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1. Company Snapshot

1.a. Company Description

Warner Music Group Corp.operates as a music entertainment company in the United States, the United Kingdom, Germany, and internationally.The company operates through Recorded Music and Music Publishing segments.


The Recorded Music segment is involved in the discovery and development of recording artists, as well as related marketing, promotion, distribution, sale, and licensing of music created by such recording artists; markets its music catalog through compilations and reissuances of previously released music and video titles, as well as previously unreleased materials; and conducts its operation primarily through a collection of record labels, such as Warner Records and Atlantic Records, as well as Asylum, Big Beat, Canvasback, East West, Erato, FFRR, Fueled by Ramen, Nonesuch, Parlophone, Reprise, Roadrunner, Sire, Spinnin' Records, Warner Classics, and Warner Music Nashville.This segment markets, distributes, and sells music and video products to retailers and wholesale distributors; independent labels to retail and wholesale distributors; and various distribution centers and ventures, as well as retail outlets, online physical retailers, streaming services, and download services.The Music Publishing segment owns and acquires rights to approximately one million musical compositions comprising pop hits, American standards, folk songs, and motion picture and theatrical compositions.


Its catalog includes approximately 100,000 songwriters and composers; and various genres, including pop, rock, jazz, classical, country, R&B, hip-hop, rap, reggae, Latin, folk, blues, symphonic, soul, Broadway, electronic, alternative, and gospel.This segment also administers the music and soundtracks of various third-party television and film producers and studios.The company was founded in 1929 and is headquartered in New York, New York.

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1.b. Last Insights on WMG

Warner Music Group Corp.'s recent performance was negatively impacted by its Q4 earnings miss, with quarterly earnings of $0.21 per share, falling short of the Zacks Consensus Estimate of $0.35 per share. Additionally, Bank of America downgraded the stock, lowering its price target from $36.00 to $33.00, citing a neutral rating. The company's revenue growth was strong, but EPS fell short. Institutional investors, such as Campbell & CO Investment Adviser LLC, sold shares, decreasing its holdings by 65.5%. Unusual put options trading was also observed.

1.c. Company Highlights

2. Warner Music's Growth Plan Bears Fruit with Strong Q4 Results

Warner Music Group's fiscal fourth quarter results were impressive, with total revenue growing 13% and recorded music subscription streaming increasing 8.4%. The company's adjusted OIBDA rose by 12%, although margins declined slightly due to revenue mix. The earnings per share (EPS) was not disclosed, but it is worth noting that analysts had estimated an EPS of 0.35. The company's revenue growth was driven by global subscriber growth and strong market share performance, with a 0.6 percentage point increase in the US and a 6 percentage point jump in Spotify's top 200.

Publication Date: Nov -21

📋 Highlights
  • Q4 Revenue & Streaming Growth:: Total revenue grew 13% YoY, with recorded music subscription streaming up 8.4% driven by global subscriber growth.
  • Market Share Gains:: 0.6% US market share increase and 6% jump in Spotify’s Top 200, reflecting global dominance and strategic artist development.
  • DSP Agreements & Pricing:: Secured wholesale price increases with 4 of 5 top streaming services, enhancing revenue stability and economics.
  • Adjusted OIBDA & Cost Efficiency:: Adjusted OIBDA rose 12%, while targeting $200M annualized cost savings by 2026 and $300M by 2027.
  • AI & Future Growth:: Proactive AI principles and $1B joint venture fund for M&A, aiming to capitalize on AI-driven interactivity and catalog investments.

Revenue Growth Drivers

The company's revenue growth was driven by a combination of factors, including paid streaming growth, contractual wholesale price increases from top streaming services, and a robust pipeline of accretive M&A. Warner Music Group has secured wholesale price increases with 4 of the top 5 streaming services, effective in 2026, which should drive future growth. The company is also investing in adjacent areas like distribution, where it has appointed a new leader and is building capabilities to accelerate growth.

Margin Expansion Expectations

Warner Music Group targets margin expansion of 160 basis points in the next fiscal year, driven by a strategic reorganization, operating leverage, and accretive M&A. The company aims for long-term margins in the mid- to high-20s. With a current EV/EBITDA ratio of 14.86, the market is pricing in a certain level of growth, but the company's plans to drive margin expansion could lead to further upside.

AI Opportunity and Strategy

The company views AI as an opportunity, not a threat, and is seizing the moment to shape the industry and define the future. Warner Music Group has outlined three principles for deal-making in AI: partnering with licensed models, ensuring economic terms reflect music value, and giving artists and songwriters opt-in rights. The company aims to capture the incremental opportunity, benefiting artists, songwriters, and shareholders. With a ROIC of 15.63%, the company is generating strong returns on its investments.

