Music Stocks
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Only four of the 20 stocks in Billboard’s Global Music Index were in positive territory this week: Spotify climbed 4.5% to $127.09, Tencent Music Entertainment rose 4.4% to $7.85, Warner Music Group increased 1.5% to $30.21 and Reservoir Media improved 0.2% to $6.15.
Stock markets were rattled again this week by problems in the banking sector. Following a run at Silicon Valley Bank last week, Signature Bank and First Republic faltered this week. Credit Suisse required the backing of the Swiss National Bank on Wednesday after its biggest shareholder refused to inject money to provide much-needed stability. The Dow Jones Industrial Average fell 0.1% this week after dropping 1.2% on Friday (March 17). The S&P 500 improved 1.4% on the week despite falling 1.1% on Friday.
The Global Music Index declined just 0.4% to 1,188.02 despite most stocks falling into negative territory. Spotify and Warner Music Group are two of the most valuable companies in the index. Other large companies had only small declines: Universal Music Group dropped 1.7% to 21.38 euros, SiriusXM fell 0.8% to $3.64 and Live Nation declined 0.4% to $66.36.
The biggest loser of the week was K-pop company SM Entertainment, which fell 23.5% to 113,000 won after HYBE canceled its bid to take control of the company. Last week, SM Entertainment was the Global Music Index’s biggest gainer, improving 14.4% to 147,800 won, after Kakao announced a tender offer to acquire up to a 35% stake from minority shareholders at 150,000 won per share.
The soft advertising market continued to be a problem for radio companies’ stocks. iHeartMedia dropped 12% to $4.31 and Audacy fell 12.5% to $0.14. Morgan Stanley analysts cut the price target for iHeartMedia to $5 from $8 due to “concerns regarding the long-term growth potential of broadcast radio,” according to a March 16 investor note. Year to date, iHeartMedia is down 29.7%, Cumulus Media is off 35.9% and Audacy has declined 39.1%.
Live Nation investors were either nonplussed or unmoved by the Senate Judiciary Committee’s political theatrics Tuesday (Jan. 24), probing the causes behind a disastrous ticket presale to Taylor Swift‘s Eras tour last November hosted on the company’s Ticketmaster platform. While Live Nation president and chief financial officer Joe Berchtold was being grilled by lawmakers about Ticketmaster’s technology and market power with a focus on monopolistic behavior, Live Nation’s share price rose as much as 2.3% to $77.71 before closing at $76.67, up 1.4% on the day, on about half of the average daily trading volume.
With that modest gain, Live Nation beat the Dow Jones Industrial Average (+0.3%), S&P 500 (-0.1%), Nasdaq composite (-0.3%) and Russell 2000 (-0.3%). It also outperformed two competitors, MSG Entertainment (+0.6%) and Germany’s CTS Eventim (-1.1%), that weren’t subjected to Congressional questioning.
Congressional oversight was already priced into Live Nation’s share price to a degree, though. Live Nation shares fell 7.8% to $66.21 on Nov. 18, 2022, after Sen. Amy Klobuchar, chair of the Senate Judiciary Subcommittee on Competition, Antitrust and Consumer Rights, penned a letter to Ticketmaster about her concerns regarding its “system failures, increasing fees and complaints of conduct that violate the consent decree” under which Ticketmaster and Live Nation operate.
The hearing, titled “That’s the Ticket: Promoting Competition and Protecting Consumers in Live Entertainment,” turned Live Nation and Ticketmaster into punching bags for senators who, as Sen. Richard Blumenthal noted, were brought together “in an absolute, unified case.” The legislators’ pointed questions and obvious frustration on behalf of their constituents made it clear Ticketmaster is one of the more loathed companies in the U.S. One witness, Kathleen Bradish, vp for legal advocacy at the American Antitrust Institute, called Live Nation and Ticketmaster “a very traditional monopoly” with a dominant market position that results in higher fees to consumers and less innovation.
Exactly what will come from the hearing is far less certain. While there may be some appetite amongst the senators to undo the 2010 merger of Live Nation and Ticketmaster, or implement some other structural remedies, Sen. Klobuchar said the committee will wait for a Department of Justice report before moving forward.
