Spotify’s share price crash is a shocker for Daniel Ek. It won’t have best pleased music’s biggest companies.

MBW Reacts is a series of short commentary pieces by the MBW team. They are our ‘quick’ reactions – through the lens of music – to major entertainment news stories.

Did Spotify Have an impressive Q1 or not? That totally depends on what lens you’re looking through.

In February, Daniel Ekcompany of forecast it will grow 3 million global subscribers in the first quarter of the year. But then the Russian invasion of Ukraine happened.

Weeks after giving +3 million forecast and in an act of international business solidarity, Spotify cuts payments in Russia – effectively eliminating 1.5 million Russian subscribers from its foundation.

If you ask MBW, the news that Spotify has ended 2 million more net subscribers in Q1 – despite its commercial self-sacrifice move in Russia – there’s a rosy tint to it.

Spotify’s Q1 performance is even better amid the Netflixlost 200,000 net subscribers in the same quarter and is now expected lost 2 million net subscribers in Q2.

However, Wall Street was ultimately unimpressed with some Spotify in particular amid the new Q1 results announced earlier this week.

Spotify announced mid-20s Q1 gross margin (25.5%) and announced This number is expected to remain unchanged in Q2.

Investors are looking to see this gross margin pushed up to 30 percent, largely the result of Spotify’s original content strategy in podcasting.

Consequence?

Spotify’s rising share price on the NYSE hits a new low this week: It closed at $96.67 on Wednesday (April 27) – drop 60% in early 2022, and almost a quarter of the size that was the peak of Spotify, at $364.59 in February of last year.

All of that spells doom for Spotify’s market cap, which has fallen $18.62 billion on Wednesday night, according to YCharts.

That $18.62 billion numbers fell – swallowed – by 50.7 billion dollars on the equivalent of Spotify just 14 months ago, during its peak February 2021 (69.35 billion USD).

Obviously this isn’t great news for Spotify – but it’s also not good news for its key shareholders, including the two major music rights holders.

Universal Music Group (UMG) confirm in it recently released annual financial statements which it owns 3.37% of Spotify at the end of 2021 (see below), held UMG shares that were granted when Spotify launched in 2008.

If UMG, as expected, continues to hold that stock in 2022 so far, that means Universal’s Spotify stake is worth roughly 2.34 billion dollars in February 2021, but this week has dropped to about $627 million – decrease more 1.7 billion dollars USD.

In other places, Music by Sony supposedly possessed around 2.85% Spotify shares, previously collected half of the amount 5.7% holding SPOT back in Q2 2018.

Sony yes since confirmation that it has banked some $768 million from that 2018 stock sale. It then shared this amount with the artists, while notably review their unsupported balance.

MBW therefore estimates that Sony made a Spotify equity sale in 2018 when SPOT was worth approximately 27 billion dollars – approximately 8 billion dollars more SPOT worth it in the middle of this week.

[This article assumes that Sony has not quietly cashed in any additional Spotify stock this year.]

Warner Music Group sold 100% of my Spotify shares in the same quarter as Sony’s liquidation (Q2 2018).

WMG bank 504 million dollars from that sale and share 25% of it with the artists (but did not ignore balance is not supported)

Meanwhile, the collective of independent brands Merlin sold all Spotify shares on the first day SPOT floated on the New York Stock Exchange (April 3, 2018), when the streaming company had 26.5 billion dollars Market capitalization.

As a result, both Warner and Merlin are no longer shareholders in music’s largest streaming subscription platform.

Of course, shares in Universal and Sony’s Spotify are valued beyond equity; It could be argued that, for a major music company, owning even a fraction of the equity in SPOT provides the associated negotiating leverage.

Hervé Philippe, Vivendi’s CFO, said in an earnings call in late August 2020 (when Vivendi was still majority-owned by Universal) that Vivendi/UMG has “No intention to sell our stake in Spotify, a very good partner to us”.

Philippe stated that Vivendi/UMG is a “happy shareholder of Spotify” and suggested that “a long-term relationship with Spotify is in the best interests of both of our shareholders.” [and] our artist”.

“We have no intention of selling our stake in Spotify, which is a very good partner to us.”

Hervé Philippe, Vivendi (speech in August 2020, when Vivendi owns UMG)

However, Phillipe also said Vivendi is “very happy with Spotify’s share price, which has increased a lot in recent weeks”.

At the time (August 2020), Spotify’s market cap was worth about 50 billion dollars. That is more than 30 billion dollars more than the SPOT value by the end of this Wednesday.

(UMG is no longer majority-owned by Vivendi, which emerged on Amsterdam Euronext in September 2021.)

Universal has previously confirmed that, if it ever do sell its Spotify shares (or some of its equity in Spotify), like Sony before it – will share the proceeds with UMG artists while considering their unsupported balances .

How much those artists are ultimately paid, to a large extent, depends on how successful Daniel Ek is in stemming Spotify’s stock price decline in the coming months.

He has a positive start: Yesterday (April 28), after it dropped below $100 on Wednesday, Spotify’s NYSE stock price rebounds 6.4%add 1 million dollar to SPOT’s market cap in one day.

At the time of publication, Spotify’s stock price is today (April 29) incremented by a 1.5%.

This is a positive start.

But if Daniel Ek and his management team want to get Spotify’s commercially valuable purple patch back – back when it kissed a 70 billion dollars market capitalization in February of last year – they still have a long way to go.Worldwide music business