Is this what UMG's future looks like?

Universal Music Group Sets Ambitious Growth Targets for Subscription Revenues

Universal Music Group (UMG) is aiming for 8-10% annual growth in subscription revenues, despite facing some challenges recently. In its Q2 results, UMG reported a nearly 10% year-over-year increase in overall revenues, but subscription streaming revenues only grew by 6.9%, falling short of analyst expectations. This prompted several Wall Street analysts to downgrade their price targets for UMG’s stock.

Today, September 17, UMG is hosting a Capital Markets Day (CMD) in London, hoping to rejuvenate investor confidence in its valuations. Ahead of the event, UMG announced new financial targets for the next five fiscal years, extending to FY 2028, aligning its fiscal year with the calendar year.

While UMG hasn't detailed specific annual revenue projections, it has provided Compound Annual Growth Rate (CAGR) expectations for the period. The company expressed optimism about growth driven by an expanding partner ecosystem, increased superfan monetization, and the ongoing rise in subscription revenue.

Here are UMG's key growth targets:

1. Overall Revenue Growth: UMG expects overall revenues to grow at a CAGR of over 7% (at constant currency) from FY 2023 to FY 2028.
2. Subscription Streaming Revenue Growth: The company forecasts subscription streaming revenues will grow at a CAGR of 8% to 10% (at constant currency) during the same period.
3. Adjusted EBITDA Growth: UMG anticipates adjusted EBITDA to grow by more than 10% (at constant currency) in the next five years.

Additionally, UMG aims to achieve a Free Cash Flow (FCF) conversion rate of 60% to 70% before investment activities.

To better understand these targets, MBW will model how these CAGR forecasts could influence UMG’s financial health in the coming years, focusing on overall revenues, profitability, and specific subscription growth.