Universal Music Valued Around $39 Billion Ahead of Stock Market Debut

France’s Vivendi is spinning off Universal and on Monday set a reference price for the listing at 18.5 euros per share, according to a statement issued by Euronext.

Universal Music Group’s (UMG) listing will be Europe’s largest this year and will hand 60% of shares to Vivendi shareholders.

Universal is betting that a boom in streaming led by Spotify that has fuelled royalty revenue and profit growth for several years still has a long way to run, in a music industry it dominates along with Warner and Sony Music, part of Sony Group Corp.

Its flotation carries high stakes for Canal+ owner Vivendi, which hopes to rid itself of a conglomerate discount. However, the listing raises questions about Vivendi’s strategy once it parts ways with its cash cow, in which it will retain only a 10% stake.

Several high-profile investors have also already snapped up large Universal stakes, banking in part on the group’s back catalogue, which includes the likes of Bob Dylan and the Beatles. They also hope deals with ad-supported software and social media platforms such as Alphabet Inc’s YouTube and TikTok will sustain its performance and valuation.

U.S. billionaire William Ackman suffered a setback when his attempt to invest in Universal via a special purpose acquisition vehicle (SPAC) hit a snag with regulators and investors. However, Ackman still got a 10% stake via his Pershing Square hedge fund. China’s Tencent owns 20% of Universal.

One winner in the listing will be Vincent Bollore, the French media tycoon who is Vivendi’s controlling shareholder. He will receive Universal shares worth 6 billion euros at Monday’s price.

Bollore has been an aggressive consolidator in France’s media and publishing landscape, and he has a long-held ambition to build up a southern European media powerhouse.

Vivendi itself may suffer in the short run, however, and shares are expected to fall Tuesday as they begin trading without Universal.

BNP Paribas, Natixis, Credit Agricole, Morgan Stanley and Societe Generale are the lead financial advisers on the deal, out of 17 banks in total — an unusually large total.

The fee pot is expected to be below standard listings as no fresh cash is being raised as part of the spin-off.

Universal said in its prospectus that the overall expenses to be paid in relation to the Universal deal would not go beyond 0.5% of the total amount of the share distribution.

The listing is the latest win for Euronext in Amsterdam, which has grown as a financial centre in the wake of Britain’s departure from the European Union. Before Universal, Amsterdam had attracted a record 14 IPOs so far this year, of which 10 were SPACs.

But the only Amsterdam listing of a size comparable to Universal in recent history was the 95 billion euro listing of technology investor Prosus, also a spin-off, in September 2019.

For a look at all of today’s economic events, check out our economic calendar.

($1 = 0.8524 euros)

(Additional reporting by Toby Sterling; Writing by Sarah White; Editing by David Evans and Lisa Shumaker)

Activision Blizzard Under Pressure Ahead of Report

Activation Blizzard Inc. (ATVI) reports Q2 2021 earnings after Tuesday’s closing bell, with analysts expecting a profit of $0.75 per-share on $1.88 billion in revenue. If met, earnings-per-share (EPS) will mark no improvement over identical results in the same quarter last year, when gamers were emerging from lockdowns. The stock bounced off a multi-month low in May after a mixed Q1 report but the uptick failed, with downside since that time reaching the lowest low since December 2020.

Toxic Workplace Allegations

June 2021 video gaming spending rose just 5% year-over-year, failing to overcome tough comparisons after last year’s pandemic sales windfall. Social distancing and the run-up into new console releases by Sony Group Corp. (SONY) and Microsoft Corp. (MSFT) generated the most industry excitement in ages, translating into higher stock prices and extremely overbought technical readings that are partially responsible for year-to-date losses in top sector plays.

Activision is also dealing with fallout from sexual harassment allegations at Blizzard’s “World of Warcraft”, one of the hottest titles of the 21st century. That game no longer tops the sales charts but the toxic culture being exposed by unit employees could damage the corporate brand, which includes many titles directed at female players. California just filed suit, citing a culture of “constant sexual harassment”, so this story is likely to attract attention and potential disgust into 2022.

Wall Street and Technical Outlook

Wall Street consensus remains overly bullish, with a ‘Buy’ rating based upon 24 ‘Buy’, 5 ‘Overweight’, and 3 ‘Hold’ recommendations. Price targets currently range from a low of $100 to a Street-high $145 while the stock is set to open Tuesday’s session more than $18 below the low target. This dismal placement highlights Main Street skepticism after 2020’s 56% return. In addition, analysts have been as quiet as church mice since the scandal broke, most likely because they have no clue how it will impact sales.

