As of November 6th, 2024, Universal Music Group stock remains down over 20% from its value in early May.
About one week removed from the release of its Q3 2024 earnings report, Universal Music Group is still struggling on the stock-price front – raising questions about, among other things, its streaming-growth trajectory.
When the market closed today, Universal Music Group stock (UMG on the Euronext Amsterdam) was worth $24.80 (€23.12) per share. That price is essentially flat from the past month but remains nearly 21% beneath where UMG stood six months ago.
Of course, quite a lot has changed in the last half of a year. To be sure, May brought the end of a much-publicized licensing showdown between Universal Music and TikTok, but the high-stakes dispute is little more than a distant memory now.
Despite these and a variety of other developments, however, UMG’s initial share-price plummet can be traced to the company’s Q2 2024 earnings announcement. As we reported at the time, concerns of a streaming plateau, apparently fueled by a subscription-growth slowdown in the second quarter, set in motion a double-digit price decline for the stock.
That decline has yet to reverse following not just UMG’s Q3 2024 earnings report – more on this in a moment – but an aggressive revenue forecast detailed by execs during their 2024 Capital Markets Day presentation. Running through 2028’s end, this forecast refers to anticipated 8% to 10% compound annual growth for subscription revenue.
At the intersection of the stock-price slip, the forecast, and the widely known importance of streaming in the contemporary music space, then, UMG shares’ path forward is tied to subscription revenue in several ways.
Following the point to its logical conclusion, will Universal Music’s aggressive paid-listening forecast prove accurate?
While only time will reveal a definitive answer for the coming four years, we don’t lack insight at present. First, at least as things stand, UMG hasn’t quite met the ambitious forecast; recorded music subscription revenue grew 7.6% YoY to $1.22 billion (€1.14 billion) in Q3 2024, up from Q2’s YoY expansion but beneath the sought minimum 8% CAGR.
Next, execs haven’t hesitated to describe (at the aforementioned Capital Markets Day presentation and during the more recent Q3 earnings call) how they believe the growth will come to fruition. At the top level, CEO Lucian Grainge emphasized his high hopes for an ongoing “Streaming 2.0” initiative, with plans to provide “further updates in the weeks and months ahead.”
It will, of course, be interesting to see what those updates entail. Already, Hybe-partnered UMG hasn’t hesitated to spell out that enhanced superfan monetization, seemingly via targeted artist-specific offerings as well as more expensive streaming tiers, is a big part of the strategy.
Could that be enough to drive the targeted subscription CAGR, particularly given the company’s substantial market penetration? Once again, only time will tell – though it’s worth reiterating that UMG believes approximately 20% of current streaming subscribers are willing to pay for a higher-priced “Premium” tier, per COO Boyd Muir.
Finally, execs have indicated that they’re banking on a sizable piece of the CAGR coming from continued subscriber-base expansions. In other words, there’s an ongoing effort to simultaneously reach new subscribers and compel existing paid users to cough up more for extra features, with high stakes for the business’s market value.