Universal Music Group (UMG), the world's largest music label representing artists like Taylor Swift, Drake, and Justin Bieber, saw its share price plummet by 23% on Thursday after reporting disappointing results for its streaming and subscription businesses.
The company's second-quarter subscription revenue grew by a sluggish 6.9% year-over-year, excluding foreign exchange (FX). This marks a significant slowdown from the 12.5% growth seen in the first quarter and falls short of Bloomberg consensus estimates of 11% growth.
Streaming revenue also took a hit, declining by 3.9% ex-FX in the second quarter, a dramatic reversal from the 10.3% growth recorded in Q1. UMG attributed this decline 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 has faced challenges in recent months with deals involving social media platforms, a popular channel for music distribution. In May, UMG terminated its partnership with Meta Platforms (META) for licensing premium music videos on Facebook, citing low user engagement with the product.
Furthermore, UMG lost a month's worth of revenue during a high-profile licensing dispute with TikTok, which has since been resolved.
Citi analyst Thomas Singlehurst downgraded UMG shares to Neutral from Buy, citing near-term concerns about investor sentiment despite potential short-term volatility.
During the earnings call, UMG vice president and CFO Boyd Muir attributed the slowing subscription growth to factors like the timing of price increases by its partners, including streaming giants Spotify (SPOT), Amazon Music (AMZN), and Apple Music (AAPL).
Muir also acknowledged a slowdown in subscriber growth at certain platforms, despite continued strong growth in the overall global subscription market. He highlighted Spotify's announcement of a "super premium" offering, which the company believes could attract 20% of its current subscriber base willing to pay a higher price for enhanced features and exclusive content.
Despite these setbacks, UMG achieved robust growth in other areas, such as merchandising revenue, which jumped by 44% in Q2 due to strong performances by artists like Taylor Swift, Morgan Wallen, Noah Kahan, Billie Eilish, and Ariana Grande.
Total revenue for the 12th consecutive quarter reached 2.93 billion euros ($3.18 billion), representing roughly 9% year-over-year growth, exceeding consensus estimates. Adjusted EBITDA increased by over 11% from the previous year (excluding foreign exchange) to 649 million euros ($705 million).
Earlier this year, UMG launched a restructuring plan to generate 250 million euros in annual savings by 2026, which included job cuts.
Previous News:
In 2023, UMG reported a strong performance, with a 14% increase in revenue year-over-year. The company's success was attributed to growth in subscription services and digital streaming.
However, the competitive landscape within the music industry continues to intensify, with increased pressure from independent artists and new platforms challenging traditional labels.
Overall, while UMG remains a dominant force in the music industry, its recent struggles highlight the challenges facing traditional music labels in an evolving digital environment.