Universal Music Group’s revenue grew 21.6% to to 2.2 billion euros ($2.31 billion, up 16.5% at constant currency) in the first quarter of 2022, the company announced Tuesday. Every aspect of the company posted a double-digit gain except for downloads, the once-high flying format that’s now the smallest revenue stream in its recorded music business.
“Simply put, our revenue growth and trajectory remain robust,” Sir Lucian Grainge, UMG’s Chairman and CEO, said during the earnings call. Gains are coming from every part of the business and a wide variety of artists: Grainge singled out Americans Billie Eilish and Justin Bieber, Colombian singer J. Balvin and South Korea group Stray Kids, which UMG releases through a partnership with JYP Entertainment. Grainge also highlighted the expanded partnerships UMG has with artists such as The Weeknd and Drake that go well beyond traditional label or publishing deals. “Our diversity of revenue sources makes UMG a healthier, stronger company,” said Grainge.
In UMG’s recorded music division, revenue grew 16.0% to 1.72 billion euros ($1.81 billion) led by an 18.3% improvement in subscription revenue to 900 million euros. Overall, streaming revenue grew 19.9% to 1.21 billion euros ($1.27 billion). Physical revenue grew 11.3% to 237 million euros ($249 million). Licensing and other revenue improved 14.4% to 207 million euros ($218 million) due to stronger synchronization revenue. Download revenue fell 16% to 68 million euros ($72 million).
Streaming and subscription revenue accounted for 70.2% of recorded music revenue, up from 68.0% in the prior-year period. Ad-supported streaming revenues accounted for “just over a quarter” of total streaming and subscription revenues and were boosted by “new and enhanced deals and social media, including our new deal with Twitch,” said CFO Boyd Muir during the earnings call.
Universal Music Publishing Group’s revenue grew 38.4% to 375 million euros ($394 million). Part of that increase was a benefit from UMG’s new accounting policy for recognizing revenue collected from collecting societies. This change primarily benefitted digital, performance and mechanical revenues. Digital revenue had the highest growth rate — 51.6% — and largest revenue — 191 million euros ($201 million) — of all segments. Synchronization revenue grew 34.8% to 62 million euros. Performance royalties grew 19.7% to 91 million euros ($96 million). And mechanical royalties rose 278% to 23 million euros ($24 million) due to an industry-wide recovery.
The return of live music meant big gains at UMG’s merchandising division, Bravado. Merchandising and other revenue rose 81.4% to 107 million euros ($113 million). A change in UMG’s revenue mix comes with implications for its margins, however. As Muir noted, pure merchandising has a gross margin of 7% to 10%, “below the gross margin of our other businesses,” he said, resulting in a “meaningful margin percentage impact.” But Grainge emphasized that revenue growth from lower-margin business such as merchandise is “incremental” to UMG’s margin guidance. “I think that’s a critical point—that we constantly pursue a strategy of creating multi-level, multi-revenue business opportunities with a variety of revenue streams,” he said.
Adjusted earnings before interest, taxes, appreciation and amortization (EBITDA) improved 14.9% to 455 million euros while UMG's EBITDA-to-revenue margin declined to 20.7% to 21.9%. However, Muir noted the previous year's quarter included a 20 million-euro benefit came primarily from "the release of historic royalty provisions and an exceptional recovery of artist-related provisions." Without that benefit, adjusted EBITDA margin would have been steady year-over-year, he said.
UMG's share price rose 1.3% to 22.21 euros on the Euronext Amsterdam exchange before earnings were released on Tuesday, bringing its year-to-date decline to 10.4%. As of April 28, 21 equity analysts tracked by Refinitiv had a median price target of 27.80 euros with a high of 32.00 euros.