MBW Reacts is a sequence of quick remark items from the MBW staff. They’re our ‘fast take’ reactions – by way of a music biz lens – to main leisure information tales.
Did Spotify have a powerful Q1 or not? That each one is dependent upon which lens you look by way of.
In February, Daniel Ek‘s firm forecast it might develop international subscribers by 3 million within the first quarter of the 12 months. However then Russia’s invasion of Ukraine occurred.
Weeks after making its +3 million forecast, and in an act of worldwide company solidarity, Spotify lower its billing in Russia – successfully jettisoning 1.5 million Russian subscribers from its platform.
For those who ask MBW, the information that Spotify ended up including 2 million internet subscribers in Q1 – regardless of its commercially self-sacrificing transfer in Russia – has a rosy tint to it.
Spotify’s Q1 efficiency seems even higher within the context of Netflix, which misplaced 200,000 internet subscribers in the identical quarter, and is now projecting the lack of 2 million internet subs in Q2.
Wall Avenue, nonetheless, was in the end left unimpressed with one Spotify quantity specifically amid its newly-unveiled Q1 outcomes earlier this week.
Spotify posted a Q1 gross revenue margin within the mid-20s (25.5%), and introduced that it anticipated this determine to stay flat in Q2.
Traders have been eager to see this gross margin ratchet up into the 30-percents, largely because of Spotify’s authentic content material technique in podcasting.
The consequence?
Spotify’s already-tanking share value on the NYSE hit new lows this week: It closed at $96.67 on Wednesday (April 27) – down 60% on the beginning of 2022, and almost 1 / 4 of the dimensions it was at Spotify’s peak, at $364.59 in February final 12 months.
All of that spelled doom for Spotify’s market cap worth, which tumbled to $18.62 billion on Wednesday night time, in line with YCharts.
That $18.62 billion determine was down – gulp – by $50.7 billion on Spotify’s equal worth simply 14 months in the past, throughout that February 2021 peak ($69.35 billion).
This isn’t nice information for Spotify, clearly – but it surely’s additionally not excellent news for its key shareholders, together with two main music rightsholders.
Common Music Group (UMG) confirmed in its recently-issued annual fiscal report that it owned 3.37% of Spotify on the shut of 2021 (see beneath), having held on to the inventory UMG was granted when Spotify launched in 2008.
If UMG has, as anticipated, continued to carry onto that inventory in 2022 to date, it might imply Common’s Spotify stake was value round $2.34 billion in February 2021, however this week fell to roughly $627 million – a decline of greater than $1.7 billion {dollars}.
Elsewhere, Sony Music is believed to personal round 2.85% of Spotify inventory, having beforehand cashed in half of its 5.7% holding in SPOT again in Q2 2018.
Sony has since confirmed that it banked some $768 million from that 2018 inventory sale. It then shared this cash with artists, whereas notably overlooking their unrecouped balances.
MBW due to this fact estimates that Sony made its 2018 Spotify fairness sale when SPOT was value round $27 billion – roughly $8 billion greater than SPOT was value halfway by way of this week.
[This article assumes that Sony has not quietly cashed in any additional Spotify stock this year.]
Warner Music Group offered 100% of its Spotify inventory in the identical quarter as Sony’s disposal (Q2 2018).
WMG banked $504 million from that sale, and shared 25% of that cash with artists (however didn’t overlook unrecouped balances)
In the meantime, indie label collective Merlin offered its whole Spotify inventory on the primary day that SPOT floated on the New York Inventory Change (April 3, 2018), when the streaming firm had a $26.5 billion market cap.
Consequently, it’s understood each Warner and Merlin are now not shareholders in music’s largest streaming subscription platform.
Common and Sony’s Spotify inventory holdings maybe have value past mere fairness worth, in fact; it could possibly be argued that, for a serious music firm, proudly owning even a morsel of fairness in SPOT brings with it related negotiating leverage.
Hervé Philippe, the CFO of Vivendi, mentioned on an earnings name in late August 2020 (when Vivendi nonetheless majority-owned Common) that Vivendi/UMG had “no intention to promote our stake in Spotify, which is an excellent accomplice to us”.
Philippe acknowledged that Vivendi/UMG was a “pleased shareholder of Spotify”, and instructed {that a} “long-term relationship with Spotify is in the very best curiosity of each our shareholders [and] our artists”.
“We now have no intention to promote our stake in Spotify, which is an excellent accomplice to us.”
Hervé Philippe, Vivendi (talking in August 2020, when Vivendi owned UMG)
Phillipe additionally mentioned, nonetheless, that Vivendi was “very proud of the share value of Spotify, which has elevated so much in current weeks”.
At that time limit (Aug 2020), Spotify’s market cap was value round $50 billion. That’s over $30 billion greater than SPOT was value on the shut of Wednesday this week.
(UMG is now not majority-owned by Vivendi, having floated on the Amsterdam Euronext in September 2021.)
Common has beforehand confirmed that, if it ever does promote its Spotify stake (or a few of its Spotify fairness stake) it – like Sony earlier than it – will share the proceeds with UMG artists whereas overlooking their unrecouped balances.
How a lot cash these artists in the end receives a commission relies upon, to a big diploma, on how profitable Daniel Ek is at stopping the rot of Spotify’s share value within the months forward.
He’s off to a constructive begin: Yesterday (April 28), following its fall beneath $100 on Wednesday, Spotify’s NYSE share value rebounded up 6.4%, including over $1 billion to SPOT’s market cap in a single day.
On the time of publishing, Spotify’s share value is at this time (April 29) up by one other 1.5%.
This can be a constructive begin.
But when Daniel Ek and his administration staff are to recapture the purple patch of Spotify’s industrial value – again when it was kissing a $70 billion market cap worth in February final 12 months – they nonetheless have a protracted, lengthy approach to go.Music Enterprise Worldwide
