New York-based Warner Music Group Corp. (NASDAQ: WMG) is one of the largest music companies in the world. It employs over 3,500 people and has operations in more than 50 countries. Its labels include Elektra Records, Reprise Records, Warner Records, Parlophone Records, and Atlantic Records.
Warner Music was listed on the New York Stock Exchange (NYSE) from 2005 until 2011. In 2011, it was acquired by Access Industries and privatized. Its second initial public offering (IPO) was announced in 2020 when it got listed on NASDAQ.
Q2 Results
Recently, the music conglomerate reported disappointing results for the fiscal second quarter ended March 31, 2022. Earnings declined almost 35% year-over-year to $0.18 per share, missing the Street’s estimate of $0.21 per share.
Revenues increased 10.1% to $1.38 billion, primarily driven by digital revenue growth. Recorded Music revenue was up 8.3% to $1.15 billion, and Music Publishing revenue jumped 19.8% to $230 million.
Operating income totaled $166 million, up from $151 million in the prior-year quarter, and adjusted EBITDA increased 5.2% to $282 million.
Warner Music ended the quarter with a cash balance of $385 million. Its total debt stood at $3.829 billion and net debt was $3.444 billion during the quarter.
Eric Levin, the CFO of Warner Music, said, “The underlying health and resilience of our business is reflected in the diversified revenue growth that we delivered in the second quarter. While our core business continues to flourish, new growth vectors are constantly emerging. We look forward to driving value for our shareholders and are well-positioned to capitalize on the robust trends taking place in our industry.”
Recent Developments
Following the release of the second-quarter results, the company’s shares dipped to a 52-week low on May 11. Thereafter, on May 13, Warner Music announced a quarterly cash dividend of $0.15 per share, which is payable on June 1 to shareholders of record on May 23.
The per-share dividend amount represents a total quarterly dividend of $77.2 million.
Wall Street’s Take
On May 17, Citigroup (NYSE: C) analyst Jason Bazinet maintained a Hold rating on the stock and lowered the price target to $31 from $41 (6.4% upside potential).
Bazinet expects the company’s revenue to grow significantly in the coming years but believes “this constructive outlook is fairly reflected in the valuation at current levels.”
Last week, Jessica Reif Cohen of Bank of America Securities reiterated a Sell rating on Warner Music and reduced the price target from $37 to $30 (3% upside potential).
Cohen said, “While we do not believe there is a significant downside from current levels, we struggle to find near term catalysts that drive shares higher in the near term following several positive tailwinds in 2021.”
Additionally, Loop Capital Markets analyst Alan Gould maintained a Hold rating on the stock and lowered the price target to $33 from $42 (13.3% upside potential).
Gould said, “We are adjusting our Warner Music model for the impact of the Russian war, foreign currency headwinds and the change in a DSP contract.”
Overall, the stock has a Moderate Buy consensus rating based on nine Buys, two Holds and two Sells. WMG’s average price target of $38.67 implies 32.8% upside potential. Shares have lost 13.3% over the past year.
Bloggers’ Stance
TipRanks data shows that financial bloggers are 75% Bullish on WMG, compared to the sector average of 66%.
Hedge Funds’ Activity
TipRanks’ Hedge Fund Trading Activity tool shows that confidence in Warner Music is currently Positive, as the cumulative change in holdings across all 11 hedge funds that were active in the last quarter was an increase of 251,000 shares.
Conclusion
WMG stock has lost 32.2% over the past six months and is hovering near a 52-week low. I believe this may be the right time to invest in the stock, as it is well-positioned for long-term growth.
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