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On Wednesday, Bernstein SocGen Group initiated coverage on Warner Music Group (NASDAQ: NASDAQ:WMG) with an Outperform rating. The firm set a price target of $32.00 for the music company’s shares, citing a potential upside of 22%. Currently trading at $25.91, near its 52-week low of $25.56, InvestingPro analysis suggests the stock is slightly undervalued, aligning with the analyst’s bullish stance.
Analysts at Bernstein SocGen Group view Warner Music as a compelling investment opportunity. They believe the company’s strong new management team is effectively executing a strategy to monetize its unique intellectual property. With annual revenue of $6.3 billion and EBITDA of $1.27 billion, the company has demonstrated its ability to generate substantial cash flow. This approach is expected to help Warner Music recapture incremental streaming revenues and address past dilution issues.
The analysts also noted the potential for Warner Music to benefit from the upcoming launch of Spotify (NYSE:SPOT)’s superfan subscription tier. This development is anticipated to drive a significant increase in digital revenue growth in 2026. The firm’s tech-forward and M&A-savvy leadership is expected to enhance Warner Music’s market share and execution capabilities.
Bernstein SocGen Group forecasts systematic margin expansion for Warner Music as efficiency gains take effect. These improvements, along with digital tailwinds, are projected to drive high-teens growth in operating income before depreciation and amortization (OIBDA) next year. The company currently trades at a P/E ratio of 30.12, reflecting market expectations for future growth. The valuation method used by the analysts assumes a weighted average cost of capital (WACC) of 8% and a terminal growth rate of 2.5%, aligning with the current trading multiple of the stock.
In other recent news, Warner Music Group reported its second-quarter earnings for 2025, revealing a significant miss on both earnings per share (EPS) and revenue forecasts. The company posted an EPS of $0.07, well below the anticipated $0.29, with revenue reaching $1.48 billion against the forecasted $1.52 billion. As a result of these figures, Warner Music Group’s stock rating was downgraded by Goldman Sachs from "Buy" to "Neutral," with the price target adjusted to $28.00. The downgrade was attributed to weaker-than-expected growth in subscription and ad-supported streaming revenues, as well as a revised forecast for subscription streaming growth for the full fiscal year 2025.
Warner Music Group’s management cited challenges such as tough comparisons, a lighter release slate, and market share loss in China as contributing factors to the financial results. Additionally, the company’s adjusted OIBDA margin decreased by 1%, indicating operational challenges. Despite these hurdles, Warner Music Group maintained a strong presence in key markets like the US, Mexico, and Brazil, focusing on expanding its market share.
Goldman Sachs’ revised outlook anticipates approximately 3% year-over-year constant currency growth for the remainder of the fiscal year, down from the previously expected 7% growth. The company also experienced a decrease in confidence regarding margin expansion and free cash flow conversion due to increased spending on Artist & Repertoire (A&R) and technology. Warner Music Group is continuing to focus on cost savings and strategic investments in technology and artist development as part of its long-term strategy.
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