Some senators proposed non-legislative measures. Sen. Joe Kennedy suggested the person in charge of the ticketing presale should be fired. Sen. Marsha Blackburn called the bot-related service outages “unbelievable” and told Berchtold that the company “ought to be able to get some good advice” for better dealing with these kinds of issues.
The Ledger is a weekly newsletter about the economics of the music business sent to Billboard Pro subscribers. An abbreviated version of the newsletter is published online.
After a miserable year for music stocks — and stocks in general — 2022 could end on a string of positive notes.
As rising interest rates have hammered stocks and erased big gains made during the pandemic, the Billboard Global Music Index, a float-adjusted group of 20 publicly traded music companies, is down 36.1% in 2022, and shares of vital companies such as Spotify and Warner Music Group are down 65.7% and 20.5%, respectively.
But in recent weeks, the momentum has reversed dramatically. The Billboard Global Music Index is up 12.6% over the last two weeks and 14.6% in the five weeks since Oct. 28.
Since Oct. 28, the week when music companies began to release third-quarter financial results, the stocks of major labels rose an average of 23.1%. Indie music companies — Reservoir Media, Believe, Hipgnosis Songs Fund and Round Hill Music Royal Fund — rose an average of 8.2% over that time period. K-pop companies from South Korea averaged a 16.1% improvement.
Part of music stocks’ rebound can be attributed to overall market sentiment. Stocks have improved in recent weeks — the New York Stock Exchange composite index is up 6.6% in the last five weeks and the S&P 500 is up 4.4% over that time. This week, stocks surged on Wednesday (Nov. 30) after Federal Reserve chairman Jerome Powell said upcoming interest rate hikes will be smaller following “promising developments” in the Fed’s efforts to slow inflation. Stocks gave back some of those gains on Friday, however, after a solid U.S. jobs report showed a combination of strong hourly earnings and lower labor force participation. Higher wages erode corporations’ profits and persistent inflation could mean more rate hikes by the Federal Reserve.
But music companies have outperformed the broader stock markets thanks to solid third-quarter earnings results that met and occasionally exceeded expectations. In addition, many companies increased their fourth-quarter guidance when they announced third-quarter results. That tends to increase share prices as investors adjust upward their expectations for future performance.
Among the best performers of late has been Warner Music Group, whose shares improved 31.1% in the last five weeks. Last week, Warner beat analysts’ expectations for both revenue and earnings per share in the fiscal fourth quarter ended Sept. 30 and announced on Nov. 22. It posted revenue of $1.5 billion, up 16% year-over-year at constant currency (+9% as reported). Adjusted earnings before interest, taxes, amortization and depreciation grew by 16% to $276 million.
Shares of Universal Music Group have risen 16.1% since Oct. 28. The day prior, UMG’s third-quarter earnings showed a 13.3% jump in revenue at constant currency. Sony Corp., the parent company of Sony Music Group, climbed 23.7% over the same period. Sony Music’s quarterly earnings, released on Nov. 1, showed 5.9% year-over-year revenue growth. Sony’s music division accounts for just 11.4% of the company’s consolidated revenue and 16.7% of its operating income while UMG and WMG are pure-play music companies.
Smaller labels and publishing companies have improved, too. Reservoir Media shares have climbed 14.9% over the five weeks, while shares of Believe rose 19.1% over five weeks but stumbled 7.8% in the last two weeks. Both companies raised guidance for their fourth quarter results. Korean music companies have also fared well: the shares of four K-pop-focused companies — HYBE, SM Entertainment, YG Entertainment and JYP Entertainment — rose an average of 16.1% in the last five weeks.
Labels’ and publishers’ financial results were augmented by positive news that suggests even stronger streaming revenue in 2023. According to WMG CEO Stephen Cooper during the company’s Nov. 22 earnings call, announcements of price increases by Apple Music [on Oct. 24] and Deezer “in the current economic environment shows that music subscription services offer amazing value to consumers. Music remains undervalued, but we’re optimistic that there will be other increases to come.”
