A Post-Spotify Boom for Music IPOs?
Universal Music Group and China's Tencent Music are testing the waters for public offerings as analysts forecast a "bullish" outlook for the sector.
Is now the time for the next wave of music IPOs?
Spotify's April 3 debut on the market may have whetted the appetite of investors for music company stocks in a sector that mostly features privately held firms or businesses hidden inside bigger conglomerates, like Sony or Apple.
China's largest music streamer, Tencent Music, which is majority-owned by Chinese social media giant Tencent and has a 7.5 percent stake in Spotify (which in turn owns 9 percent of Tencent Music), is reportedly planning an IPO by the end of the year, targeting a U.S. stock exchange as its home and eyeing a valuation of $25 billion. The company has 700 million-plus monthly users, including an estimated 15 million paying subscribers.
And French conglomerate Vivendi is exploring an IPO of Universal Music Group, led by CEO Lucian Grainge. The company says that a May 17 board meeting will include a discussion of "different hypotheses" for how "capital might evolve."
Universal Music Group, with 2017 reported earnings before interest, taxes and amortization of $912 million, "could be a decently sized" small- or midcap stock, meaning one with a market value of up to $10 billion, says RBC Capital Markets analyst Steven Cahall.
On Wall Street, it has been a mixed bag for music-centric stocks, with streaming giant Pandora Media and radio network Entercom Communications down 35 percent and 5 percent, respectively, in the past 12 months, while satellite broadcaster Sirius XM Holdings and events promoter Live Nation have climbed 40 percent and 43 percent, respectively. Spotify is up 5 percent since it went public April 3.
"We believe recent music headlines would make now a good opportunity to IPO the music business," Liberum Capital analyst Ian Whittaker said in a report. He estimated that an IPO of a 25 percent stake in UMG could raise at least $6.2 billion.
"It remains early days in the global adoption of streaming," a group of Morgan Stanley analysts argued in an April 30 report. "The near-term investment outlook is bullish."
A version of this story first appeared in the Jan. 25 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.