Redburn cuts WMG, Spotify stock ratings to Sell; shares down

Published 10/07/2024, 14:02
© Reuters.

Redburn Atlantic has downgraded Warner Music Group (WMG) and Spotify (NYSE:SPOT) shares to Sell, citing structural challenges and valuation concerns.

For WMG, Redburn highlights the discrepancies between their streaming growth projections and consensus forecasts.

Despite factoring in announced cost savings, their adjusted OIBDA (Operating Income Before Depreciation and Amortization) forecasts for WMG remain below consensus for FY24-26. The firm’s price for the stock of $23, implying a 25% downside from the current share price.

Redburn says it sees both Universal Music Group (UMG) and WMG “as structurally challenged," and maintains a relative preference for the latter due to its strategic realignment and valuation gap compared to UMG.

Analysts said UMG’s recent stock performance appears correlated with its streaming revenue growth, which Redburn expects to disappoint. They reiterated a Sell rating for the stock with a price target of €15, 46% below the current price.

Spotify, on the other hand, is facing significant valuation risks, per Redburn’s note.

Analysts attribute the rich valuation of SPOT to ambitious long-term revenue growth estimates and its correlation with other risky assets like Bitcoin. The recent launch of Spotify’s audiobook bundle has helped it break away from the price-competitive music-only market, but legal challenges from music publishing organizations pose a significant risk.

“The litigation not only risks higher legal costs but could also challenge the royalty savings embedded in our estimates, derailing the cadence of future pricing changes,” analysts said.

They also point out that Spotify’s subscriber growth and average revenue per user could be pressured by the saturated developed markets and higher prices.

WMG and SPOT shares fell 3.2% and 1.6% in premarket trading, respectively.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.