Warner Music (NASDAQ:WMG) and Spotify (NYSE:SPOT) may be competitors on some fronts, but they’re actually allied in others, and Guggenheim developed a soft spot for both with upgraded ratings. Both Warner and Spotify investors were happy about this development as shares rallied.
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Guggenheim Securities, via analyst Michael Morris, elevated both stocks from their previous Neutral rating to their current Buy rating. Morris points out the impressive opportunity that the music industry as a whole represents, with “market-leading financial growth” possible over just the next few years. Further, Morris notes that there’s an “…attractive revenue growth runway” shaping up that will drive revenue levels well beyond current consensus estimates.
Interestingly, this came out just a couple weeks after Warner Music CEO Robert Kyncl brought out a call for music streaming operations to raise their prices because, thanks to rampant inflation, pretty much everything else on Earth has. It’s hard not to see an “attractive revenue growth runway” if everyone raises their prices. Of course, such moves likely aren’t taken lightly. Piracy remains a threat to every artistic endeavor, after all.
Both Spotify and Warner are considered Moderate Buys by analyst consensus. However, Warner has vastly greater upside potential. Spotify’s average price target of $135 gives it 2.43% upside potential. Meanwhile, Warner’s $37.91 average price target gives it around nine times the upside at 20.54%.
