Universal Music stands to win handsomely from a new US$2bn annual agreement with video-sharing platform TikTok, as the industry looks to rehash the existing deal, according to Credit Suisse.
“If we benchmark TikTok to YouTube, this could imply a payment of up to US$2bn annually,” analyst Mathew Walker noted on the potential change of agreement within the industry.
Higher streaming growth, digital service provider price rises and the potential variable fee agreement with TikTok were highlighted by Walker as catalysts for strong potential growth for Universal Music.
Analysts from the bank maintained an ‘outperform’ rating for the music giant, giving it a target price of €25.5, up from €23.4 currently.
The Swiss bank also forecast 2023 organic growth for the company of 5.3%, up from a predicted 3.8% originally, given price rises by both Apple and Amazon for their streaming services.
Paid streaming growth should rise 11%, rather than the bank's initial 8%, off the back of these rises.
“The move from Apple and Amazon is the first time the individual plan prices have increased since the inception of streaming and mean Spotify and other digital streaming providers are likely to follow,” said Walker.
A weaker dollar compared to the euro may hinder adjusted earnings, Walker suggested, alongside a slowdown in net subscribers, potential regulation changes and better terms on the part of artists, who receive royalties from Universal's cut from providers such as Spotify.
As a result, adjusted pre-tax earnings forecasts and revenues were tweaked lower for 2022 and 2023, but the analyst's outlook is bullish nonetheless,
Universal Music reported revenue and pre-tax earnings of €7.4bn and €1.5bn for the nine months to September, up 23.6% and 20.1% respectively on 2021.