Activision topped out at 84.68 in October 2018 and got cut in half in the next four months. A slow but steady uptick reached the prior high in August 2020, yielding a pullback, followed by a December cup and handle breakout that posted an all-time high at 104.53 in February 2021. The subsequent decline completed a descending triangle breakdown after the sexual harassment news, also failing the breakout. None of this bodes well for the stock in coming months.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Netflix Holds Its Own in Midst of Market Sell-Off

It’s hard to spot a winner in today’s session, as the bottom appears to have fallen out from beneath stocks. The Dow Jones Industrial Average is suffering what is shaping up to be its steepest drop of the year so far, and the other major indices are in freefall too.

Netflix, which is a component in both the S&P 500 and the Nasdaq, has been meandering between positive and negative territory. Most recently, it succumbed to the selling pressure but its declines are modest. Investors appear to be confident about the streaming giant’s upcoming earnings, which are planned for tomorrow after the bell.

Potential Gaming Gains

One of the catalysts for Netflix’s stock is a planned push into video games, for which the company has brought a seasoned gaming executive on board. Netflix tapped Mike Verdu, an alum of Electronic Arts and Facebook, to lead its gaming efforts.

ARK analyst Nicholas Grous suggests that Netflix could start its gaming push by “distributing third-party titles” and eventually build its own “in-house titles.” Games could reportedly make their way onto Netflix’s platform in the next 12 months. As Grous points out, the strategy certainly paid off for Netflix and investors with content streaming.

Incidentally, Netflix recently inked a multi-year contract with Sony in which the film giant’s movies will be available on the streaming platform starting next year. Speculation on social media suggests the relationship could potentially spill over into gaming.

Analyst Optimism

Wall Street analysts are expecting good things from Netflix’s second quarter. JPMorgan’s Doug Anmuth remains “positive into earnings” amid the streaming company’s content lineup for the balance of the year. Anmuth has a bullish USD 600 price target on the stock, which is currently hovering at USD 529.

Investors are focused on the number of new subscribers that Netflix managed to add in the quarter. Netflix is up against tough comparisons from the pandemic year when the company saw explosive numbers. Consumers were stuck at home due to the lockdowns and turned to streaming content for entertainment.

The JPMorgan expert is predicting 2 million added subscribers for Q2, which he upped from his former forecast of 1.6 million. He expects the momentum to continue for the final two quarters of the year.

Sony Expects Profit to Slip After Pandemic Boom

That demand has helped Sony continue its shift from consumer electronics to entertainment content and digital subscription services and game downloads, but as more people in key markets such as the United States get vaccinated against the coronavirus those gains could wane.

“We expect software sales in quarter ending June 30 to be below the same period of last fiscal year when lockdowns were widespread,” Chief Financial Officer Hiroki Totoki said during an online news conference.

“We don’t see the significant increase in subscribers for network services like we saw last fiscal year from stay-at-home demand,” he added.

For the business year that started on April 1, Sony forecast profit to fall to 930 billion yen ($8.53 billion), missing the 976.4 billion yen average of 19 analyst estimates, Refinitiv data showed.

Sony benefited from strong demand for its new PlayStation 5 (PS5) games console last business year, which launched in core markets in November and quickly sold out. It wants to use the console to encourage online game downloads and attract subscribers.

Totoki said Sony was aiming to ship more than 14.8 million PS5s this year, double the number sold since its launch, but that a global shortage of semiconductors meant that it couldn’t drastically boost output.

To beef up entertainment content, Sony is pursuing acquisitions and distribution deals. In December, Sony agreed to buy AT&T Inc animation business Crunchyroll, giving it 3 million new subscribers across 200 countries.

This month, Sony said it had reached a deal with Walt Disney Co to offer “Spider-Man” movies and other films on Disney’s streaming service after they are shown on Netflix Inc’s service, which had already agreed a streaming deal.

In the three months through March, Sony posted a profit of 66.5 billion yen – almost double the same period a year earlier. That result compared with a 76.1 billion yen average of five analyst estimates compiled by Refinitiv.

(Reporting by Tim Kelly; Editing by Christopher Cushing and Kim Coghill)