Universal falls as higher management pay costs swallow profit increase

By Geoffrey Smith

Investing.com -- Shares in Universal Music Group (AS:UMG) fell in Europe overnight on disappointment at the cost of the company's plans to juice management compensation with stock grants.

The music publisher, which announced stronger-than-expected results for the fourth quarter on Thursday, helped by sales of Taylor Swift's new album Midnights, said it expects big one-off costs from its transition to a new stock-based compensation this year.

UMG expects cash savings of up to €80 million (€1 = $1.0611) this year as it shifts more of total management pay to stock. Savings are expected to rise to €100M a year thereafter. However, in order to sweeten the transition for bosses who are seeing their base pay cut, it will give out €358M in one-off stock grants and will incur non-cash costs of €84M more due to accounting quirks. In all, Goldman Sachs estimated the total cost of stock-based compensation to be €630M this year.

UMG stock fell 3.7% by 06:00 ET (11:00 GMT) in Amsterdam to its lowest in three months.

The unpleasant surprise on executive pay overshadowed what was a strong end to a strong year for Universal, which notched over €1 billion in revenue from streaming for the first time in 2022. Overall sales rose 17% to €2.94B, with Swift's album alone contributing some 8% of that figure, according to JPMorgan estimates. Net profit, however, fell to €782M from €886M in 2021, as the company marked down its holdings in Spotify (NYSE:SPOT) and Tencent Music Entertainment (NYSE:TME) by a total of €617M.

There was also some disappointment at the fact that Universal's outlay of €1.6B over the last three years on back catalogs has only generated €94M of EBITDA in that period.

Earnings per share fell to 43c from 49c a year earlier.

Goldman analysts said the update was still reassuring in what it said about the strength of music demand in what is likely to be a tough year for consumer-facing stocks due to the ongoing squeeze on incomes from high inflation. The group said it expects revenue from streaming subscriptions to carry on growing at over 10% a year.