Sector Report: Audio Q2 2020

While COVID-19 positively impacted the growth of music streaming there were other significant events in the quarter that impacted the sector
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The GCA Audio Sector Report is tailored to the needs of busy executives and investors seeking a comprehensive overview of the M&A and valuation landscape, trend analyses and insights into the current transaction environment.

Q2 2020 Music Sector Wrap-Up:

  • While COVID-19 positively impacted the growth of music streaming – as it has with online video, ecommerce and digital health and wellness apps and technologies – there were three other significant events in the quarter that impacted the sector:
  • First, Warner Music Group (WMG) priced its initial public offering at $25 per share for 77 million shares, raising a total of $1.925 billion at a ~$13 billion valuation
    • This was the largest IPO of the year thus far in terms of dollars, most of which went to selling shareholder / owner Access Industries
  • Second, Goldman Sachs’ highly anticipated annual “Music in the Air” report was published in May
    • While some of the near-term forecasts for live music and adjacent sectors were hurt due to the pandemic, digital music growth remained strong and the long-term outlook on the general music industry remains bullish
    • Recent public market activity of music companies underpins the success of the category in Q2 despite adverse macroeconomic trends
  • Third, Spotify’s (SPOT) market cap appreciated over 70% since January, and we expect to see the company use its equity to continue its aggressive M&A strategy
    • In May, the company announced an exclusive multi-year deal with “The Joe Rogan Experience” worth over $100 million
    • In June, the company announced podcast partnerships with Warner Bros / DC Comics and Kim Kardashian West – highlighting Spotify’s continued interest in the podcasting space
  • Within our core music group, Music Publishers lead the public company pack, trading at 5.2x EV / 2020E Revenue and 17.9x EV / 2020E EBITDA
    • DSPs also had a strong quarter, trading at 4.5x EV / 2020E Revenue and 17.7x EV / 2020E EBITDA
  • Strategics and financial sponsors are seeking increased exposure to this rapidly growing segment through high-profile audio financings
    • KKR’s investment in Artlist highlighted Q2 2020 activity
    • SoundCloud also announced a $75 million investment earlier in the year from Sirius XM to accelerate product development
  • We expect this trend to continue as the digital audio market continues to evolve with top artists splintering across emerging platforms that leverage technology to create differentiated offerings

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