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What Do Warner Music Group’s Risk Factors Tell Investors?

Warner Music Group (WMG) is a global music recording and publishing company. It recently sought to raise $535 million through senior secured notes offering to fund potential acquisitions or debt repayments.

With this in mind, let’s look at the company’s latest financial performance and understand its newly added risks. (See Analysts’ Top Stocks on TipRanks)

Q4 Financial Results

Warner Music Group’s fourth-quarter revenue jumped 22% year-over-year to $1.38 billion, surpassing the consensus estimate of $1.35 billion. It posted earnings of $0.05 per share, which missed the consensus estimate of $0.15 per share.

The company plans to distribute a quarterly cash dividend of $0.15 per share on December 1. It ended the fourth quarter with $499 billion in cash and $3.3 billion debt. (See Warner Music Group stock charts on TipRanks).

Risk factors

According to the new TipRanks’ Risk Factors tool, WMG’s main risk category is Finance and Corporate, which accounts for 59% of the total 46 risks identified for the stock. The company has updated its profile with one new risk under the Legal & Regulatory risk category.

Warner tells investors that new music regulations could adversely affect its business and financial condition. It mentions that artists and songwriter groups in Europe are calling for music streaming business regulations, which could affect the terms of their contracts with Warner.

Warner informs investors that a significant portion of its revenue is subject to regulated rates. It cautions that the regulated rates may limit its profitability.

Warner also reminds investors that it is controlled by an investor called Access, who holds 98% voting rights and 76% economic interest in the business. It cautions that Access’ interests may not align with those of the other shareholders. Further, Access may prevent Warner from completing a merger transaction that may otherwise be favorable to other shareholders.

Analysts’ Take

Recently, Credit Suisse analyst Meghan Durkin maintained a Buy rating on Warner Music and raised the price target to $50 from $48. Durkin’s hiked price target suggests 16.39% upside potential.

Consensus among analysts is a Moderate Buy based on 7 Buys, 2 Holds and 1 Sell. The average Warner Music Group price target of $49 implies 14.06% upside potential to current levels.

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