Investing.com -- Universal Music Group (AS:UMG) posted higher-than-expected revenue in the third quarter, driven by growth in subscriptions and streaming.
The world’s largest music label, home to artists like Taylor Swift, reported €2.87 billion ($3.12 billion) in revenue for the three months ending in September, up 4.9% year-over-year at constant currency, surpassing analysts’ consensus of €2.82 billion, per Visible Alpha.
Adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) reached €621 million, slightly above analysts' expectations of €617.8 million and reflecting a 21.6% adjusted margin, up from €581 million in the previous year.
Revenue from subscriptions and streaming rose 6.2% to €1.49 billion, ahead of the forecasted 5.2% growth.
Subscriptions grew 8.2% to €1.14 billion, driven by an increase in global subscribers and price hikes on certain platforms. However, streaming revenue increased only 0.3% to €354 million due to digital ad market volatility, falling short of analysts’ expectations of 2.2% growth.
Universal is banking on subscription gains to fuel revenue and earnings through 2028, aiming to boost average revenue per user (ARPU) by converting ad-supported listeners to premium subscribers. The company is also exploring new avenues for artist-fan engagement, including social media, gaming, fitness, and merchandise partnerships.
Despite a positive print, CFRA Research analyst Kenneth Leon downgraded UMG shares to Hold from Buy.
"UMG is entering some new exciting music streaming capabilities, but we don’t think this will impact revenue or earnings in the near term,” he said in a note.
UMG’s physical music sales, encompassing CDs and vinyl, slipped 0.7% to €288 million in Q3.
As Universal looks to diversify revenue streams, executives see significant long-term growth potential in digital platforms and are focused on enhancing artists’ reach across a broader range of media.
Commenting on the report, Jefferies analysts said investor confidence in UMG stock may be “somewhat restored” thanks to acceleration in the company’s subscription revenue growth.
The firm reiterated a Buy rating on UMG amid “confidence that ARPU will improve into '25 and margin improvements occur from UMG's recent restructuring.”