Entering text into the input field will update the search result below

Vivendi As A Better Way To Play The Global Music Streaming Trend

May 06, 2020 2:59 PM ETVivendi SE (VIVHY)SPOT2 Comments
GARP Businesses profile picture
GARP Businesses


  • Vivendi's Universal Music Group is a clear platform-agnostic winner of the global music streaming trend as its market share has surged past Sony and Warner Music.
  • UMG has a better business model than Spotify and future growth in UMG  can be found in emerging markets as well as new licensing deals with platforms such as TikTok.
  • Sum of the parts valuation of Vivendi suggests an equity valuation of 33.2B euros, 41% undervaluation at current prices despite assigning a zero value to assets other than UMG and Canal+.

I previously wrote several times about Spotify (SPOT):

  1. Article on Spotify's business model and unique advantages
  2. Article on Spotify's future plans and valuations
  3. Article on updating Spotify's podcasting plans.

While I believe that Spotify is the best music streaming platform despite numerous competitors from Apple (AAPL), Amazon (AMZN), Tencent (OTCPK:TCEHY) and others, I am less positive about Spotify due to its business model. In its recent Q1 release, MAUs increased by 31% but Premium revenue only increased 23% and Ad-Supported revenue only increased 17%. Premium revenue increased significantly less than premium subscribers growth (also 31%) probably due to Spotify's increasing reliance on promotions and packages (such as family plans and packages with third parties such as Samsung (OTCPK:SSNLF) and telecoms).

Furthermore, I believe that Spotify's model is inherently flawed based on its current relationship with the large music publishers such as Sony (SNE), Warner and Universal Music. This is reflected in Spotify's gross margins of 25.5%, which is relatively low compared to most technology companies and has remained stable. While operating margins, EBITDA and FCF have improved significantly from 2016 to 2019, I believe that Spotify's upside is limited by both its relatively low gross margins and inability to significantly re-accelerate revenue growth. Hence, while Spotify's current market cap of roughly $26 billion isn't extremely high or overvalued, I'm not convinced of future upside. Furthermore, Spotify pays publishers royalty per stream which depends on a number of factors including in which country people are streaming the music, # of paid users as % of total users, etc. However, paying by a per stream rate even if it's not fixed means that Spotify is unable to benefit from increased use of its service (much like Netflix). As a user, I pay a fixed cost per month but if I increase usage of Spotify, Spotify actually loses more since it has to pay more to the record labels. Furthermore, Spotify also has a minimum guarantee payments to record

This article was written by

GARP Businesses profile picture
Interested in different businesses around the world, particularly if incumbents can innovate quicker than if distributors can gain scale. Looking forward to sharing my views and hearing different opinions.

Analyst’s Disclosure: I am/we are long VIVHY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (2)

Amazing, nobody has figured out what’s really going on. The fact is streaming is going global and this is a fantastic position to be in now thst Billy The Kid is involved with his sparc
Thanks for the article @Dominic Teo , interesting comparison between the majors and the music platform.
IMO, assessing zero value to the assets of out Canal+ / UMG is IMO too much conservative as these assets can worth at least 7B with conservatives view. Here are the biggest part of the "others" assets :
- Havas worth at least 2,5B
- Spotify 5% stake is worth 1,1B based on current price
- TIM 20% stake worth 1,3B based on current price
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.