Warner Music Group Sells Bulk of Spotify Shares, Netting $400 Million
CEO Stephen Cooper said the sale should not be seen as a loss of confidence in Spotify.
As part of its earnings results announced this morning, Warner Music Group said it had sold about 75 percent of its Spotify holdings and received about $400 million.
Warner Music Group CEO Stephen Cooper said it would share the proceeds with its artists on the same basis as it does for digital revenue; he also said WMG would share proceeds with distributed labels if their contracts call for it.
In other words, if distributed labels weren’t shrewd enough to get equity shares negotiated based on market share included in their distribution contracts or didn't have enough clout in negotiations, those labels will not be enjoying any Spotify proceeds.
In explaining the divestiture of the Spotify shares, Cooper cautioned that the move shouldn’t be interpreted as a loss of confidence in Spotify.
"We are a music company and not by nature longterm holders of publicly traded equity," he said. "This sale has nothing to do with our view of Spotify’s future. We’re hugely optimistic about the growth of subscription streaming, we know it has only just begun to fulfill its potential for global scale. We fully expect Spotify to continue to play a major role in that growth."
In working back through its numbers for the sale of the Spotify stock, the numbers show that the Warner Music Group owned about 2 percent of Spotify shares, which is dramatically less than the 5.707% shares owned by Sony. The difference in shares are probably due to Sony's marketshare versus WMG's market share in music; as well as dilution to the WMG ownership stake in Spotify stock as new shares of the company were issued.
The average closing share price of the Spotify stock since it began trading on May 3 is $152.73, which if WMG realized $400 million, that means it sold 2.619 million. If that was 75 percent of its stake, that means WMG owned a total of 3.495 million shares, or 2 percent of the 178 million outstanding Spotify shares.
The sale of the Spotify shares occurred after the close of its second quarter on March 31, in which the company said it had a $1 million net income loss on revenues of $963 million, versus $20 million in net income in the prior year quarter when sales were $825 million.
For the six month period, WMG reported $4 million in net income on revenues of $2.008 billion, versus $44 million in net income on $1.742 million in revenue. Overall, revenue grew 15.3 percent.