In the music business, the markets appear to have given a resounding response to that question in 2022, with Spotify – the world’s largest music streaming subscription platform – seeing its value fall significantly below that of major music rightsholders.
At the close of trading on the New York Stock Exchange on Friday (December 30), the final trading day of the year, Spotify’s share price stood at USD $78.95, equivalent to a market cap of $15.26 billion.
WMG’s share price at the end of trading on Friday stood at $35.02, equivalent to a public market cap of $18.03 billion. That’s nearly $3 billion bigger than Spotify’s equivalent public market value.
SPOTIFY VS. UNIVERSAL AND WARNER: THE BIG DIFFERENCE IN 2022
This is all a far cry from a year ago, when MBW was asking: ‘Universal vs. Spotify: Which of music’s two giants will be worth more at the end of 2021?’
On December 6, 2021, Spotify and UMG’s valuations were remarkably close, with UMG worth EUR €45.20 billion on the Amsterdam Euronext, and Spotify worth USD $44.44 billion on the NYSE.
On the same date (December 6, 2021), Warner Music Group’s market cap on the NASDAQ weighed in at USD $21.46 billion… less than half that of Spotify’s.
Things look very different today – and that’s largely to do with the performance of Universal and Warner’s stock in the second half of 2022.
THE SPOTIFY DIFFERENCE
It’s been a very different story at Spotify.
SPOT began 2022 with a share price of $244.16 on the NYSE. At the close of Friday (December 30), that share price was down by 67.7% YTD.
Unlike Universal and Warner, there was no bump for Spotify investors in the second half of 2022: SPOT’s share price hit an all-time low of $72.36 on December 15, and hasn’t managed to recover much since.
Indeed, after a precipitous fall in value in the first half of 2022, Spotify’s share price (and market cap value) has continued to slump into something of a flatline (see below).
To put it bluntly: Spotify’s share price at the close of 2022 ($78.95) is worth close to a fifth of its equivalent worth ($364.59) when Spotify’s value was at its peak in February 2021.
So why are the markets punishing Spotify’s share price so heavily despite this performance? In a word: Margin.
Spotify’s gross margin in Q3 2022 stood at 24.7%, missing the firm’s own guidance of 25.2%. SPOT’s quarterly operating loss in Q3 stood at €228 million; its YTD operating loss (across the nine months to end of September) stood at €428 million.
There is, then, a commercial see-saw going on as we head into the New Year: Spotify’s music industry performance in 2022 was an impressive one, adding more premium subscribers than many expected – and generating more subscription revenue growth than it’s managed in recent memory.
This was great news for the likes of Universal Music Group and Warner Music Group, whose own valuations have greatly benefitted from the continued bounce of the music subscription market in a recession-hit 2022.
However, Spotify’s investors want to see improved margin from the streamer… and they’re well aware that, on top of some huge bets on podcasting in recent years, its biggest consistent expense remains the royalty checks it doles out to music industry rightsholders.
The stage is set for an interesting next 12 months.
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