Umg stock- UMG, Bill Ackman’s leading stock, plunges 26% post-results following Citi’s downgrade

Umg stock- Universal Music Group (AS), in which Bill Ackman’s Pershing Square Capital Management holds a notable stake, underwent a substantial decline of over 26% in its share price on Thursday following the release of its quarterly earnings report.

The company’s second-quarter results initially showed promise with higher-than-anticipated sales figures, but investor sentiment quickly soured due to disappointing performance in the subscription and streaming segments. UMG reported a modest 4.1% increase in recorded music subscription revenue for Q2, a sharp deceleration compared to the robust 13% growth seen in the same period last year on a constant currency basis.

Despite this, subscription revenue fell short of market expectations, totaling 1.137 billion euros versus the anticipated 1.179 billion euros according to Visible Value consensus. Similarly, streaming revenues also underperformed, coming in at 343 million euros, notably lower than analysts’ consensus estimate of 387 million euros. The decline of 4.2% year-over-year in streaming revenue (3.9% in constant currency terms) was attributed to slower growth on key advertising-based platforms and delays in renewing contracts on certain platforms.

Overall second-quarter revenue amounted to 2.93 billion euros, marking a 9.6% year-over-year increase in constant currency terms, which marginally exceeded the market expectation of 2.89 billion euros.

Pershing Square’s significant ownership stake of 10% in UMG positions it prominently alongside financier Vincent Bollore as a major shareholder. In response to the earnings release, Citi analysts downgraded UMG stock from Buy to Neutral, citing concerns over heightened revenue volatility and deteriorating cash conversion metrics exacerbated by increased investment in content.

The unprecedented level of revenue volatility across various revenue streams and the worsening cash conversion metrics due to elevated content investment have prompted our rating revision, explained analysts at Citi. They noted these issues as potentially transient but cautioned that investor sentiment and valuation multiples could be affected until UMG demonstrates a rebound in growth and improvement in free cash flow dynamics.

Today’s sharp decline pushed UMG’s share price down to approximately 21.1 euros, marking its lowest level since July 2023. Market observers are now closely monitoring UMG’s strategic responses and financial performance amid ongoing challenges within the music industry landscape, awaiting signs of recovery and renewed investor confidence.

STOXX 600 in Europe dips 1% as corporate earnings disappoint and global tech sector faces downturn

European markets faced significant headwinds on Thursday, driven by a series of disappointing corporate earnings reports and a sharp decline in global technology stocks, which further dampened investor sentiment.

The pan-European STOXX 600 index retreated by 1%, reaching its lowest level in over two months as of 0717 GMT. Leading the downturn was the media sector, which saw a substantial 4.6% decline, the steepest among all sectors.

Universal Music Group plunged 26% following its second-quarter earnings report, which highlighted a slowdown in its subscription and streaming segment, contributing to broader market unease.

The technology sector was another major loser, shedding 2.7% amid a sell-off in U.S. tech stocks that saw the Nasdaq plummet nearly 4%, marking its worst single-day decline since 2022.

Meanwhile, the automotive sector slumped 2.6%, largely driven by a sharp 9.2% drop in Stellantis shares after the automaker posted disappointing first-half results.

Renault shares also retreated by 8% after alliance partner Nissan Motor slashed its full-year outlook, citing a substantial reduction in first-quarter profit.

Nestle, the maker of KitKat, saw its shares decline by 3.7% after reporting half-year sales growth that missed analysts’ expectations and revising down its full-year organic sales growth forecast.

Kering, the French luxury goods conglomerate, recorded an 8% decline after reporting a larger-than-expected drop in second-quarter sales and providing a cautious outlook for the remainder of the year.

Overall, Thursday’s trading session underscored widespread concerns among investors over weakening corporate performance across key sectors, compounded by a turbulent global tech market, prompting cautious market sentiment moving forward.

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