(Bloomberg) -- Universal Music Group NV’s shares fell as much as 30%, the biggest decline since the company’s initial public offering, after its subscription and streaming revenue growth disappointed investors.
The world’s biggest record label, which represents artists including Taylor Swift and Drake, said subscription revenue in recorded music grew 6.9% in constant currency terms in the second quarter, in a statement late on Wednesday. That missed average estimates for a growth of 11% in a Bloomberg survey of analysts.
Slowdowns in advertising revenue growth at Spotify Technology SA and YouTube were behind much of the weaker sales, though UMG is also running into roadblocks with social media companies that have become a key part of distributing its music, Chief Financial Officer Boyd Muir said on a call with reporters. Meta Platforms Inc. stopped licensing premium music videos from UMG for Facebook in May after finding they were less popular than other music products. The company’s dispute with TikTok also led to a month of lost revenue from that platform in the quarter.
While the revenue volatility may be temporary, “we expect the disappointment to weigh on sentiment” in the near term, Citi analyst Thomas Singlehurst in a note to clients.
The stock dropped 26% to €21.13 at 1:07 p.m. in Amsterdam on Thursday, after earlier falling to a low of €19.93.
Streaming revenue, which depends on the advertising market, declined 4% due to a “deceleration in growth at key advertising-based platform partners as well as shortfalls on certain platforms related to the timing of deal renewals,” the company said.
“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,” said Barclays analyst Julien Roch. “If paid streaming growth stays lower, we see UMG multiples falling,” he said.
Swift Impact
Swift, who has been on the money-spinning Eras Tour, continued to boost revenue as merchandising revenue soared 44% in the quarter. Top sellers for the quarter included releases from Swift, Billie Eilish, SEVENTEEN, Morgan Wallen and Ae! group, the company said. The company’s total revenue rose for a 12th consecutive quarter since its listing to €2.93 billion ($3.2 billion) from April through June, beating estimates, but that didn’t help the sentiment soured by concerns over its growth.
Universal Music’s biggest investors include billionaire hedge fund manager Bill Ackman, who holds a 10.3% stake via his various Pershing Square funds. The firm’s shareholders French media company Vivendi SE and Bollore SE also took a hit from Universal Music’s earnings, with both slipping more than 9% at their lows on Thursday. Spun off from Vivendi, Universal went public in Amsterdam in September 2021.
Universal Music has been pushing for platforms to compensate artists fairly and has advocated for a new streaming royalty model. The company started pulling its music from ByteDance Ltd.-owned TikTok in February after talks to extend a licensing deal failed. In May, it reached a deal with TikTok that included better pay for songwriters and artists, new promotional agreements and protections against AI-generated music.
Earlier this year, it kicked off a reorganization to generate €250 million in annual savings by 2026, including through job cuts.
--With assistance from James Cone and Sarah Jacob.
(Updates with shares and analyst voice in eighth paragraph)
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