Universal Music Q3 Earnings: Subscription Streaming, Downtown Integration Pay Off

Universal Music Group (UMG) reported a 11.7% growth in revenue during the third quarter, driven by accelerated subscription streaming revenue and the integration of Downtown Music Group. The company's revenue reached €3.39 billion ($3.87 billion), an increase of 5.3% excluding the Downtown acquisition. Subscription streaming revenue accounted for 1.81 billion euros ($2.06 billion), a 17.9% rise compared to the previous year, contributed by 9.5% of the total growth.

UMG CEO Lucian Grainge emphasized the importance of Downtown as the most significant acquisition since EMI, stating that the financial results validated their decision. Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) grew by 9% in constant currency and 7% when excluding Downtown, reaching €729 million ($831.06 million). The adjusted EBITDA margin expanded by 0.4 percentage points to 21.5%, compared to 22% a year ago, despite lower publishing and merchandise profitability.

The company's physical growth was widespread across North America, Japan, and Europe, as well as in both front line and catalog sales. Top selling artists in the quarter included Mrs. Green Apple, Olivia Rodrigo, Stray Kids, Ariana Grande, and The Beatles. Overall, recorded music revenue rose by 14.7% in constant currency to €2.56 billion ($2.92 billion), fueled by a 19.2% increase in subscription revenue due to wholesale price hikes. Ad-supported streaming revenue grew by 13.5%, while physical sales increased by 17.4%.

Adjusted EBITDA margin for recorded music, excluding Downtown, improved to 26.2%, aided by reduced A&R spending and tighter cost controls. Music publishing revenue grew by 7.5% in constant currency, or just 1.5% excluding Downtown. Digital publishing revenue rose by 11.8%, but the adjusted EBITDA fell by 3.5% due to difficulties comparing it to the previous year's quarter.

Merchandise revenue dropped by 4.6% as there were fewer major tours, although strong sales directly to consumers, like through UMG's online stores, helped mitigate this decline.

UMG recently announced additional layoffs as part of its cost-cutting plan, which the company claims will result in €250 million ($271 million) in annual savings by the end of 2026. The stock price of UMG increased by 0.6% to $15.84 ($18.06) at 1:35 p.m. in New York. CFO Matt Ellis expressed encouragement by the progress made in various areas, including the acceleration of subscription revenue, the strength of physical sales, and improved profitability. However, he acknowledged that there is still work ahead, which is currently underway.