Warner Music Group stock slides 9.7% in two days as Bank Of America cuts score… but WMG is still worth over $25bn


You know what was notably important about Warner Music Group‘s calendar Q3 / fiscal Q4 results, announced yesterday (November 15)?

They covered a quarter (July-September 2021) that arrived a full 10 years after Len Blavatnik’s Access Industries acquired the key music firm for $3.3 billion (in July 2011).

Comparing Warner then to Warner now is a enjoyable train: for instance, at $5.30 billion, 2021’s FY revenues at WMG (throughout all divisions) have been practically double the scale of 2011’s equal FY quantity ($2.87 billion).

The similar is true for WMG’s annual recorded music determine ($2.34bn in FY 2011 vs. $4.54bn in FY 2021).

But it’s the valuation development at Warner that is probably the most astonishing narrative since again then.

At the shut of final week, WMG’s enterprise worth stood at $27.81 billion, in line with Ycharts data.

That’s practically 9 occasions larger than the $3.3 billion Blavatnik paid for the music firm a decade in the past.

Even taking into consideration the hundreds of millions of dollars Warner spent to amass Parlophone in 2013, it’s a shocking improve.

Now, in the wake of Warner’s newest quarter outcomes, one main Wall Street analyst is suggesting it is likely to be a bit too a lot of a shocking improve.

Bank Of America (Bofa) has at present (November 16) minimize Warner’s score not as soon as but twice, from ‘Buy’ to ‘Underperform’.

Bofa analyst Jessica Reif Cohen has lowered her value goal for the corporate to $42, which is much less even than WMG’s present stock value of $43.64.

Reif Cohen argues that Warner’s share value has bounced up off quite a lot of key occasions this yr – together with Spotify elevating costs in sure markets, and the growth of ‘alternative’ revenue streams for WMG such as Peloton and Roblox.

There might not be as many “near-term catalysts” for Warner’s value to maintain on bouncing up in the long run, suggests Reif Cohen.

Her important cause for pessimism, nonetheless, is the diploma to which Warner’s share value has already rocketed since Universal Music Group floated on the Amsterdam stock alternate in September.

As we lined on MBW the opposite week, Warner’s enterprise worth shot up by more than $4 billion in a single month following Universal’s itemizing. That improve was because of UMG’s $50 billion-plus public market cap in Amsterdam… and the apparent similarities between the two firms.

According to Seeking Alpha, Reif Cohen’s observe additional means that Warner might face headwinds from powerful comps for ad-supported streaming. Plus, she says, 2021 might deliver a shift in income combine for WMG in the direction of lower-margin earnings sources that have been suppressed throughout 2020 lockdowns (notably bodily music gross sales).

She additionally means that Warner might must make investments over the approaching yr (e.g. in A&R and catalog acquisitions) that may considerably cut back the agency’s free money movement.

Reif Cohen / Bofa’s score minimize on WMG is in distinction to different main analysts such as Guggenheim’s Michael Morris, RBC Capital’s Kutgun Maral, and Morgan Stanley’s Ben Swinburne, all of whom have retained a ‘Buy’ score on Warner stock this week.

Jessica Reif Cohen has type being bearish on the music rights enterprise: Back in 2007, a yr earlier than Spotify’s launch in Europe, Reif Cohen – then a Merrill Lynch analyst – teamed with now Barclays-analyst Julien Roch to jot down an influential analysis paper that the Hollywood Reporter summed up as being “a sour note for the music biz”.

At the time, Reif Cohen mentioned she didn’t take into account Warner Music Group’s valuation “to be attractive at these levels and continue to prefer entertainment names with a clearer growth outlook and/or company specific catalysts”.

The information of Bofa’s score minimize helped to ship Warner Music Group’s share value down by 3.77% on the New York Stock Exchange throughout buying and selling at present.

That drop adopted one other day of declines yesterday (November 15), as the markets punished WMG for failing to hit analyst earnings expectations in its fiscal This autumn outcomes.

Warner’s stock closed down 6.2% yesterday as a consequence, that means that in the previous 48 hours, Warner has seen its share value – and its firm valuation fall by 9.7% in whole.

That 9.7% decline has wiped round $2.5 billion off Warner’s enterprise worth, a determine which stood at $27.81 billion on Friday (November 12) night.

Still, Warner’s EV stays north of $25 billion this night… and is at the moment worth about eight occasions what Len Blavatnik paid for the corporate a decade in the past.Music Business Worldwide

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