Though cheeky economists may argue over the effect of Taylor Swift's performances on the GDP of various nations, her record label, Universal Music Group, couldn't avoid a market meltdown despite the popularity of her most recent album. The company's market capitalization was reduced by over 14 billion euros as a result of its shares falling over 25% on Thursday, bringing the stock back below the level of its highly anticipated initial public offering for 2021. In the second quarter of this year, investors were uneasy about the sluggish increase in streaming and subscription revenues, which make up approximately 75% of global sales.
The unexpected delay highlights UMG's reliance on major streaming services like Apple, Spotify Technology, and Amazon.com for pricing decisions. Approximately two thirds of the 2.2 billion euros in recorded music sales in the most recent quarter came from streaming and subscription revenues, which only increased by less than 4%. Morningstar analysts called this a "sharp deceleration" from the double-digit rise of the previous several quarters.
The increase in the consumer base of Amazon and Apple was hindered by the higher prices they imposed last year. Although Spotify performed better, this could be because it only began raising its pricing earlier this year.
Similar to its rivals Warner Music and Sony Music, UMG usually reaps the benefits of rising subscription fees from streaming services. However, not if streamers overdo it and use exorbitant fees to drive away consumers.
Given that UMG outperformed both revenue and profit estimates in the second quarter, its Thursday market beating may appear severe. Despite the "unwelcome noise" of the quarter that TD Cowen referred to, analysts were nonetheless optimistic that the group would continue on a good growth track.
Meanwhile, UMG may find comfort in the robust, over 10% increase in sales of "physical" music, which includes the resurgence of classic vinyl albums. However, it only accounts for 16% of recorded music sales, and UMG won't be able to recover from Thursday's decline despite Swift or Billie Eilish's smash songs.