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.
6. Sonos, Inc. (NASDAQ:SONO)
Number of Hedge Fund Holders: 20
Sonos, Inc. (NASDAQ:SONO) revolutionizes how people listen and connect to sound. In a period where nobody had heard of music streaming, the firm’s founders came up with the mission of bringing music to every home, wirelessly, in multiple rooms, from PCs and the Internet, with good sound. The company was founded in 2002. The firm offers effortless listening with its wide variety of products. Users can have access to expertly curated music stations, original shows, and over 60,000 broadcast channels globally from Sonos Radio.
While Sonos introduced the world to multi-room music over 20 years ago, it plays in over 15 million homes. In April, the firm revealed its most extensive app redesign ever. The firm enabled listeners to organize their favorite playlists, stations, albums, and more from over 100 services on one customizable Home screen for an unparalleled streaming experience. Commenting on the major development, Maxime Bouvat-Merlin, Chief Product Officer of Sonos, stated:
“As the only audio brand with an open platform offering extensive choice, Sonos makes it easy to control your system and curate your favorite sounds all in one place. Our reimagined app delivers the industry’s most streamlined streaming experience by bringing a world of content and intuitive control to the Home screen.”
For Q3, Sonos, Inc. (NASDAQ:SONO) recorded revenue of $397.1 million, up 6% year-over-year. Although there were problems with the firm’s new app which was introduced in May, the CEO referred to the unfortunate event as ‘one chapter in our over twenty years of delighting customers’ and is hopeful of fixing the issues as the top priority. These problems include missing features and bugs as reported by customers.
Sonos, Inc. (NASDAQ:SONO) is well known for its unparalleled sound experience, simplicity of use, thoughtful design aesthetic, and an open platform. With a large addressable market, the firm has a lot of room to grow and improve.
5. Tencent Music Entertainment Group (NYSE:TME)
Number of Hedge Fund Holders: 25
Tencent Music Entertainment Group (NYSE:TME) is the leading online music entertainment platform in China. The firm provides online music and music-centric social entertainment services. It has an extensive user base, with the four popular music mobile apps in China including QQ Music, Kugou Music, Kuwo Music, and WeSing for All.
The firm serves as a pioneer of online music entertainment services in China. TME has a massive library of content encompassing recorded music, live music, audio, and video. The firm continues to grow its strategic partnerships with well-known record companies, both domestically and internationally. The content of the platform’s music library is also boosted by online karaoke works, short videos, and live music works uploaded by users through the platform. TME continues to drive paying users’ loyalty through high-quality content and services.
Tencent Music Entertainment Group (NYSE:TME) benefits from its diversified revenue streams. The firm saw a decline in total revenues in Q2 primarily because of a reduction in revenues from social entertainment services and others, partially offset by strong year-over-year growth in revenues from online music services. TME is breaking new ground within China’s streaming landscape with more than 10 million net subscriber additions in 2024’s first half and ARPPU expansion.
With one of the most comprehensive music libraries in China, a portfolio of highly popular and innovative music apps, a focus on user-centric innovation, growth in online music subscribers and retention, and the long-term potential of the music industry, Tencent Music Entertainment Group (NYSE:TME) is a promising music stock to invest in.
4. Warner Music Group Corp. (NASDAQ:WMG)
Number of Hedge Fund Holders: 30
Warner Music Group Corp. (NASDAQ:WMG) is a global music entertainment company across recorded music, music publishing, and artist services. It operates through the Recorded Music and Music Publishing segments. The firm operates in more than 70 countries around the world.
The company is home to an unparalleled family of creative artists, songwriters, and companies with its legacy going back over 200 years. The firm’s Recorded Music arm encompasses many of the world’s most visionary artists and labels, with a rich catalog boasting some of the most influential recordings in music history. This division includes renowned labels such as 10K Projects, Asylum, Atlantic, Elektra, Warner Records, Warner Classics, and Warner Music Nashville.
Additionally, Warner Chappell Music, WMG’s music publishing arm, publishes and administers genre-spanning music while representing the work of some of the most legendary composers in the industry. It has a catalog of more than one million copyrights spanning every musical genre. Furthermore, the firm’s network of brands and entertainment destinations uniquely positions it as a media and culture powerhouse.
The firm witnessed strong Recorded Music subscription streaming growth driven by a robust slate and healthy industry trends in its third quarter. It also demonstrated continued momentum in Music Publishing driven by strength in Digital and Performance. Operating income rose 10% to $207 million as compared to $189 million in the prior-year quarter while cash provided by operating activities increased to $188 million relative to $146 million in the prior-year quarter. Commenting on the bright prospects for the firm, Bryan Castellani, CFO, of Warner Music Group, stated:
“Our Q3 results were highlighted by strong margin expansion and operating cash flow growth, reflecting robust streaming performance and disciplined cost management. Looking ahead, we are focused on delivering a strong close to the year. The industry remains healthy and we continue to position ourselves for long-term success.”