Cooper was also encouraged by subscriber growth reported by streaming companies. Spotify exceeded expectations in the third quarter by adding seven million subscribers — 1 million more than its guidance. YouTube announced on Nov. 11 it had reached 80 million subscribers of YouTube Music and Premium just 14 months after surpassing the 50-million mark. “Developed markets continue to grow in the double digits while emerging markets are growing at higher percentages,” said Cooper. “With global smartphone penetration expected to increase meaningfully in the coming years, our conviction in streaming growth remains strong.”
While labels and publishers have surged, streaming companies have been mixed. On average, streaming companies’ stocks rose 24.4% over the last five weeks. The biggest gains came from much smaller Tencent Music Group and Cloud Music, up 101.6% and 28.4%, respectively — but both have relatively small floats and remain majority owned by Tencent and NetEase, respectively. Even smaller yet are Anghami (-3.1%) and Deezer (-1.5%). Spotify, one of the largest companies in the index, declined 3.7%.
Companies in the live and ticketing space haven’t fared as well as others, however. Live Nation shares are down 7.7% in the last five weeks, due mainly to a 7.5% drop following its third-quarter earnings release and a 10.3% decline on Nov. 18 following reports that the company was being investigated by the Department of Justice after its controversial presale for Taylor Swift’s upcoming tour. The latter was a short-lived dip, however, and Live Nation shares have reclaimed that lost ground and more by rising 11.6% in the last two weeks. Over five weeks, MSG Entertainment shares rose just 2% and Vivid Seats shares are off 1.2%. On the other hand, shares of German concert promoter CTS Eventim rose 27.7% over five weeks after posting strong third-quarter results and sounding more confident about full-year results than comments it made in its second-quarter earnings release.
Four radio companies — iHeartMedia, Cumulus Media, Audacy and Townsquare Media — have fared the worst, falling an average of 6.8% since Oct. 28. IHeartMedia, the largest radio company and a member of the Billboard Global Stock Index, fell 9% over that time.
The Ledger is a weekly newsletter about the economics of the music business sent to Billboard Pro subscribers. An abbreviated version of the newsletter is published online.
Most publicly traded companies have released earnings for the latest quarter (ended Sept. 30), and most of those results have shown encouraging signs for investors and the music industry alike. Earnings by Universal Music Group, Spotify, Live Nation, SiriusXM are in the books. Notable companies yet to announce include Warner Music Group (Nov. 22) and Tencent Music Entertainment (Nov. 15).
If there is one over-arching narrative, it’s that inflation and economic uncertainty haven’t ruined music’s post-pandemic recovery. Revenue growth is strong, aside from some softness related to a slowdown in advertising spending that impacts broadcast radio and ad-supported streaming. Consumer spending on everything from concerts to vinyl records is healthy – despite the around-the-clock warnings of an impending recession and the highest inflation rates in four decades eating into consumers’ wallets. When companies have raised prices for tickets and concessions at concerts, music fans, by and large, haven’t blinked. Even long-stagnant music subscription prices are on the rise, and nobody expects a consumer backlash.
Not that music companies’ stock prices reflect this optimism. Stocks in general have taken a beating in 2022. Music stocks have suffered, too, although stocks ended the week on a high note. The Billboard Global Music Index, a measure of 20 publicly traded music companies’ stocks, climbed 12.7% this week after markets rallied on Thursday and Friday on encouraging news about the slowing U.S. inflation rate.
Here are five quick takeaways from third-quarter earnings and the statements made by the companies’ management teams.
1. The subscription business model is insulating creators and rights holders from economic uncertainty. Music royalties are popular with investors in part because they are counter-cyclical, meaning their returns have little correlation with changes in the broader market. Put another way, when the economy sours, people are more likely to cut back on grocery spending or travel than cancel a Spotify subscription. Consumers might feel pinched in their pocketbooks, but Spotify and SiriusXM added 7 million and 187,000 subscribers, respectively, in the third quarter, and YouTube announced on Wednesday that it surpassed 80 million subscribers to YouTube Music and Premium, an increase of 30 million in about 14 months. Stock prices at companies more exposed to inflation pressures fared best on Thursday, as stocks surged on news that the annual change in the consumer price index in the U.S. fell to 7.7%. Shares of radio companies iHeartMedia and Audacy climbed 10.0% and 14.0%, respectively. Live entertainment companies also did well: MSG Entertainment was +5.6%, Live Nation was +5.1%, and ticketing companies Eventbrite and Vivid Seats were +8.3 and +9.2%, respectively.
