Warner Music Group Corp (NASDAQ:WMG) is expected to deliver a meaningful acceleration in subscription revenue growth in its fiscal second quarter, as wholesale pricing increases, particularly from its renewed agreement with Spotify, begin to take effect, according to analysts at Jefferies.
Jefferies expects adjusted subscription revenue to grow roughly in line with consensus at about 9.6% year over year on a constant-currency basis, reflecting the early-January implementation of Spotify’s updated wholesale pricing.
Additional upside could emerge as Warner Music renegotiates terms with its remaining digital service provider (DSP) partners over the balance of fiscal 2026.
The second quarter is likely to represent a key inflection point for growth, the analysts said, with investors potentially viewing the quarter’s trajectory as a baseline for the remainder of the year. Content trends are also seen as supportive, with a stronger release slate than in the prior quarter, including new music from artists such as Bruno Mars and Zach Bryan, helping underpin market share.
On profitability, Jefferies sees upside risk to margins and views Warner Music’s guidance for 150 to 200 basis points of adjusted OIBDA margin expansion in fiscal 2026 as conservative.
The firm pointed to roughly $200 million in annualized cost savings as sufficient to achieve the guided improvement, with additional support from higher-margin subscription revenues and a mix shift toward catalog income. Potential catalog acquisitions, which can carry margins above 50%, could provide further tailwinds.
Artificial intelligence is expected to remain a central theme on the earnings call. Jefferies anticipates management will reiterate the strategic importance of its partnership with Suno, which is viewed as a potential driver of both engagement and monetization beginning in fiscal 2027.
Investors are likely to focus on the scale of potential contributions and Warner Music’s ability to capture value from AI-driven music consumption beyond traditional streaming platforms, according to Jefferies. Commentary on potential commercial agreements with incumbent DSPs for AI-related features will also be closely watched.
Despite the constructive near-term outlook, Jefferies maintains a more measured view on longer-term industry dynamics, arguing that streaming platforms may be better positioned than content owners to benefit from AI-related shifts. The firm continues to prefer Spotify within the sector on that basis.
Jefferies reiterated its ‘Buy’ rating on Warner Music with a $35 price target, implying upside from current levels of about $27.
The company will hand down its Q2 report on May 7.