UMG Reported a 5.3% Increase in Revenue — So Why Did Its Stock Drop 25%?

In the aftermath of its mid-year earnings report on Thursday (July 30), the Universal Music Group (UMG) stock got hammered, with its share price decreasing a shocking 25.4% — from 19.35 euros on Thursday to 14.44 euros on Friday (July 31). On Monday (Aug. 3), the stock dipped slightly lower to 14.35 euros before ticking back up to close at 14.93 euros on Aug. 4.

Even though UMG produced healthy revenue growth, increasing revenue by 5.3% (10.8% in constant currency) to 6.194 billion euros ($7.236 billion) — up from 5.881 billion euros ($6.694 billion) in the first half of 2025 — the company’s share price was undone by other factors. Those included a steep decline in net profitability, which fell by over $1 billion, and by investor expectations that the company would at least be in the ballpark of analysts’ consensus for overall revenue growth and the more closely watched metric of subscription streaming growth.

Net income plummeted from 1.432 billion euros ($1.633 billion) in the first half of 2025 to 223 million euros ($260.5 million) in the first half of 2026, and earnings per diluted share fell to .12 euros ($0.14) per share from .77 euros ($0.88) per share. Adding to investor anxiety, free cash flow fell to 24 million euros ($27.3 million) from 163 million euros ($185.5 million). In its report on the earnings, Barclays summarized the company’s performance by saying, “The last time results were this poor was in Q2 2024.”

UMG CFO Matthew Ellis noted that there were aspects of the quarterly results that management was pleased with, but concedes there are “other areas that we’re not satisfied with and already at work to improve,” according to a transcript of the conference call provided by the Seeking Alpha website. However, he also stated, “We’re confident that our strategic plan will drive healthy top- and bottom-line growth over a multiyear horizon.”

Nevertheless, operating income was down nearly 5% to 901 million euros ($1.052 billion) from 947 million euros ($1.078 billion) in the first half of last year, which caused the operating margin to decline to 14.55% from 16.1% in the first six months of 2025.

It was also noted that UMG’s revenue growth was buttressed by its acquisition of Downtown, which the company completed on Feb. 20, 2026. Through that deal, UMG has since brought in an incremental 234 million euros ($273.4 million) in revenue, without which revenue growth would have been up just 1.34%. Without taking Downtown into account, revenue was up 5.7% on a constant currency basis.

However, analysts projected that UMG revenue growth for the half-year would hit 6.222 billion euros ($726.6 billion). When taking away Downtown as a factor, UMG missed consensus by 262 million euros ($306 million).

While cost of revenue saw a greater increase than revenue growth, rising 8.4%, selling, general and administrative grew at a slower rate (though overall combined operating costs grew faster than revenue at a 7.1% rate). The real damage to profitability, though, came from way higher-than-usual financial and legal expenses, which came in at 627 million euros ($732.5 million) in the first half of the year versus 93 million euros ($105.9 million) in the same period last year. While UMG didn’t break out how this year’s legal fees and financial expenses grew so large, they were presumably due to expenses related to the Downtown acquisition, the share buyback program initiated this year and lawsuits over AI related to Drake.

The UMG board approved two share buybacks totaling up to $1 billion euros, with the first initiative seeing a payout of 485 million euros from the first 500 million euros, and the second initiative having already paid out 250 million euros of the second 500 million euros. The buybacks will ultimately be paid after UMG sells half of its shares in Spotify. The company initially announced its buyback plan after rejecting a bid by Bill Ackman’s Pershing Square to acquire UMG for $56 billion to $64 billion. A Billboard analysis of that proposed deal shows that the agreement carried a real valuation of only about $12 billion and would have used UMG’s own cash resources to finance the bulk of the acquisition, as Pershing was only bringing about $5.5 billion of its own cash to the table.

The share buyback appears to be playing into the hit on net profit, as UMG has only sold one-third of the Spotify shares it plans to unload, bringing in 403 million euros ($471 million), UMG’s Ellis reported during the UMG conference call with Wall Street analysts.

Given that math on the Spotify sales, it means that so far, financial outlays exceed financial income from the buyback plan by 332 million euros. But given that one-third of the planned Spotify share sale has brought in 403 million euros, if UMG completes its planned Spotify sales by year’s end, and if Spotify’s share price holds steady, the company will sell another 800 million euros worth of Spotify shares. That could go a long way toward bringing down the big negative financial and legal costs reported in the first half by the time the company reports the full year’s earnings.

Other lopsided cost factors also had an impact on net profitability. In the first six months of 2025, UMG posted what it termed financial income of nearly 1.1 billion euros ($1.28 billion), versus only 26 million euros ($30.4 million) in the first half of this year. However, last year’s higher net profit also came with taxes that were a lot steeper at 509 million euros ($579.4 million), versus taxes of 117 million euros ($136.7 million) in the first half of 2026.

Digging into UMG’s earnings by division, recorded music grew 6.83% to 4.769 billion euros ($5.571 billion), up from 4.464 billion euros ($5.081 billion) in the first half of 2025. Subscription revenue grew 9.02% to 2.67 billion euros ($3.12 billion), up from 2.5 billion euros ($2.787 billion). Barclays cited the latter category, noting that UMG failed to meet consensus: “The all-important streaming growth was below Barclays’ expectations of 10.5%, while Bloomberg reported that analysts it surveyed expected subscription streaming to grow by 19.2% and UMG reported on a constant currency basis that category only grew by 14.5%.”

UMG’s streaming revenue — which is presumably revenue from ad-supported tiers at digital service providers — grew 2.4% to 728 million euros ($850.5 million), up from 711 million euros ($809.3 million) in the corresponding year-earlier period. Elsewhere, physical revenue (CDS, vinyl and cassettes) grew 6.55% to 651 million euros ($750.5 million) from the first half of 2025, when physical revenue totaled 611 million euros ($695.45 million); licensing grew nearly 11% to 648 million euros ($757 million) from 584 million euros ($664.72 million); and downloads fell nearly 34% to 72 million euros ($84.1 million) from 109 million euros ($124 million).

Music publishing revenue grew by 3.82% from  the first half of 2025 to 1.168 billion euros ($1.364 billion), when that revenue totaled 1.125 billion euros ($1.28 billion). That broke out to 720 million euros ($841 million) from digital activity in the first six months of 2026, versus 690 million euros ($785.4 million) in the year-earlier period, or a 4.35% increase; while performance royalties yielded 238 million euros ($278 million), up 5.78% from 224 million euros ($256 million); mechanical royalties increased by 7.41% to 58 million euros ($67.8 million), up from 54 million euros ($61.46 million); and the “other” category held at 26 million euros ($30.4 million in 2025, $29.6 million in 2025) for both periods. However, synchronization licensing fell nearly 3.1%, or 4 million euros, to 126 million euros ($147.2 million) from the prior year’s six-month performance of 130 million euros ($148 million). 

Finally, merch and other revenue categories saw a 12.13% decline from 311 million euros ($347 million) to 268 million euros ($311 million) due to a softer release schedule and less robust touring activity. 

(For this story, Billboard used an exchange rate of one euro for every $1.168224299 based on guidance from financial industry sources. That’s compared with last week’s story on UMG’s financials, which relied on an exchange rate computed by the monthly average exchange rate from OFX of $1.161564. Both stories reflect the same average exchange rate of one euro to $1.138215 for the first half of 2025.)