2. Podcasts are a growing, stabilizing force. Spotify’s podcast business has rightly captured headlines as the company uses spoken-word content to build engagement, generate advertising revenue and improve on the gross margins of its core music business. The number of monthly users who consumed podcasts grew “in the substantial double-digits” year-over-year, the company said. But other companies’ podcast businesses get less attention despite their importance to their own futures. Radio companies – namely iHeartMedia, Cumulus Media and Audacy – have fast-growing podcast businesses. LiveOne, primarily a music streaming company, has a fast-growing podcast division, PodcastOne, that made $17.2 million of revenue in the last two quarters on the strength of such shows as The Adam Carolla Show, Cold Case Files and Uncut with Jay Cutler. The catch is that podcast growth has little direct impact on the music business outside of helping those platforms – digital and broadcast – that produce royalties for record labels and publishers. Music rights owners could better tap into this growing market if there were better systems for licensing music to podcast creators.
3. With share prices relatively low, companies are increasingly buying back shares to bolster shareholder value and help share prices. Among the companies currently engaged in stock repurchase programs are Spotify, MSG Entertainment, Cumulus Media, Audacy, SiriusXM, Townsquare Media and LiveOne. Spotify announced a $1 billion share buyback program in August 2021, and it spent $2 million and $24 million repurchasing shares in the second and third quarters, respectively. Cumulus Media has $21.1 million remaining in its $50 million share repurchase authorization announced in May. Last month, MSG Entertainment authorized $75 million for share buybacks on top of a $175 million, one-time dividend worth $7 per share paid on Oct. 31 to shareholders of record on Oct. 17. And LiveOne announced on Thursday that it will expand its share repurchase program, originally planned for 2 million shares (worth about $1.5 million at Friday’s closing price), by an additional $2 million. More buybacks could be on the way soon: Universal Music Group shareholders voted in May to give the company’s board the ability to repurchase up to 10% of the issued share capital.
4. Strong growth in “rest of world” markets. Believe’s revenue in Asia Pacific and Africa grew 61.1% to 52.3 million euros ($53.2 million), about the same as its European revenues excluding France and Germany. Spotify’s “rest of world” markets improved their share of monthly active users to 26% in the third quarter, up from 21% in the prior-year period. Also, “rest of world” and Latin America each gained a percentage point in shares of Spotify subscribers while North America and Europe both lost a percentage point of subscriber share. As Billboard’s Elizabeth Dilts Marshall reported last week, investors are increasingly eyeing companies in the Middle East and North Africa as streaming transforms those regions.
5. Spinoffs are going to separate high-growth, high-potential businesses. MSG Entertainment plans to spin off its MSG Sphere venue currently under construction in Las Vegas along with its Tao Hospitality Group. The remaining MSG Entertainment will retain the live entertainment business – namely the portfolio of venues such as Madison Square Garden and Radio City Music Hall – and MSG Networks, a sports broadcast network. Ryman Hospitality will spin off its Opry Entertainment Group – possibly within four years, based on its agreement with two new investors, Atairos and NBCUniversal. LiveOne plans to file an S-1 document with the SEC by Dec. 15 for a spin-off of its podcast division, PodcastOne, which accounted for about 37% of the company’s total revenues in the six-month period ended Sept. 30. LiveOne’s management and board believe the company’s share price undervalues the sum of its parts and spinning off PodcastOne would maximize shareholder value and better position the division for M&A and talent acquisition.
Many music companies’ stocks soared on Thursday (Nov. 10) on news that U.S. inflation was less than expected in October. The Bureau of Labor Statistics revealed the consumer price index rose 0.4% last month, less than the 0.6% Dow Jones estimate. Although the annual inflation is still high at 7.7%, it had been as high as 9.1% in June and hadn’t been below 7.5% since January.
