universal music groupSecond-quarter income introduced final month was up about 10% yearly, however that did not cease the market from reacting negatively.
Wall Avenue analysts disenchanted that UMG’s subscription streaming income ‘solely’ grew Annual development of 6.9% throughout this quarter. A number of establishments have downgraded the corporate’s inventory score, and UMG’s inventory worth stays at 17% Earnings had been decrease than earlier than the second quarter.
One man who is not fearful about Common Music Group’s single-digit subscription income development — or the following inventory worth plunge — is Invoice Ackerman.
Ackerman’s Pershing Sq. Holdings, Inc., Has approx. 10% UMG’s stake, lately introduced interim financial report First half of 2024.
“We predict UMG is underperforming [in Q2] This can show to be short-term and won’t influence our view of Common Music Group’s mid- to long-term development prospects,” the corporate wrote in its monetary report.
It additionally mentioned it believed music “has a protracted solution to go in its future development because it stays under-monetized relative to historic and different types of media”.
Pershing Sq. additionally mentioned in a report launched final week that the inventory market has overreacted to UMG’s subscription streaming income development.
The corporate added: “Much like traders’ preliminary overreaction to considerations concerning the potential unfavourable impacts of synthetic intelligence, UMG shares shortly recovered because the market higher understood the dangers of synthetic intelligence, and we consider that as traders higher understood UMG’s path to larger income development and renewed confidence within the long-term well being of the {industry} might see the corporate’s inventory worth rise considerably from present ranges.
pershing sq. boss Invoice AckermanIn a letter to PSH shareholders printed on the high of the report, he described the present inventory market surroundings this fashion: “The inventory market has stunned traders by exhibiting large single-stock worth swings for even the biggest firms. The general outcomes are even barely decrease than anticipated, or small mistake Sure enterprise metrics are carefully watched, and Common Music Group is one instance in our portfolio.
Elsewhere within the interim report, Pershing Sq. advised shareholders it “anticipated[s] The {industry} is bettering monetization via new services,” noting “higher segmentation of shoppers,” corresponding to “larger worth tiers and better subscription costs.”
Spotify CEO Daniel Ek Confirmed Through the streaming firm’s earnings name final month, the corporate was creating a pricier “Deluxe room” tier, prices roughly $17/$18 monthly.
Common’s management crew cited a statistic throughout its second-quarter earnings name that implies one in 5 Spotify customers could be prepared to pay for the pricier “Tremendous Premium” tier.
Chief Monetary Officer and Chief Working Officer, UMG Boyd Muir tell analysts: “Our analysis and evaluation reveals that as much as 20% of the present consumer base might improve to the ultra-premium tier at a considerably larger worth to acquire a compelling product configuration that gives enhanced options and entry to unique content material .
It’s anticipated that Spotify’s “luxurious” tier might embrace extra product options, corresponding to a “tremendous fan” expertise and HiFi audio.
In the meantime, commenting on the opportunity of additional will increase in music subscription costs, Pershing Sq. famous in its report that “there’s ample room for upside within the coming years, as music subscription costs have remained flat for practically a decade till some latest rise”.
It added: “Because the {industry} matures in developed markets, ad-supported customers who obtain free music can now cost a month-to-month subscription charge, as is typical within the video streaming {industry}.”
MBW asked Earlier this month, it was revealed that Common and its rivals might quickly take motion towards Spotify’s free ad-supported tier.
Within the second quarter of 2024 (the three months to the top of June), UMG beat analyst expectations, posting US$3.15 billion (€2.932 billion), development throughout all sectors together with recorded music, publishing, and many others. Annual enhance of 9.6% Calculated at a hard and fast change fee.
One other key spotlight of the quarter: Adjusted EBITDA development Annual enhance of 11.3% to 649 million euros ($699 million).
Regardless of sturdy general income, UMG’s subscription streaming income fell in need of analysts’ expectations, and as talked about, income rose Annual development of 6.9% (At a hard and fast change fee). Some analysts anticipate annual development of about 11%.
Analysts at Guggenheim, Citi, Barclays and Wells Fargo downgraded shares of Common Music Group following the second-quarter announcement.
On the day after the corporate’s outcomes had been introduced (July 25), UMG’s share worth fell by greater than 23% on Euronext Amsterdam.
Pershing Sq. has some 10.25% UMG is the third largest shareholder, after Concerto Companions, a consortium led by Tencent (holding about 20% of the shares) and former Vivendi President Vincent Bolloré (holding 18% of the shares).
