In this article, we will discuss the global music industry while navigating through the 8 best music stocks to buy according to hedge funds.
The Global Music Industry Continues to Grow
According to a report by IFPI, the global recorded music market was worth $28.6 billion in 2023 and witnessed the ninth year of consecutive growth. It represented a diverse and global industry that saw revenues grow in every region and across virtually all recorded music formats with the exception of downloads and other (non-streaming) digital formats.
The global recorded music revenues grew by 10.2% in 2023, largely due to the growth in paid streaming subscribers. Streaming continued its domination of global revenues. Streaming revenues made up the majority of revenue growth and total share of the market. Subscription streaming revenues solely increased by 11.2% and accounted for almost half of the global market. 2023 was also the year when the paid subscriptions to music streaming services exceeded 500 million for the first time.
Region-wise, USA & Canada held the largest share of global recorded music revenues, experiencing a growth of 7.4% in 2023. Revenue grew by 7.2% in the USA, the single largest recorded music market globally, and by 12.2% in Canada. Simultaneously, Europe represented more than a quarter of global revenues with its revenue growth of 8.9%. Asia had a revenue growth of 14.9%, underpinned by a healthy growth in its major markets of Japan and China.
What’s Happening in the Music Streaming Space?
In an era of growing music streaming as aforementioned, Spotify is expected to continue its dominance. Todd Gordon, Inside Edge Capital founder, joined CNBC to discuss the potential growth of the firm. The stock is currently hanging just below its record highs. In his opinion, it looks great with its year-over-year ‘insane’ earnings growth, the generation of substantial free cash flow, subscriber growth, and the company winning the music streaming war against rivals. Thus, the firm is big in music with other competitors which do not seem quite as robust.
The music streaming space is about to see one less player as TikTok has decided to shut down its music streaming business in November after an experiment of directly competing with the industry giants for just over a year. In July 2023, TikTok launched its music streaming service in Indonesia and Brazil before it rolled out in Australia, Mexico, and Singapore. Data from MIDiA Research revealed that TikTok is the second-most common source of music discovery for those aged 16 to 19, following YouTube.
Although the service was perceived as a low risk to premium incumbent platforms since they have strong brand loyalty, TikTok’s large installed base of users presented it an opportunity to convert them into paying TikTok Music subscribers. However, the firm is now focusing its resources on its ‘Add to Music App’ feature which enables users to save music tracks they discover on TikTok to playlists on partner services. Regarding the move, the global head of music business development, Ole Obermann stated:
“Our Add to Music App feature has already enabled hundreds of millions of track saves to playlists on partner music streaming services”
Now that we have discussed the music industry dynamics, let’s move to the 8 best music stocks to buy according to hedge funds.
Our Methodology:
In order to compile a list of the 8 best music stocks to buy according to hedge funds, we sifted through stock screeners, ETFs, and online rankings to create an extensive list of players in the music industry. Moving on, we shortlisted the top 8 stocks from our list which had the highest number of hedge fund holders. The 8 best music stocks to buy according to hedge funds have been arranged in ascending order of their hedge fund holders as of Q2 2024. It is important to note that we have included only pure-play music stocks.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
8 Best Music Stocks to Buy According to Hedge Funds
8. Reservoir Media, Inc. (NASDAQ:RSVR)
Number of Hedge Fund Holders: 13
Reservoir Media, Inc. (NASDAQ:RSVR) is an independent music company based in New York City. It serves as the first female-founded and led publicly traded independent music company in the United States. The firm has two segments namely Music Publishing Segment and Recorded Music Segment.
Reservoir Media boasts a leading, diversified music publishing and recorded music business. While it offers a broad collection of iconic hits across genre, geography, and time period, it is focused on acquiring catalogs with hit songs and building portfolio diversification while it invests in frontline songwriters and artists with potential for success. The firm also benefits from an experienced creative team with a solid reputation among artists and key players in the music industry
Reservoir Media, Inc. (NASDAQ:RSVR) has grown from a family-owned music publisher in 2007 to representing over 150,000 copyrights and 36,000 master recordings with titles dating as remote as 1900, and hundreds of top releases worldwide. The firm’s publishing catalog is vast, ranging from historic pieces written and performed by greats such as Joni Mitchell, Billy Strayhorn, Hoagy Carmichael, and John Denver to current popular hits performed by Lady Gaga, Bruno Mars, and Cardi B, among others.
For the first quarter of fiscal 2025 ended June 30, the firm recorded an 8% total revenue growth year-over-year. Music Publishing revenue grew 15% year-over-year while Recorded Music revenue declined by 7% year-over-year. The firm marked its 12th consecutive quarter of year-over-year revenue growth since IPO in 2021 which reflects its proven track record of financial outperformance.
Considering that the music industry is projected to grow over 7% per year through 2030, a firm like Reservoir Media, Inc. (NASDAQ:RSVR) with an evergreen catalog and a history of growth has strong future growth prospects and is an attractive music stock to consider.
7. iHeartMedia, Inc. (NASDAQ:IHRT)
Number of Hedge Fund Holders: 14
iHeartMedia, Inc. (NASDAQ:IHRT) is one of the top audio companies in the United States reaching 9 out of 10 Americans every month. The firm has 4 times the reach of the largest ad-enabled streaming music audio service. It operates through three business segments including Multiplatform Group, Digital Audio Group, and Audio & Media Services Group.
iHeart has the only total audio media ecosystem that stands unique and has an unrivaled national scale. The firm has a leadership position in audio which spans multiple platforms. These include over 860 live broadcast stations, its iHeartRadio digital service available across over 500 platforms and 2,000 devices, and podcasts among others. The firm is also a leading podcast publisher in the US with more downloads than the next two published combined. The firm also benefits from trends such as more time being spent on podcasts than TikTok by the US adult population. Furthermore, IHRT leads the industry in analytics and attribution technology for its marketing partners.
Q2 marked the first quarter that the firm’s consolidated revenues increased year-over-year since Q4 2022. The high-growth Digital Audio Group revenues were up 10% year-over-year. At the same time, the firm recorded Multiplatform Group Revenue was down 3.4% year-over-year. Revenue from Audio & Media Services Group increased 6.5% year-over-year.
Management remained confident about 2024 being a record political year with full-year 2024 political revenues pacing approximately 20% higher than the last presidential election cycle, as of the earnings release. iHeartMedia, Inc. (NASDAQ:IHRT) has robust business segments, an unparalleled reach, and a leadership position. The firm ranks on our list of the best music stocks to buy according to hedge funds.