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The Ledger: Music Stocks Are Off to a Bumpy Start in 2022

Shares of some music companies have turned negative in the first few weeks of the year, continuing a trend since mid-November.

Music stocks are off to a bumpy start to 2022. As investors attempt to digest the possible effects of interest rate hikes by the Federal Reserve, many music stocks have followed larger trends and bounced all over the map in the first three weeks of the year. Take Spotify: In the first 13 trading days of 2022, its daily percentage change has twice been over 4% and three times less than -3% (for an aggregate loss of 12.2%). Similarly, over the same period, Warner Music Group has fallen by more than 2% four times and lost a total of 8.4%.

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For many music rights owners, January is a continuation of a trend that began last quarter. Through Thursday, WMG shares were down 18.2% since it released third quarter earnings on Nov. 15. (The tech-heavy Nasdaq dropped 10.7% over the same period while the New York Stock Exchange fell only 3.7%.) Universal Music Group shares reached a new low of 21.56 euros on Jan. 19 and fell 15.6% since Nov. 15. French music company Believe and U.S.-based Reservoir Media are down 18.8% and 26.3%, respectively, over the same period.

Not that volatility necessarily impacts the day-to-day operation of companies. Music companies — namely labels and publishers — have posted four or five years of consistent growth and will trend upward for the foreseeable future. But disappointing stock prices can hang over a company, and worthless stock options aren’t a good employee retention tool. Often, a downturn can entice investors to increase their holdings and, as a result, their influence (activist shareholders that want a company to make changes can buy in at a discount).

That’s not always an issue in music, however. WMG’s owner, Access Industries, has about 98% of the voting power and controls both the board and major decisions. Likewise, Tencent Music Entertainment has a small float and is controlled by parent company Tencent. And Spotify’s co-founders, Daniel Ek and Martin Lorentzon, have 75.4% of voting power (as of Dec. 31, according to the company’s 2021 annual report) and an outsized influence over the company’s direction.

Current share prices set the stage for a slew of fourth-quarter earnings starting in February. Is this a buying opportunity? Or is this the beginning of a longer trend? That stock prices have room to grow to reach analysts’ median price targets is a positive sign.Investors have bought into music companies’ narrative of high growth and — especially for live music — a sure-thing recovery from the COVID-19 gloom.  Now, these companies carry the burden of high expectations.

Stock Spotlight:

Through Jan. 20, the % change over last five trading days and year to date.

Spotify: -9.8%, -12.2% YTD
Warner Music Group: -3.0%, -8.4% YTD
Universal Music Group: -3.2%, -7.1% YTD
Reservoir Media: -2.2%, 12.0% YTD
Believe: -5.2%, -5.8% YTD