Pershing Sq. Board Chairman Rupert Morley in a press release To PSH shareholders The highest of the corporate’s interim monetary report states that “every of PSH’s portfolio firms continued to make good enterprise progress within the first half and their intrinsic values stay good”.
Nevertheless, Morley famous that “subsequent poor efficiency [PSH’s] The NAV relative to the S&P 500 was pushed primarily by a pointy decline within the share worth of Common Music Group, PSH’s largest holding firm.
Invoice Ackman Pershing Sq. Capital Administration unplug Represented its new U.S.-based closed-end funding administration fund in its preliminary public providing (IPO).
The divestment follows a regulatory evaluate by the U.S. Securities and Trade Fee (SEC), which is predicted to request extra particulars concerning the closed-end fund earlier than approving the IPO worth.
You may learn Pershing Sq.’s full first half 2024 investor replace on UMG:
Common Music Group’s shares fell sharply after it reported outcomes final month. Whereas the corporate’s general income development of 10% and working revenue development of 11% had been sturdy, key metric subscription and streaming income development slowed to mid-single digit development within the quarter from latest double-digit development charges. Fee. We consider this quarter’s disappointing subscription and streaming development is because of sure idiosyncratic elements distinctive to Common Music Group in addition to a softer general financial surroundings. Nevertheless, the efficiency of UMG’s friends proves that music streaming continues to be rising at a wholesome tempo.
We consider that Common Music Group’s underperformance this quarter will show to be short-term and won’t have an effect on our view of Common Music Group’s mid- to long-term development prospects. We proceed to consider that music has a protracted solution to go in its future development, as music continues to be much less monetized in comparison with historical past and in comparison with different types of media. We anticipate the {industry} to enhance monetization via new services and higher segmentation of shoppers, together with larger worth tiers and better subscription costs.
UMG’s subscription income grew 7%, slowing from 13% within the earlier quarter as the corporate started to meet up with final yr’s worth will increase. Slower development in sure digital service suppliers (“DSPs”) offset the decline of Spotify and Youtube. Whereas quarterly outcomes might fluctuate, we consider UMG has a wholesome enterprise in every of its core DSPs and that UMG can additional drive streaming and subscription development by working with its DSP companions to enhance its choices. The corporate is presently working with Spotify to launch premium merchandise for tremendous followers, which UMG estimates might finally be adopted by as many as 20% of Spotify’s consumer base.
We predict there’s loads of room to enhance pricing within the coming years, as music subscription costs have remained flat for practically a decade till some latest will increase. Because the {industry} matures in developed markets, ad-supported customers who get free music can now cost a month-to-month subscription charge, as is typical within the video streaming {industry}. Though all main DSPs have elevated their particular person subscription costs from US$9.99 to US$10.99, solely Spotify and Diesel The value has been elevated to $11.99, and it is solely accessible in sure areas and on sure plans.
UMG’s streaming income (income from ad-supported music) fell 4% within the quarter, a pointy slowdown from double-digit development final quarter as financial uncertainty led to a drop in advert income from its largest companions. sluggish. The decline was additionally attributable to the truth that TikTok had no income and negotiations for a brand new deal didn’t start till early Might. UMG’s income from Meta can also be quickly down, whereas the 2 firms are working collectively on a extra complete deal that can enhance different facets of the connection. Whereas streaming revenues are harder to foretell as a result of they’re extra vulnerable to financial circumstances, we consider that over the long run they need to develop at a fee much like or larger than subscription income development.
UMG’s administration crew consists of Sir Lucian Grange We’ve got a protracted historical past of creating and shaping the music market by working with companions to innovate inventive options to drive development. For instance, UMG’s efforts have led to industry-wide adoption of “artist-centric” initiatives that can lead to a better share of streaming royalties for its artists. UMG can also be main the {industry} by working with companions to launch new merchandise to capitalize on the expansion alternatives of synthetic intelligence, whereas making certain regulatory and authorized safety for its artists.
Much like how traders initially overreacted to considerations concerning the potential unfavourable impacts of AI, however because the market higher understood the dangers of AI, UMG shares shortly recovered, and we consider UMG will obtain larger income development as traders higher perceive the dangers. path and regaining confidence in UMG. If the {industry} develops healthily in the long run, the corporate’s inventory worth might rise considerably from the present degree. To this finish, the corporate will host a Capital Markets Day occasion in September, an excellent discussion board for administration to offer traders with extra detailed details about its enterprise and long-term development alternatives. Given Common Music Group’s sturdy market place and lengthy path to continued worthwhile development, we consider the corporate is presently buying and selling at a major low cost to its intrinsic worth.
world music enterprise
