Robinhood shares gain on Q2 beat, as user and crypto growth accelerate
Investing.com -- Universal Music Group’s (AS:UMG) stock climbed more than 4% on Friday after the company reported stronger-than-expected subscription revenue growth, reinforcing its dominance in the music streaming industry.
However, while UMG delivered a positive earnings surprise, broader equity markets have been grappling with a sharp valuation reset, with Barclays (LON:BARC) analysts warning that the current de-rating in U.S. equities is the fastest and most severe of the past three years.
UMG, the world’s largest music company, posted fourth-quarter revenue of €3.44 billion, up 7.9% year-over-year, and an adjusted EBITDA of €799 million—both exceeding expectations.
A key driver was subscription revenue, which grew 7.2% in constant currency, beating forecasts of 5.5%, according to Morgan Stanley (NYSE:MS).
The recorded music segment saw a 9% increase in subscription revenue, fueled by a growing subscriber base and price adjustments by streaming platforms like Spotify (NYSE:SPOT).
While ad-supported streaming remained flat, UMG’s core subscription business continues to show resilience.
Morgan Stanley views the results as a strong signal for UMG’s long-term prospects, particularly given global subscriber growth and recent pricing agreements with Spotify and Amazon (NASDAQ:AMZN).
With a total addressable market of 220 million paid music subscribers, the company sees further opportunities, especially in emerging markets.
Despite UMG’s strong performance, Barclays analysts note that the broader U.S. equity market is undergoing a rapid valuation reset.
Assuming February 19 marked the local peak for the S&P 500, they highlight that the current de-rating is the fastest since the 2022 bear market.
Unlike previous near-corrections, which were largely technical unwinds, this pullback reflects a fundamental reassessment of economic and policy risks. Some of the retail-driven market exuberance following the U.S. election is now being unwound.
Even with the S&P 500’s valuation compressed to 21 times next-twelve-month earnings estimates, Barclays warns of further downside unless markets receive a clearer economic boost.
The index has historically found support around 20x forward P/E, but further market weakness is possible if GDP growth slows in early 2025 and corporate earnings remain under pressure.
Beyond streaming, UMG’s merchandising division also exceeded expectations, delivering 19.3% year-over-year growth, driven by strong artist touring and direct-to-consumer sales. However, the company warned of tougher year-over-year comparisons in 2025 due to a lighter touring schedule.
Morgan Stanley maintains an "overweight" rating on UMG, citing its strong structural position, strategic investments, and potential for further price increases in streaming. The brokerage has set a price target of €29, signaling further upside.