Valuation and Outlook

With a P/S ratio of 2.31, the market is pricing in a certain level of growth, and analysts estimate next year's revenue growth at 6.6%. The company's strong pipeline of M&A opportunities, focused on catalog businesses that are highly accretive and deliver strong returns, should drive future growth. Warner Music Group's joint venture with Bain provides over $1 billion in funding for these efforts, positioning the company for long-term success.

3. NewsRoom

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Warner Music Group Corp. $WMG Shares Sold by Advisors Asset Management Inc.

Dec -03

Source: defenseworld.net

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Supreme Court May Flip $1B Piracy Case--And Shake the Music Industry With It

Dec -02

Source: gurufocus.com

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Burlington Stores, Oracle, Nutanix Are Among Top 10 Large Cap Losers Last Week (Nov. 24-Nov. 28): Are the Others in Your Portfolio?

Nov -30

Source: feeds.benzinga.com

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Warner Music Settles Lawsuit With Suno And Will Partner With AI Music Generator

Nov -25

Source: forbes.com

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Warner Music Group settles copyright case with Suno for licensed AI music

Nov -25

Source: reuters.com

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AI Startup Suno Inks Warner Music Deal, Settling Litigation

Nov -25

Source: wsj.com

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Warner Music signs deal with AI music startup Suno, settles lawsuit

Nov -25

Source: techcrunch.com

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WARNER MUSIC GROUP AND SUNO FORGE GROUNDBREAKING PARTNERSHIP

Nov -25

Source: prnewswire.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (6.64%)

6. Segments

Recorded Music

Expected Growth: 7%

Warner Music Group's 7% growth in Recorded Music is driven by increasing streaming revenue, fueled by rising subscription rates and growing popularity of platforms like Spotify and Apple Music. Additionally, the company's strategic investments in emerging markets, artist development, and digital marketing are contributing to the segment's growth.

Music Publishing

Expected Growth: 5%

Warner Music Group Corp.'s Music Publishing segment growth is driven by increasing demand for licensed music in films, TV shows, and commercials, as well as the rise of streaming services and social media platforms. Additionally, the company's strategic acquisitions and partnerships, such as the purchase of SONGS Music Publishing, have expanded its catalog and increased its market share.

Corporate Expenses and Eliminations

Expected Growth: 4%

Warner Music Group Corp.'s 4% growth in Corporate Expenses and Eliminations is driven by increased investments in digital transformation, expansion of global footprint, and higher personnel costs. Additionally, rising marketing and advertising expenses to promote new artists and albums, as well as costs associated with strategic acquisitions, contribute to the growth.

7. Detailed Products

Recorded Music

Warner Music Group Corp. produces and distributes recorded music through various genres such as pop, rock, hip-hop, and classical.

Music Publishing

Warner Music Group Corp. owns and manages a vast catalog of musical compositions, including popular songs and scores.

Artist Services

Warner Music Group Corp. provides support services to artists, including marketing, promotion, and distribution.

Licensing and Sync

Warner Music Group Corp. licenses its music catalog for use in films, TV shows, commercials, and video games.

Digital Distribution

Warner Music Group Corp. distributes music digitally through online platforms, such as streaming services and download stores.

8. Warner Music Group Corp.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Warner Music Group Corp. faces moderate threat from substitutes, as consumers have alternative options for music consumption, such as streaming services and live events.

Bargaining Power Of Customers

Warner Music Group Corp. has a diverse customer base, which reduces the bargaining power of individual customers, giving the company an upper hand in negotiations.

Bargaining Power Of Suppliers

Warner Music Group Corp. relies on a network of suppliers, including artists, producers, and distributors, which gives them some bargaining power, but the company's size and reputation mitigate this threat.

Threat Of New Entrants

The music industry has high barriers to entry, including significant capital requirements and complex licensing agreements, making it difficult for new entrants to compete with established players like Warner Music Group Corp.

Intensity Of Rivalry

The music industry is highly competitive, with several major players, including Universal Music Group, Sony Music Entertainment, and Warner Music Group Corp., competing for market share and talent.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 93.28%
Debt Cost 4.59%
Equity Weight 6.72%
Equity Cost 11.02%
WACC 5.02%
Leverage 1387.62%

11. Quality Control: Warner Music Group Corp. passed 6 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

27.89$

Current Price

27.89$

Potential

0.00%

Expected Cash-Flows