Universal Music Group (UMG) experienced a dramatic drop in its share price, falling by more than 25% on Thursday, erasing about $14.75 billion (€13.6 billion) from its market capitalization. This decline was triggered by the company's Q2 earnings report, which revealed lower-than-expected streaming and subscription revenue growth. UMG's second-quarter subscription revenue growth slowed to 6.9% year-over-year, significantly down from 12.5% in the first quarter and missing the 11.1% analyst estimate.
Streaming revenues were also below expectations, coming in at $372.09 million (€343 million) against a Visible Alpha consensus of $419.7 million (€387 million). This slowdown was partly attributed to a deceleration in subscriber growth from certain key advertising-based platform partners like Spotify and YouTube, as well as roadblocks with social media companies. For instance, Meta Platforms stopped licensing premium music videos from UMG for Facebook, and a dispute with TikTok led to a month of lost revenue from that platform.
Despite the overall revenue increasing for the 12th consecutive quarter to $3.18 billion (€2.93 billion), beating estimates, the disappointing streaming figures weighed heavily on investor sentiment. Analysts at JPMorgan noted that "The speed and quantum of the slowdown in subscription revenues caught the company and analysts by surprise." Citi analyst Thomas Singlehurst downgraded the stock to "Neutral" from "Buy," anticipating that the disappointment would impact sentiment in the near term.
The share plunge brought the stock below its 2021 initial public offering level and is on track for its biggest one-day loss ever. The company's dependence on pricing decisions made by major streaming platforms like Spotify, Amazon.com, and Apple was highlighted, as streaming and subscription revenues account for about 75% of UMG's global sales. Even the success of artists like Taylor Swift, whose merchandising revenue soared 44% in the quarter, could not offset the negative impact of the streaming slowdown.
