Key takeaways
- Universal Music Group shares closed 25.4 per cent lower after organic subscription-revenue growth missed analyst expectations.
- Growth excluding the Downtown Music acquisition slowed to 6.7 per cent from 7.9 per cent in the previous quarter, below the 9.3 per cent consensus forecast.
- Second-quarter revenue nevertheless increased 13.3 per cent at constant currencies to €3.29 billion.
- Adjusted EBITDA reached €674 million, while the margin contracted 2.2 percentage points to 20.5 per cent.
- The selloff erased approximately €8.8 billion from UMG’s market value and marked its worst trading day since its 2021 listing.
Universal Music Group N.V. (USOTC:UMGP) shares suffered their largest one-day decline on record Friday as slower underlying subscription growth raised fresh concerns about the music company’s streaming momentum.
The Amsterdam-listed stock closed 25.4 per cent lower at €14.44 after falling to an intraday record low of €14.17. Approximately €8.8 billion was erased from UMG’s market capitalization, while trading volume climbed to more than 10 times its recent average.
The decline exceeded the 23.5 per cent selloff recorded in July 2024, when another streaming-growth disappointment rattled investors. UMG shares have now lost approximately 40 per cent over the past year.
Subscription growth falls short of expectations
Investors focused on UMG’s organic subscription performance, which excludes the contribution from Downtown Music Holdings. On that basis, constant-currency subscription-revenue growth slowed to 6.7 per cent during the second quarter from 7.9 per cent in the preceding three months.
Analysts had expected growth of approximately 9.3 per cent.
The figure was substantially weaker than UMG’s reported constant-currency subscription growth of 16.6 per cent, which included Downtown. The difference illustrates how much the recently acquired music-services company contributed to UMG’s headline expansion.
Wholesale streaming-price increases added 3.5 percentage points to subscription growth, although this was partly offset by a 1.5-point drag from market-share pressure that carried over from the first quarter. UMG said its stronger release schedule helped market share improve as the quarter progressed.
The company’s leading sellers included Noah Kahan, BTS, Olivia Rodrigo, Drake and Olivia Dean.
Revenue grows but profitability disappoints
Overall second-quarter revenue increased 10.5 per cent on a reported basis and 13.3 per cent at constant currencies to €3.29 billion. Excluding Downtown, constant-currency growth was 6.4 per cent.
The expansion was supported by higher streaming prices, physical music sales, licensing activity and music-publishing performance revenue.
However, adjusted EBITDA slipped 0.3 per cent on a reported basis to €674 million. That was approximately 5 per cent below the consensus forecast of about €710 million.
UMG’s adjusted EBITDA margin contracted from 22.7 per cent to 20.5 per cent. The company attributed the decline to Downtown’s consolidation, a less profitable mix of recorded-music revenue, higher corporate expenses and a loss within its merchandising business.
“This quarter demonstrated both the strong fundamentals of our business and the opportunities we see to improve,” Chief Financial Officer Matt Ellis said in the company’s results.
For the first half, UMG reported adjusted EBITDA of €1.31 billion, down 1.9 per cent from the previous year. Adjusted EBITDA margin narrowed 1.6 percentage points to 21.1 per cent.
Analysts see potential second-half improvement
Deutsche Bank said UMG’s profitability was affected by its recorded-music and repertoire mix, higher central costs and a small merchandising loss. However, the bank noted that improving market-share momentum late in the quarter could support third-quarter performance.
JPMorgan also identified the potential for stronger subscription trends during the second half, supported by market-share gains and a more favourable schedule of new releases.
Those possibilities were not enough to prevent Friday’s selloff. UMG’s valuation has historically depended on its ability to generate consistent subscription growth through higher prices, subscriber additions and market-share gains. The latest slowdown therefore carried more weight with investors than the headline revenue increase.
The results arrived two months after UMG rejected an unsolicited US$64 billion takeover proposal from Bill Ackman’s Pershing Square Capital Management, arguing that the offer undervalued the business.
Vivendi SE (EPA), which retains a major stake in UMG, fell approximately 18 per cent as the record company’s decline spread to its largest shareholder.
With acquisition-related growth obscuring weaker organic subscription momentum, investors are likely to scrutinize UMG’s third-quarter release performance and market-share trends closely. A recovery in those measures could ease streaming concerns, but another miss would place further pressure on a stock already trading at its lowest level since going public.