Company Reports

Excluding the impact of currency headwinds, Universal Music reported double-digit sales and profit growth for both the fourth quarter and full year, with strong performance across all segments. The firm also announced a restructuring plan that it expects will contribute to significant margin expansion over the next few years, and it gave some detail on its dispute with TikTok. We believe the firm is well positioned to continue growing, and we’re maintaining our EUR 31 fair value estimate.

Spun out of Vivendi in September 2021, Universal Music is the largest of the three major global record labels, with Sony Music second and Warner Music third. Like its peers, the majority of Universal’s revenue comes from streaming, which generated 69% of total recording segment revenue in 2022, up from 54% in fiscal 2018. This percentage actually understates the overall impact of streaming, as Universal does not break out the streaming portion of publishing revenue separately.

Universal Music continued its impressive top-line growth and adjusted EBITDA margin expansion in the third quarter. Top-line growth was driven mainly by an increase in recorded music and music publishing revenue, in constant currency. Revenue growth also created operating leverage, which more than offset the impact of a mix-shift toward lower-margin merchandise revenue and expanded adjusted EBITDA margin impressively. The growth is likely to accelerate in the fourth quarter and the first half of 2024 due to the price increase implemented by the music streaming providers. We did not make significant adjustments to our model and are maintaining our EUR 31 fair value estimate on the shares of narrow-moat Universal Music, which remain undervalued.

Spun out of Vivendi in September 2021, Universal Music is the largest of the three major global record labels with Sony Music in second and Warner Music in third. Like its peers, the majority of Universal’s revenue comes from streaming, which generated 69% of total recording segment revenue in 2022, up from 54% in fiscal 2018. This percentage actually understates the overall impact of streaming, as Universal does not break out the streaming portion of publishing revenue separately.

Universal Music reported a stronger-than-expected first half of 2023 as revenue and adjusted EBITDA came in ahead of FactSet projections. The firm benefited from growth across all three segments, but it remains dependent on streaming music, which generated 54% of first-half revenue, up from 53% a year ago. We continue to expect that streaming will drive continued top-line growth as the demand for affordable entertainment options like streaming music, both subscription and ad-supported, will increase and platforms increase prices on a more regular basis. Additionally, we believe that music will remain the main driver of growth for music streaming platforms even as those platforms add other audio products like podcasts and audiobooks. We are maintaining our narrow moat and EUR 31 fair value estimate.

Spun out of Vivendi in September 2021, Universal Music is the largest of the three major global record labels with Sony Music in second and Warner Music in third. Like its smaller peers, the majority of Universal’s revenue comes from streaming, which generated 69% of total recording segment revenue in 2022, up from 54% in fiscal 2018. This percentage actually understates the overall impact of streaming, as Universal does not break out the streaming portion of publishing revenue separately.

Universal Music reported strong top-line growth as first-quarter revenue improved by 11%, or 9% in constant currency. The growth at recorded music and music publishing drove the improvement. Similar to its former parent, Vivendi, the firm reports only revenue and total company adjusted EBITDA for the first and third quarters. We are maintaining our narrow moat rating and our fair value estimate of EUR 31.

Universal Music posted an in-line end to 2022 as fourth-quarter revenue and adjusted EBITDA met FactSet projections. Like its peers, Universal Music remains highly dependent on streaming, which generated 49% of fourth-quarter revenue, up from 48% a year ago, and 51% of full-year revenue, down from 53% in 2021. The importance of streaming fell slightly in 2021 due to strong growth in physical, license, and publishing revenue. We expect music will remain the main driver of growth for music streaming platforms even as they add new products like podcasts.

Universal Music reported solid third-quarter revenue growth of 16%, or 13% in constant currency, coming in ahead of FactSet consensus expectations. The topline expansion was driven by growth at all three segments as the firm continues to benefit from the expansion of streaming and the return to live music. Similar to its former parent, Vivendi, the firm reports only revenue and total company adjusted EBITDA for the first and third quarters. We are maintaining our FVE of EUR 31.

Universal Music posted a slightly stronger-than-expected first half of 2022 as revenue came in just ahead of and adjusted EBITDA was in line with FactSet projections. Like its peers, UMG’s revenue and growth remain highly dependent on streaming music, which generated 65% of first-half revenue, up from 63% a year ago. The importance of streaming increased despite strong growth in physical, license, and merchandising revenue. Even with the threat of a recession, we expect that streaming will drive continued top-line growth as the demand for affordable entertainment options like streaming music, both subscription and ad-supported, will increase. Additionally, we believe that music will remain the main driver of growth for music streaming platforms even as those platforms add new products like podcasts and audiobooks.

Spun out of Vivendi in September 2021, Universal Music Group, or Universal Music, is the largest of the three major global record labels with Sony Music in second and Warner Music in third. Like its smaller peers, the majority of Universal’s revenue comes from streaming, which generated 64% of total recording segment revenue in 2020, up from 54% in fiscal 2018. This percentage actually understates the overall impact of streaming, as Universal does not break out the streaming portion of publishing revenue separately.

Universal Music posted strong first-quarter revenue growth of 22%, or 17% in constant currency, coming ahead of FactSet consensus expectations. The topline expansion was driven by growth at recorded music, music publishing, and merchandising. Similar to its former parent, Vivendi, the firm reports only revenue and total company adjusted EBITDA for the first and third quarters. We are maintaining our narrow-moat rating and our fair value estimate of EUR 31.

Universal Music posted a slightly stronger than expected end to 2021 as fourth-quarter revenue came in just ahead of and adjusted EBITDA was in line with FactSet projections. Like its peers, the firm's revenue and growth remain highly dependent on streaming, which generated 48% of fourth-quarter revenue, the same as a year ago, and 53% of 2021 revenue, up from 52% in 2020. The importance of streaming increased in 2021 despite strong growth in physical, license, and publishing revenue. We expect that streaming will continue to drive top-line growth and that music will remain the main growth driver for music streaming platforms even as those platforms add new products like podcasts. Our narrow moat and EUR 31 fair value estimate are intact. With the stock trading at a significant discount to our valuation, we view the current price as an attractive entry point for investors.

Spun out of Vivendi in September 2021, Universal Music Group, or Universal Music, is the largest of the three major global record labels with Sony Music in second and Warner Music in third. Like its smaller peers, the majority of Universal’s revenue comes from streaming, which generated 64% of total recording segment revenue in 2020, up from 54% in fiscal 2018. This percentage actually understates the overall impact of streaming, as Universal does not break out the streaming portion of publishing revenue separately.

We are launching coverage on Universal Music Group with a narrow moat, stable moat trend, and fair value estimate of EUR 31. Our fair value estimate implies an enterprise value of 20 times our adjusted 2022 EBITDA estimate and a price/2022 earnings multiple of 26. With shares trading just inside 4-star territory, we think the current price represents an attractive entry point into the recently spun-off music giant.