By raising prices and cutting costs, Spotify has turned itself into the kind of profitable company investors always hoped it could be, and the streamer's upbeat second-quarter earnings on Tuesday (July 23) sent its share price soaring. 9.1% to $321.87 this week.
After Spotify said it grew revenue 20%, improved gross margin and beat guidance for new subscriber additions, a number of analysts raised their price targets, including Goldman Sachs (up from $320 to $425), JP Morgan (from $375 to $425). Rosenblatt (from $396 to $399), Pivotal Research (from $400 to $460), Barclays (from $350 to $360), Cowen (from $273 to $356) and B of A Securities (from $380 to $430).
Universal Music Group ( UMG ), the other music company to release earnings this week, had the opposite reaction from investors when second-quarter subscription revenue came in well short of analysts' expectations, sending the stock price of falling 24.1% to 21.34 euros ($23.17). But it wasn't all bad news: The music giant's total revenue rose 8.7 percent to 2.93 billion euros ($3.16 billion) and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 17.4 percent. to 580 million euros ($624 million). ).
But investors focused on UMG's streaming numbers above all else. The recorded music division's subscription revenue rose 6.9%, up from 12.5% in the previous quarter, while total streaming revenue rose 4.1% compared with 11% a year earlier. Some analysts cut their UMG price targets after Wednesday's earnings report, though by smaller margins than the stock's decline.
UMG went public in September 2021, giving investors the opportunity to benefit from the largest music company in a period of streaming growth and industry expansion. However, even bullish investors will have to endure short-term ups and downs. “If you think the longer term analysis is valid then it is [UMG’s current price] represents a significant buying opportunity,” JP Morgan analyst Daniel Curwen wrote in an email to investors on Friday (July 26). “Ultimately we think you're going to continue to get to the same destination…it's just that the pace of getting there has never been likely to be linear, particularly on a quarterly basis.”
The Billboard Global Music Index (BGMI) fell 1.2% to 1,757.70 this week, marking its third straight weekly decline. The index is up 14.6% year to date, but has fallen 3.2% in July and is 4.9% from an all-time high of 1,847.64 hit on May 17. Nine of the index's 20 stocks were winners, 10 lost ground and one was unchanged.
UMG's earnings appeared to have an impact on similar companies that have yet to release their own earnings. Shares of Warner Music Group fell 6.6% on the day UMG released earnings and ended the week down 6.8% at $29.83. Believe shares fell 9.1% to 13.76 euros ($14.96). But with UMG's publishing business doing well — revenue up 10.1% to 511 million euros ($550 million) — it's no coincidence that shares of Reservoir Media, which derives most of its revenue from music publications, rose 11.4% to $8.61.
Many major indices lost ground this week despite gains on Friday after encouraging US inflation data. In the United States, the Nasdaq composite fell 2.1 percent to 17,357.88 and the S&P 500 fell 0.8 percent to 5,459.10. South Korea's KOSPI composite index fell 2.3 percent to 2,731.90. China's Shanghai Composite fell 3.1 percent to 2,890.90. An outlier was the UK's FTSE 100, which gained 1.6% to 8,285.71 points.