Warner Music Group Corp. (NASDAQ:WMG) is one of the best music stocks to buy. The company efficiently brings together songwriters, artists, entrepreneurs, and technology moving entertainment culture across the world while having a dominant position in the music arena.
3. Sirius XM Holdings Inc. (NASDAQ:SIRI)
Number of Hedge Fund Holders: 33
Sirius XM Holdings Inc. (NASDAQ:SIRI) is a leading audio entertainment company in North America. The firm has a portfolio of audio businesses which include its flagship subscription entertainment service SiriusXM, the ad-supported audio entertainment streaming service Pandora, an expansive podcast network, and a suite of business and advertising solutions.
SIRI offers a one-of-a-kind curated music experience to its users. The firm has highly satisfied customers with its weighted average user score on overall satisfaction and a good price/value exceeding that of peer services. The firm’s dynamic entertainment services deliver the most compelling audio content together. While SiriusXM offers channel after channel of ad-free music in every genre, Pandora provides a highly personalized music and podcast experience.
SIRI has a strong core subscription business and is a global leader in subscription audio monetization with nearly $7 billion in revenue. Simultaneously, it has a growing advertising business being an ad-supported digital audio pioneer via Pandora, with nearly 20 years of experience. The growing streaming music and podcast networks reach over 150 million people every month in North America.
Sirius XM Holdings Inc. (NASDAQ:SIRI) posted a second-quarter 2024 revenue of $2.18 billion and adjusted EBITDA of $702 million. The firm closed the quarter with SiriusXM total subscribers of 33 million and Pandora and Off-Platform self-pay subscribers of 6.0 million.
2. Live Nation Entertainment, Inc. (NYSE:LYV)
Number of Hedge Fund Holders: 50
Live Nation Entertainment, Inc. (NYSE:LYV) is a leading live entertainment company comprised of global market leaders including Ticketmaster, Live Nation Concerts, and Live Nation Media & Sponsorship. The firm operates through Concerts, Ticketing, and Sponsorship & Advertising segments. The Concerts segment promotes live music events in the firm’s owned or operated venues, and in rented third-party venues. The ticketing segment sells tickets for its events and third-party clients across multiple live event categories. The Sponsorship & Advertising segment delivers highly effective music marketing programs for advertisers.
As a global leader in live, the company’s teams produce more concerts, sell more tickets, and connect more brands to music than others. Live Nation Entertainment, Inc. (NYSE:LYV) is the world’s largest producer of live entertainment with 121 million annual fans and 44,000 annual concerts across over 45 countries. The ticketing segment remains robust as the firm boasts the world’s leading ticketing platform with 550 million tickets sold annually.
For the second quarter, the firm saw its revenue up 7% year-over-year to over $6 billion and record Q2 concerts adjusted operating income margin of 5.4%. Demand was strong globally with fans continuing to prioritize concert going and spending onsite. 39 million fans attended approximately 15,000 Live Nation concerts globally, up 5% and 20% respectively. Simultaneously, Ticketmaster performed well with Q2 among the top five quarters for both transacted and reported ticket sales despite reduced stadium activity. Venue Nation’s investments in hospitality and infrastructure are also supporting strong returns as more attendees maximize their onsite experiences.
Live Nation Entertainment, Inc. (NYSE:LYV) is a world leader in music with an unmatched scale and access. As of Q2, the stock is held by 50 hedge funds.
1. Spotify Technology S.A. (NYSE:SPOT)
Number of Hedge Fund Holders: 88
Spotify Technology S.A. (NYSE:SPOT) is a leading music streaming platform worldwide. While the platform launched in 2008, it moved into podcasting and brought a new generation of listeners to the medium. Spotify made its way into the next audio market primed for growth with the addition of audiobooks in 2022.
Spotify serves as the most popular audio streaming subscription service worldwide with more than 626 million users, including 246 million subscribers in over 180 markets. Other than boasting a robust list of Premium plans globally, the firm is introducing new subscription plans to give subscribers more listening choices with options like the Audiobooks Access and Basic tiers. Subscribers can now access more than 6 million podcasts, 250,000 audiobooks, and almost the world’s whole music catalog.
Spotify Technology S.A. (NYSE:SPOT) recorded a promising second quarter with healthy subscriber gains, record profitability, and improved monetization. Total revenue grew 20% year-over-year to €3.8 billion and operating income finished at a record high of €266 million. Monthly active users grew 14% and premium subscribers grew 12%, year-over-year. Spotify also unveiled new experiences by expanding its video podcast catalog to over 250,000 shows, introducing a new Basic plan in Australia, the UK, and the US for ad-free music listening without audiobook listening time, and incorporating over 250,000 audiobook titles into its Premium offering in Canada, Ireland, and New Zealand.
The firm’s recent quarter marked three consecutive quarters of profitability. Spotify remains a good deal by giving access to all of the content that would normally cost a user approximately $26 in the US, which is significantly more than a Spotify subscription. With strong fundamentals, Spotify Technology S.A. (NYSE:SPOT) is an attractive music stock to invest in.
While we acknowledge the potential of SPOT as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than SPOT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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