% and operating income growth of 11% were both strong, key metric subscription and streaming revenue growth slowed in the quarter, down from double-digit growth recently to mid-teens. digit growth rate. We believe the reason for the disappointing subscription and streaming growth this quarter is due to certain idiosyncratic factors unique to Universal Music Group and the softer overall economic environment. However, the performance of UMG’s peers proves that music streaming is still growing at a healthy pace.
We believe that Universal Music Group’s underperformance this quarter will prove to be short-term and will not affect our view of Universal Music Group’s mid- to long-term growth prospects. We continue to believe that music has a long way to go in its future growth, as music is still less monetized than it has historically been, and compared to other forms of media. We expect the industry to improve monetization and better segment customers through new products and services, including higher price tiers and higher subscription prices.
UMG’s subscription revenue grew 7%, slowing from 13% in the previous quarter as the company began to catch up with last year’s price increases. Slowing growth among certain digital service providers (“DSPs”) offset strong growth at Spotify and YouTube. While quarterly results may fluctuate, we believe UMG has a healthy business in each of its core DSPs and that UMG can further drive streaming and subscription growth by working with its DSP partners to improve its offerings. The company is currently working with Spotify to launch premium products for super fans, which UMG estimates could ultimately be adopted by as many as 20% of Spotify’s user base.
We think there’s plenty of room to improve pricing in the coming years, as music subscription prices have remained flat for nearly a decade until some recent increases. As the industry matures in developed markets, ad-supported users who get free music can now charge a monthly subscription fee, as is typical in the video streaming industry. While all the major DSPs have increased their individual subscription prices from $9.99 to $10.99, only Spotify and Deezer have raised their prices to $11.99, and only in certain regions and on certain packages.
UMG’s streaming revenue (revenue from ad-supported music) fell 4% in the quarter, a sharp slowdown from double-digit growth last quarter as economic uncertainty led to a drop in ad revenue from its largest partners. slow. The decline was also due to the fact that TikTok had no revenue and negotiations for a new deal did not begin until early May. UMG’s revenue from Meta is also temporarily down while the two companies work together to reach a more comprehensive deal that will boost other aspects of the relationship. While streaming revenues are more difficult to predict because they are more susceptible to economic conditions, we believe that over the long term they should grow at a rate similar to or higher than subscription revenue growth.
The UMG management team, led by Sir Lucian Grainge, has a long track record of developing and shaping the music market by working with partners to innovate creative solutions to drive growth. For example, UMG’s efforts have led to industry-wide adoption of “artist-centric” initiatives that will result in a greater share of streaming royalties for its artists. UMG is also leading the industry by working with partners to launch new products to capitalize on the growth opportunities of artificial intelligence, while ensuring regulatory and legal protection for its artists.
Similar to how investors initially overreacted to concerns about the potential negative impacts of AI, but as the market better understood the risks of AI, UMG shares quickly recovered, and we believe UMG will achieve higher revenue growth as investors better understand the risks. path, and to regain confidence in UMG and the long-term healthy development of the industry, the company’s stock price may rise significantly from the current level. To this end, the company will host a Capital Markets Day event in September, an ideal forum for management to provide investors with more detailed information about its business and long-term growth opportunities. Given Universal Music Group’s strong market position and long path to continued profitable growth, we believe the company is currently trading at a significant discount to its intrinsic value.
global music business
