Slowing growth in streaming subscriptions sent Universal Music Group's share price down 23.5% after the company reported second-quarter earnings on Wednesday (July 24).
On Thursday (July 25), UMG shares fell as much as €19.93 ($21.61), 29.8% below Wednesday's close, before closing at €21.70 ($23.53) – a 23.5% drop that wiped out €12.2 billion from €13.5 billion. market capitalization.
Investors were reacting to a significant slowdown in streaming revenue at UMG's recorded music division: In the second quarter, music subscription revenue rose 6.9%. That's down from 12.5% in the previous quarter, while total streaming revenue rose 4.1% compared to 11% a year earlier. Non-subscription streaming revenue fell 4.2% after growing 2.9% in the previous quarter.
Analysts expected much better. Barclays, for example, predicted overall stream growth of 10.5% and subscription growth of 11.0%. Guggenheim had forecast subscription growth of 11.3%.
During Wednesday's earnings call, Boyd Muir, UMG's executive vice president of digital strategy, singled out Spotify, YouTube and “local and regional” platforms for continuing to add subscribers. Apple Music and Amazon Music were not prominently mentioned, leading some analysts to believe that these platforms are struggling to add new subscribers. “Other larger partners have been less successful in driving global adoption,” Muir said, “and there's been some slowdown in subscriber additions there.”
Despite the slowdown in streaming, UMG managed to improve both top-line revenue and margins. Total revenue rose 8.7 percent to 2.93 billion euros ($3.16 billion). As a percentage of revenue, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) improved to 22.1% from 21.9% in the prior period. Physical music sales were up 14.4% and merchandise sales were up 43.7%. However, analysts were much more concerned about the change in flow and seemed less concerned about improvements in physical and lower-margin merchandising that naturally tend to fluctuate based on new release and tour activity.
Many analysts cut their price targets after Wednesday's results, though by a smaller margin than investors priced the stock on Thursday. Guggenheim saw UMG drop 14% to 27.50 euros ($29.82). Barclays cut its price target by 12% to 26.00 euros ($28.20). Citi cut UMG by 7.8% to 29.50 euros ($28.20). And Kepler Cheuvreux cut its target price by 3.5% to 27.00 euros ($29.28).
UPDATE (July 25 at 6:25 p.m. ET): An earlier version of this story misstated a quote about slowing subscriber growth on some digital platforms. The one who said it was Boyd Muir, not Michael Nash.
