BofA Securities analyst Jessica Reif Ehrlich has downgraded Warner Music Group (WMG) from Neutral to Underperform, sending ripples through the music industry. Ehrlich lowered the price target from $33 to $30, a move driven by her concerns about the company’s long-term growth potential. While acknowledging the industry’s tailwinds, including rising pricing and increased penetration, Ehrlich believes the emergence of new platforms, volatility in ad-supported streaming, and the unpredictable nature of subscription streaming could impact growth. She also highlights several one-time events, such as the BMG Rights Management acquisition in fiscal 2024 and Digital service provider repricing in prior years, as factors contributing to less predictable growth.
Ehrlich’s analysis suggests that Warner Music’s current valuation may be too high given the uncertain growth outlook. Since Rob Kyncl took the helm as CEO, Warner Music has undergone significant restructuring, leading to the departure of several experienced leaders. While the company’s new strategic direction and focus on technology may prove beneficial in the long run, this level of disruption also carries inherent execution risks.
To reflect her revised outlook, Ehrlich has adjusted her financial estimates. She reduced her fiscal fourth-quarter revenue projection to $1.57 billion (from $1.59 billion) due to lower Digital Streaming revenue. Similarly, her adjusted OIBDA estimates for the fourth quarter were lowered to $336 million (from $346 million). Looking ahead to fiscal 2025, she reduced her revenue forecast to $6.63 billion (from $6.68 billion) and her adjusted OIBDA estimate to $1.49 billion (from $1.52 billion).
WMG stock closed Friday at $31.00, down 2.72% following the analyst’s downgrade. The music industry will be watching closely to see how Warner Music navigates these challenges and delivers on its growth promises.
