BofA Securities analyst Jessica Reif Ehrlich downgraded Warner Music Group Corp WMG from Neutral to Underperform and lowered the price target from $33 to $30.
The price target is approximately 12 times the calendar year 2025 OIBDA (previously 13 times the 2025 OIBDA). Given the analyst’s better long-term growth outlook, the multiple represents an approximately 25% premium to its media and entertainment coverage universe.
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Warner Music Group will continue to benefit from secular tailwinds in the music industry (like pricing and increased penetration), which should drive longer-term growth, as the analyst states.
However, given the relative disappointment in emerging platforms in the industry, volatility in ad-supported streaming, greater variability in subscription streaming than may have been appreciated, and several 1 times items (like BMG Rights Management in fiscal 2024 and Digital service provider repricing in prior years), the longer term growth potential and visibility of the music labels may not be as significant and predictable as initially thought, she said.
This does not support as substantial of a premium valuation the labels currently trade at versus the analyst’s Media & Entertainment coverage universe.
Ever since the arrival of Rob Kyncl as CEO, there have been numerous changes to the Warner Music Group organization, most recently by their expanded restructuring efforts, she said. This has led to the departure of several leaders with deep industry experience.
While the company’s new strategic direction and focus on technology may be the correct path in the longer term, this magnitude of disruption to an organization also comes with execution risks, as per the analyst.
The analyst cut the fiscal fourth-quarter revenue to $1.57 billion (from $1.59 billion), reflecting lower Digital Streaming revenue, and reduced her fiscal fourth-quarter adjusted OIBDA estimates to $336 million (from $346 million). For fiscal 2025, the analyst lowered revenue to $6.63 billion (from $6.68 billion) and adjusted OIBDA to $1.49 billion (from $1.52 billion).
Price Action: WMG stock is down 2.72% at $31.00 at last check Friday.
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