Company Reports

Warner Music is the third-largest of the three major record companies, and it should be a primary beneficiary of the ongoing growth we expect throughout the music industry. Fears about AI-generated music have recently sparked concern that these recordings will take share from the human artists on which Warner relies, but we think these concerns are overstated. Unless consumers are willing to forgo human-created music, the power Warner has over “real” music gives it leverage to continue taking its historical share of revenue on subscription streaming platforms.

Warner Music's fiscal third-quarter performance reaffirmed that Universal's terrible recent results are not indicative of a weak streaming environment for record companies. Sales rose 10%, and the adjusted EBITDA margin expanded by one percentage point.

Warner Music is the third-largest of the three major record companies, and it should be a primary beneficiary of the ongoing growth we expect throughout the music industry. We believe record labels will remain integral to maximizing recording artists’ earnings, and the moats the major record companies have should enable them to maintain relationships with current stars and continually sign the next generation of talent while also maintaining control of legacy songs and recordings for many years.

Excluding a five-percentage-point currency boost, Warner Music's fiscal second-quarter sales rose 12% year over year, and its adjusted EBITDA margin expanded by 250 basis points, to almost 23%. Recorded music subscription streaming revenue was up 15% on a like-for-like basis, a stunning result.

Warner Music's fiscal first-quarter results were superb, with over 3 percentage points of EBITDA margin expansion, a 40% rise in free cash flow—to $420 million—and 7% sales growth, after adjusting for currency tailwinds. Subscription revenue from streaming recordings accelerated to 9% growth.

Warner Music touted its artists' recent market share gains, and its fiscal fourth-quarter streaming results backed that up, growing at the fastest pace since the middle of last year. Management has also recently been proactive in preparing for the impact of artificial intelligence on its business.

Warner Music is the third-largest of the three major record companies, and it should be a primary beneficiary of the ongoing growth we expect throughout the music industry. We believe record labels will remain integral to maximizing recording artists’ earnings, and the moats the major record companies have should enable them to maintain relationships with current stars and continually sign the next generation of talent while also maintaining control of legacy songs and recordings for many years.

Warner Music's fiscal third-quarter sales rebounded and offered evidence that investors in record labels shouldn't get too hung up on a single quarter's financial results. Excluding a currency benefit, total revenue grew 7% year over year, and like-for-like subscription streaming revenue grew 8.5%.

Warner Music achieved only 3% year-over-year recorded music subscription streaming sales growth in the second quarter. Music publishing streaming music was flat. Adjusted EBITDA was down 3%, but free cash flow swung positive in the seasonally weak second quarter for the first time since 2022.

Currency movements and nonrecurring items like the loss of BMG revenue led to poor reported results. Adjusted for these items, revenue grew 4% and EBITDA grew 1%. Other income, which includes currency hedges and is not included in EBITDA, was $130 million, up from a $50 million expense last year.

Warner Music is the third-largest of the three major record companies, and it should be a primary beneficiary of the ongoing growth we expect throughout the music industry. We believe record labels will remain integral to maximizing recording artists’ earnings, and the moats the major record companies have should enable them to maintain relationships with current stars and continually sign the next generation of talent while also maintaining control of legacy songs and recordings for many years.

After appreciating 20% over the past couple of months, Warner Music’s fiscal fourth-quarter results prompted a big pullback in the stock. Fourth-quarter revenue was dragged down by nonrecurring and noncore items and contributed to disappointing profit, but the underlying fundamentals that drive our long-term outlook appeared strong. We believe control of most of the world’s music leads to strong moats for the major record labels—including a narrow moat for Warner—and gives them bargaining power in a subscription music streaming industry with ongoing growth opportunities. We are maintaining our $37 fair value estimate and think the stock is attractive.

Warner Music is the third-largest of the three major record companies, and it should be a primary beneficiary of the ongoing growth we expect throughout the music industry. We believe record labels will remain integral to maximizing recording artists’ earnings, and the moats the major record companies have should enable them to maintain relationships with current stars and continually sign the next generation of talent while also maintaining control of legacy songs and recordings for many years.

Warner Music's fiscal third-quarter revenue growth was fairly weak, but, unlike peer Universal, critically important subscription streaming revenue growth remained high. Results also showed the fruits of the firm's cost restructuring plan, as growth in profits and free cash flow far outpaced sales. With no change to our bullish long-term outlook for the music industry, we're maintaining our $37 fair value estimate and think the stock remains undervalued.

We’ve reevaluated the major record companies and think these firms will remain critical to artists and are positioned to continue taking their fair share of a growing music industry. For the two pure-play majors, we have upgraded Universal’s moat rating to wide from narrow, and we are maintaining our narrow moat rating for Warner. We’re maintaining our EUR 31 fair value estimate for Universal and raising Warner’s fair value estimate to $37 from $36.

Warner Music is the third-largest of the three major record companies, and it should be a primary beneficiary of the ongoing growth we expect throughout the music industry. We believe record labels will remain integral to maximizing recording artists’ earnings, and the moats the major record companies have should enable them to maintain relationships with current stars and continually sign the next generation of talent while also maintaining control of legacy songs and recordings for many years.

Warner Music reported good fiscal second-quarter results, with strength in music publishing and streaming driving 7% year-over-year sales growth despite the loss of revenue from record label BMG and a slight decline in physical sales due to the timing of album releases. Restructuring and impairment charges led to a 4% decline in operating income, but adjusted operating income, excluding depreciation and amortization, or OIBDA, grew 9%, good for about one half of 1 percentage point of margin expansion. Margin expansion and high-single-digit sales growth are in line with our multiyear forecast. We’re maintaining our $36 fair value estimate and see shares as fairly valued.

Warner Music Group is the third largest of the three major global record labels, with Vivendi’s Universal Music first and Sony Music second. Like its peers, Warner increasingly depends on streaming. Streaming services delivered 65% of total recording segment revenue in fiscal 2023, up from 30% in fiscal 2016. This percentage actually understates the overall impact of streaming, as Warner Music does not break out the streaming portion of publishing revenue separately.

Warner Music started fiscal 2024 on a positive note, showing continued growth on nearly all fronts as the top line and bottom line accelerated by double digits. The recorded music streaming and publishing segments benefited from a strong release slate in the first quarter and digital service platform price increases in the second half of 2023. We expect that further price increases and efforts to better monetize royalties will continue to attract new and established artists and drive long-term and durable growth. We maintain our $36 fair value estimate.

While Warner Music’s fiscal fourth-quarter results came in shy of our estimates, they beat consensus on the top and bottom lines as the improving demand for streaming music accelerated year-over-year growth. In the future, we think the firm will continue to benefit from the digital service providers’ higher prices. We also think that an adjusted revenue share model that Warner Music and some of its peers including Universal Music have launched with digital service provider Deezer and the continuing increase in demand for their content from consumers will drive growth. Regarding the bottom line, we expect further margin expansion driven by revenue growth, additional content monetization options, and benefits from restructuring.