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On Thursday, Barclays (LON:BARC) made adjustments to its assessment of Warner Music Group (NASDAQ:WMG), reducing the stock's price target from $32.00 to $31.00 but maintaining an Equalweight rating. The revision follows a closer look at the company's recorded music streaming revenue growth, which appears to be trending towards mid-single digits.
In the latest quarter, recorded music streaming subscription revenue grew by approximately 9.7% (10.6% in constant currency) after adjustments for one-time items. This was slightly below the anticipated 11%. While subscription revenues were in line with both Barclays' and the consensus estimates, ad-supported revenues declined by 4.7% (5.6% in constant currency), which was better than the expected 7% decrease. This outperformance partially offset the softer subscription figures.
Warner Music Group's subscription streaming revenue growth for the quarter showed a deceleration compared to the first three quarters of the fiscal year. In contrast, Universal Music Group (AS:UMG) reported a 9.2% growth in subscription revenue, excluding certain pressures such as home fitness and the loss of a 10,000-label catalog. The growth rate of UMG is now closer to WMG's, suggesting a narrowing gap that could be attributed to a mean reversion in release calendar discrepancies.
Both WMG and UMG, however, are significantly trailing behind Spotify (NYSE:SPOT)'s revenue growth. This disparity is thought to be due to weaker performance at other major music services like Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) Music. Analysts suggest this could be a structural issue, unlikely to improve, especially as Spotify continues to modify its revenue strategy. Initiatives such as the introduction of audiobooks, expansion of video products, new premium pricing tiers, and the addition of new audio genres are expected to further intensify competition and investor concern within the music industry.
In other recent news, Warner Music Group (WMG) has reported significant growth and strategic gains for the fourth quarter and the fiscal year 2024. The company's total revenue saw a 6% increase, while the adjusted Operating Income Before Depreciation and Amortization (OIBDA) grew by 14% in the fourth quarter. For the full fiscal year, WMG experienced a 7% rise in revenue and an 11% increase in adjusted OIBDA.
Recorded music subscription streaming revenue also saw an 11% increase, and the company reported a 6% rise in recorded music revenue and a 5% growth in music publishing revenue. WMG's strategic developments included a restructured organizational framework, expanded global presence, and strategic acquisitions such as Cloud9 Recordings and Apicore.
The company anticipates the music industry to continue growing, with subscriber penetration projected to increase from 35% to nearly 50% by 2030. A $100 million share repurchase program has been authorized, and WMG has an exciting release lineup for 2025.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Warner Music Group's financial position and market performance. The company's market capitalization stands at $16.2 billion, with a P/E ratio of 30.06, indicating that investors are willing to pay a premium for WMG's earnings. This aligns with the InvestingPro Tip that WMG is "Trading at a high earnings multiple."
Despite the challenges in streaming revenue growth highlighted in the article, WMG has shown resilience in other areas. The company's revenue for the last twelve months as of Q3 2024 reached $6.38 billion, with a 7.3% growth rate. This growth, coupled with a gross profit margin of 47.57%, suggests that WMG maintains a strong market position despite competitive pressures.
Interestingly, WMG has demonstrated a "Strong return over the last three months," with a 17.09% price total return. This positive momentum could be attributed to investor confidence in the company's ability to navigate the evolving music streaming landscape.
For investors seeking more comprehensive analysis, InvestingPro offers 11 additional tips for WMG, providing deeper insights into the company's financial health and market position.
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