Jul. 30, 2024 12:11 PM ETUniversal Music Group N.V. (UMGNF) Stock

Summary

• Universal Music Group shares plummeted 25% after the earnings announcement.
• Dependence on digital service providers, unexpected divergence from Spotify, and disconnect from artists' interests all contributed to the decline.
• Lack of transparency from management and an unpredictable business model mandate a downgrade to 'Hold'.
• 
  

• Universal Music Group N.V. (OTCPK:UMGNF) (OTCPK:UNVGY) shares plummeted 25% following their recent earnings announcement, and I argue that rightfully so.

  I've been covering the company for a long time and have held a bullish viewduring multiple downturns. However, this last report showed several fundamental flaws which made me change my investment thesis.

  Let's dive in.

  Revisiting The Original Investment Thesis

  My first article on UMG was published in February of 2023, in which I delved into the company's primary revenue streams, and detailed my long-term investment thesis in the company.

  Before we dive into what changed, I think it's important to briefly go over the original analysis.

  Universal Music Group is the largest music label in the world, holding a 38% market share. Unlike the two other large labels Sony Group Corporation (SONY) and Warner Music Group Corp. (WMG), UMG continues to gain share, despite the ongoing rise of indies.

  As a category, music consumption is one of the cheapest forms of media entertainment for the end user, as digital service providers ("DSPs") like Spotify Technology S.A. (SPOT), Apple Inc. (AAPL), Alphabet Inc.'s (GOOG) (GOOGL) YouTube, and Amazon.com, Inc. (AMZN) operate in a highly competitive environment.

  However, generally speaking, the labels are supposedly complacent as to which DSP is succeeding, as long as digital music continues to grow at a double-digit pace in both engagement and subscribers (this is a key aspect that I got wrong, remember for later).

  The combination of the above two factors should lead to consistent top-line growth. On top of that, music, unlike other forms of digital content, remains relevant essentially forever. This should presumably create a significant runway for operational leverage, as an album that was created 40 years ago is still being monetized for essentially no marginal cost.

  Despite fears of AI disruption, I viewed UMG as a wide-moat business that should deliver consistent double-digit growth and returns. (Until He Looked A Little Closer) Well, that didn't turn out too well. Let's tackle the reasons why, one by one.

  

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This Women’s History Month, musicologist Marie Rolf relates the story of an extraordinary discovery of a long-lost piano sonata by Fanny Hensel, the older sister of Felix Mendelssohn. Herself a brilliant composer and accomplished pianist, Fanny was discouraged from publishing her work and forbidden to perform in public during her all-too-brief life. 🕶️Until the manuscript of the Easter Sonata surfaced, many scholars were unsure if it was written by her or by her famous brother. Concert pianist Lydia Artymiw will perform Fanny's Easter Sonata, based on Rolf's recently published critical edition.  Program Highlight | Fanny: The Other Mendelssohn | Film Screening and Concert  Friday, March 21, 2025, 6–8:30 PM Tickets: $30; $25 for Morgan Members

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 P.S. Let’s Keep It Beans x Rice. It’s Starting To Look Like UMG Is Having Money Issues. I Don’t Think They Can Afford Drake Without Shareholder Money. Hence The Reason For Going Public.

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G is For Graff . As Seen In Today’s rT Live :) 

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