Warner Music Group could see long-term revenue growth from the adoption of streaming platforms thanks to its “predictable” business model, but its ability to navigate artificial intelligence is a risk.
That’s according to analysts at UBS, who initiated coverage this week on the company with a Neutral rating and a $29 price target.
Warner Music is the third largest player in the global music industry, with around 9% year-over-year topline growth between 2019 and 2022, with streaming levels in the “mid teens,” a figure analysts cited as just below the rest of the industry’s levels.
The company's global market share has been in the 18-20% range while it is making inroads in emerging platforms, according to UBS.
“While F1H23 started with just 3% growth, we believe there are a number of drivers in the pipeline that will accelerate growth,” analysts wrote.
Analysts believe that factors such as a more balanced release schedule, increased streaming adoption (particularly in emerging markets), digital service provider price hikes, and new monetization opportunities will contribute to total revenue growth of around 7% in the fiscal years 2024 and 2025, compared to industry growth rates of 8-9%. The note also mentions expectations of around 9% year-over-year growth in streaming revenues, which is slightly below the industry average of 10% or higher.
Analysts noted that Warner’s revenue growth is below industry levels recently due to a delayed release slate and a choppy advertising market.
“Despite our expectations for gradual improvement in trends (and overall growth for the industry), we believe AI risks/uncertainty will limit multiple expansion in the NT and see a balanced risk reward,” the analysts wrote.
Despite expectations for gradual improvement in industry trends and overall growth, the presence of AI risks and uncertainty is expected to limit multiple expansion in the near term.
Shares of Warner Music Group were trading 1.2% lower on Friday at $26.12.
Contact Angela at angela@proactiveinvestors.com
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