Spotify shares jumped 9.9% to $78.44. Universal Music Group shares rose 3.3% to 20.81 euros. Sony shares spiked 6.6% to $44.15.
Live music companies fared especially well: U.S.-based Live Nation and MSG Entertainment improved 5.1% and 6.6%, respectively, while German promoter CTS Eventim climbed 3.8%. Ticketing companies Eventbrite and Vivid Seats rose 8.3% and 9.2%, respectively.
Radio company stocks, recently hurt by the softening advertising market, enjoyed the biggest gains as iHeartMedia was up 10.0% and Audacy rose 14.0%. Cumulus Media and Townsquare Media had smaller gains of 3.3% and 2.5%, respectively.
U.S. stocks had their biggest single days since 2020. The Dow Jones Industrial Average, a group of 30 prominent stocks, rose 3.7%. The S&P 500 improved 5.5% and the tech-heavy Nasdaq climbed 7.4%.
The good news quickly spread to Asia after U.S. markets closed. Shares of South Korean music companies HYBE and SM Entertainment were up 8.3% and 4.5%, respectively, early on Friday morning. Likewise, the Hang Seng Index, a selection of companies on the Hong Kong Exchange, was up 5.0% in early trading Friday.
Persistently high prices have had damaging effects to economies of the U.S. and other countries re-opening from COVID-19 restrictions. Businesses have encountered higher costs for labor, manufacturing and services, and often pass them along to consumers rather than absorb them. Everything from vinyl manufacturing costs to tour buses have soared. Some bands, such as Anthrax and Cold, pulled out of tours because of logistical issues and high costs. “There are tours being canceled left and right,” Jamie Streetman, operations manager for Nashville-based Coach Quarters, told Billboard in Sept.
To tame inflation, the U.S. Federal Reserve Bank, which targets 2% annual inflation, has raised the federal funds rate six times in 2022 to tame inflation. That has made borrowing more expensive for everyone from investors in music publishing catalogs to consumers with credit card bills.
The pairing of high interest-high inflation has wreaked havoc on stock prices, too. Year to date, the Dow index is down 7.2% and the S&P 500 is off 17.0%. Music companies that are otherwise having a solid year have seen their share prices sink, too. UMG shares are down 16.0% and Spotify shares are off 66.5% this year.
While investors celebrated the improvement in the CPI, inflation is still abnormally high and energy costs – a significant cost for touring musicians – were up 17.6% year-over-year in October. Presidents of the Federal Reserve indicated on Thursday that more rate hikes would probably be forthcoming, although at a slower pace.
A raft of equity analysts lowered their price targets for Spotify’s stock following the company’s third-quarter earnings report on Tuesday, helping send the music streaming company’s share price down 13.1% to $84.42 on Wednesday (Oct. 26).
KeyBanc dropped its price target from $135 to $125, Barclays lowered its target from $164 to $135 and Raymond James cut its target from $150 to $110. J.P. Morgan analysts, who dropped the price target from $130 to $115, wrote in an investor note they were “encouraged” by fourth-quarter guidance on monthly active users and subscribers — 479 million and 202 million, respectively — but believes investments and foreign exchange will pressure fourth-quarter profitability. Spotify expects this quarter’s 300 million-euros ($303 million) operating loss to include a 95 million-euros ($96 million) negative impact from foreign exchange.
For most of its four-plus years as a public company, Spotify prioritized growth over profit and attracting new users. This year’s emphasis is winning over investors with larger margins while maintaining momentum. In an interview on Spotify’s For the Record podcast released Wednesday, CEO Daniel Ek admitted gross margins were hurt by “advertising [being] a bit softer than we would have liked” but insisted the results were fundamentally on point with the company’s expectations. “We still feel really good about the underlying core trends in the business,” he said. “We feel really good about where we think we’re going to end up over the next one to three years.”
