EUR 850.00 For Business Accounts Only

Morningstar | Vivendi Ends 2018 on Strong Note; Music Streaming Continues to Drive Growth. See Updated Analyst Note from 15 Feb 2019

Vivendi posted a strong fourth quarter as revenue and operating profit came in slightly above consensus. Universal Music continues to benefit from consumers’ preference for streaming music, driving subscription and streaming revenue up 42% organically year over year. We maintain our no-moat rating but are raising our fair value estimate to EUR 20 per share from EUR 19 to account for stronger streaming revenue growth. With the shares trading in the 2-star range on our updated fair value estimate, we would wait for a pullback before investing in this high-uncertainty name.

Revenue of EUR 4.0 billion was up 6% organically from a year ago as both Canal+ and UMG posted strong organic growth. UMG revenue was up 12% organically year over year as the growth in streaming usage continued to more than offset the ongoing drop in downloads and physical sales. While management remains bullish on the global expansion of streaming services, we note that a sustainable stand-alone model for streaming music has yet to emerge. The popularity of YouTube with younger music listeners may point to a future where streaming music is largely a secondary part of the overall service and platforms like YouTube have the ability to push back on royalty rates.

For the full year, UMG revenue was up 10% organically, driven by subscriptions and streaming (up 37%) and music publishing (up 15%). We note that the growth in streaming usage not only drives subscriptions and streaming revenue but music publishing as well, since the streaming music services generate both performance (subscription) and mechanical (on-demand) royalties. EBITDA margin for the full year grew 160 basis points to 22.1% as the higher-margin streaming revenue growth more than offset the declines in downloads and physical sales.

Canal+ continues to suffer from increased competition in France where individual subs fell to 7.8 million from 8.1 million at the end of 2017. While management highlighted the improvement in churn over the course of 2018, we continue to expect that Canal+ will face an uphill climb to maintain its subscriber base in France. The positioning of Canal+ in France will be helped by the recent acquisition of the exclusive broadcast rights for the English Premier League in France.

Strong performance outside France, particularly in Africa, helped drive the global customer base up by 0.7 million subs from a year ago to 16.2 million. As result, Canal+ revenue fell to EUR 1.3 billion in the fourth quarter, down 3% year over year, as the subscriber losses in France outweighed the international growth. On an annual basis, revenue at Canal+ was flat organically at EUR 5.2 billion and EBITA margin improved 190 basis points to 7.7% as expense management and international expansion outweighed the declines in France.