Warner Music selloff on BMG loss looks overdone, says Barclays

Barclays analyst Kannan Venkateshwar says Warner Music Group shares reacted belatedly to headlines from a couple of days ago about BMG, an independent label for which WMG handles distribution, shifting away from WMG to manage its distribution in house. The 6% selloff yesterday on the back of this news appears overdone, the analyst tells investors in a research note. BMG’s total revenue appear to be $900M, of which 40% appears to be recorded music, says the firm. However, this ignores the impact of other revenue streams where WMG is not involved, such as emerging platforms distribution for BMG, notes Barclays. It estimates ending the digital portion of the distribution deal could be a $210M annual revenue headwind to WMG, or 3%/4% of its total/recorded music revenue. The firm believes the loss of the BMG deal may not have a material impact on Warner Music’s EBITDA, but admits it “doesn’t help the valuation narrative.” It keeps an Overweight rating on Equal Weight rating on the shares with a $33 price target.