That long-term vision is part of the company’s transition from a music-focused company to one that embraces many forms of audio entertainment. The early results show promise: Spotify users spending more time with the service and its churn rate – the fraction of subscribers that leave in a month – is “the lowest across our competitive set,” said Ek during the earnings call. Podcasting advertising is growing faster than music advertising, and the number of monthly active users that listened to a podcast great “in the substantial double-digits” year-over-year, according to a letter to shareholders.
But investors aren’t showing a great deal of patience — and not just with Spotify’s stock. Numerous tech stocks have fallen this week on less-than-stellar results and guidance. Alphabet’s stock price fell 9.6% after the company’s third-quarter earnings on Tuesday showed that revenue growth slowed to 6% from 41% a year earlier. What’s more, ad revenue at Alphabet’s YouTube, which beat Netflix in U.S. streaming TV viewership in September, according to Nielsen, fell 1.9% year-over-year in the third quarter.
Another bellwether of online advertising, Meta, fell 14.9% in after-hours trading Wednesday. The social media giant’s third-quarter earnings missing expectations on both revenue and earnings per share, according to Bloomberg, and its third-quarter revenue declined 4% from the prior-year period. Three months ago, Meta posted the first year-over-year quarterly revenue decline since going public in 2012.
Since Spotify is primarily a subscription business, it doesn’t face the same threat from advertising weakness as Alphabet or Meta. “Any headwinds in the advertising business for us, it’s just a lot smaller than it is for platforms that solely rely on ads,” Ek said during Tuesday’s earnings call. But advertising is crucial to the company’s podcasting business, an increasingly vital part of its long-term strategy to boost profitability. So far this year, Spotify’s heavy spending on its podcasting business has been a drag on margins. That’s to be expected, however, Ek and chief financial officer Paul Vogel repeatedly said during the earnings call and on the For the Record podcast. Next year, they pledged, podcasting will start to contribute to the bottom line.
Universal Music Group, Hipgnosis Songs Fund and other music stocks got a much-needed boost on Tuesday (Oct. 25) following news of Apple Music’s price hike, as investors bet it would trigger a wave of streaming subscription cost increases.
Universal Music Group’s stock closed 11.6% higher, Hipgnosis Songs Fund Ltd ended up 7.8% and Korean music companies SM Entertainment and HYBE finished the trading day 4.8% and 4.4% higher, respectfully, on Tuesday. On Monday, Apple announced that it was raising the standard U.S. and U.K. individual plan price to $10.99 from $9.99.
This 10% price hike — Apple’s first — comes amid high inflation and a darkening economic environment in many global markets. If Apple can raise prices at a time like this, that is a sign the music industry can charge more without turning off consumers, Wall Street analysts said.
“We see this as a further signal of the stickiness of music streaming subscriptions even in a weaker macro environment and believe the major markets will be able to absorb higher prices without leading to meaningfully higher churn,” Lisa Yang, Goldman Sachs’s head of European media & internet technology equity research, wrote in a note to investors on Tuesday.
“We believe that other major DSPs will likely follow suit with similar price increases in the near future, implying further potential upside to our music industry forecasts.”
Competitors Spotify and Amazon Music have already raised prices in some markets. Amazon Music raised the price of its unlimited individual plan for Prime members to $8.99 from $7.99 earlier this year.
Spotify, which will report earnings later Tuesday, raised the cost of its individual plans in the Nordics in 2021, although its standard plan for U.S. subscribers remains at $9.99.
“Despite positive management commentary around churn (with regards to recent price increases on certain plans/regions) as well as management’s views on pricing power over the long term, Spotify has highlighted the broader macro environment as a key consideration in terms of implementing price increases in the near term,” Yang wrote.
Apple’s price increase could also have positive impacts on the majors because companies like UMG and Warner Music Group typically get 65% of music-related revenues from streaming companies with a “high incremental margin,” Goldman estimates.
Music stocks have suffered in 2022 as the major U.S. market indices have fallen around 20% so far this year.
UMG’s share price of 21.10 EUR ($21.01 US) is down nearly 14% year to date, Hipngosis Songs Fund Ltd traded at 91.06 penny sterling ($1.03 US) and is down 28% so far this year. Meanwhile, Warner Music Group’s stock traded at $27.16 US, off almost 37% year to date.