Warner Music Group rebounded nicely from last year’s pandemic-riddled second fiscal quarter, posting $117 million in net income, or 23 cents per diluted share, on revenues of $1.25 billion for the quarter ended March 31, 2021, according to quarterly earnings released Tuesday (May 4). That’s versus a $48 million net income loss on revenue of $1.09 billion for the quarter ended March 31, 2020.

Most importantly, all of the company’s profit metrics showed improvement with OIBDA (operating income before depreciation and amortization) coming in at $228 million versus $12 million in the year earlier period; while after those expenses, operating income came in at $151 million, versus a $43 million loss last time out. That means the company’s operating margin -- in the red in the year earlier period -- is now beginning to climb and stands at 12.1% of revenue.

The increased profitability was spurred by galloping streaming revenue growth, tighter overhead cost containment and lower non-cash stock-based compensation related to the company’s management incentive plans.

WMG share prices closed at $36.09 on Tuesday, down $2.17 cents and 5.67% from prior day.

"Following a strong first quarter, I’m happy to report that our momentum continued in Q2, and our business is stronger than ever," WMG CEO Steve Cooper said in a statement. "Despite the ongoing pandemic, we generated double-digit revenue growth in both Recorded Music and Music Publishing. Our success was driven by chart-topping new releases from our incredible artists and songwriters, as well as bold and imaginative execution from our world-class operators. We’re excited about the rest of year, as we have a fantastic slate of new music coming from established superstars and emerging talent."

The company credited releases from Megan Thee Stallion, as well as carryover success from Dua Lipa, Michael Bublé, Ed Sheeran, Ava Max, the Hamilton cast recording and Roddy Ricch, for all boosting revenues.

Breaking out revenue by operations, the company’s record labels produced $1.06 billion in revenue -- a 16.8% increase from the $907 million turned in last year. From those totals, the company produced $235 million in OIBDA in the second quarter, versus $76 million in the year-earlier corresponding period. That amounts to a nearly three-fold increase year-over-year. After the non-cash expense subtractions, the recorded music division brought in $184 million in operating income, good enough to produce a respectable and growing 17.4% operating margin.

Breaking down recorded music revenue for Q1 2021:

  • Streaming produced $722 million in revenue, a 23.2% increase from the same period last year when it was $586 million.
  • Downloads dropped 15% to $34 million from the same period last year when it was $40 million.
  • Physical grew 25.5% to $118 million from the same period last year when it was $94 million, thanks to catalog vinyl releases from Fleetwood Mac and Neil Young and a Yellow Monkey release in the Japan market.
  • Artist services and expanded rights managed to hold its, own coming in at $118 million, up slightly from same period last year when it was $115 million
  • Licensing and other revenue fell nearly 7% to $67 million, down from $72 million in the same period last year.
  • As a percentage of recorded music revenue, that breaks out to: 71.4% digital (68.2% streaming and 3.2% downloads), 11.1% physical; 11.1% artist services with expanded rights; 6.3% licensing and other income streams.

Looking at publishing, during the second fiscal quarter, Warner Chappell Music grew a whopping 15.7% to $192 million from $166 million the same quarter last year, with streaming driving practically all of that increase.

Breaking down publishing revenue for Q1 2021:

  • Digital generated $104 million, up 15.7% from $75 million from the same period last year.
  • Performance revenue, as expected, dropped 14.6% to $35 million from $41 million in the same period last year.
  • Synchronization increased by 11.8% to $38 million from $34 million in the same period last year.
  • Mechanical fell 20% to $12 million from $15 million in the same period last year.
  • As a percentage of revenue, that breaks out to: 54.2% digital, 19.8% synch, 18.2% performance, 6.3% mechanical and 1.6% other. (The year prior that was 44.6% digital, 24.7% performance, 20.5% synch; 9% mechanical and 1.2% other.)

For the six month period ended March 31, 2021, the company enjoyed robust net income growth to $216 million, or 41 cents per diluted share, a whopping 350% increase over the $48 million, or nine cents per diluted share, in the six months ended March 31, 2020, while revenue grew 11.1% to $2.56 billion from $2.33 billion in the first half of 2020.

Operating income nearly tripled to $347 million from $116 million in the first half of 2020, and when non-cash charges are added back in OIBDA totaled $495 million, or nearly double the prior year’s $248 million.

Within that, recorded music grew 11% to $2.22 billion from $1.99 billion in the year-earlier corresponding six month period and publishing was up 8.3% to $367 million from $339 million.

Looking at recorded music, digital drove the segment’s revenue growth as it increased a healthy 17.8% to $1.483 billion billion from $1.26 billion in the year-earlier, six-month period.

Breaking down recorded music revenue for H1 2021:

  • Streaming grew 20.3% to $1.414 billion from the first fiscal half of 2020 when it was $1.175 billion, and now comprises 63.7% of recorded music revenue (compared to 59% in the first half of 2020).
  • Downloads dropped 17.9% to $69 million from the first fiscal half of 2020 when it was $84 million, and now comprises 3.1% of revenue (compared to 4.2% in the first half of 2020).
  • Physical grew 5% to $292 million from the first fiscal half of 2020 when it was $278 million, and now comprises 13.2% of revenue (compared to 14% in the first half of 2020)
  • Artist services and expanded rights dropped 1.7% to $298 million from the first fiscal half of 2020 when it was $303 million, and now comprises 13.4% of recorded music revenue (compared to 15.2% in the first half of 2020)
  • Licensing and other income streams dropped 6.6% to $147 million from the first fiscal half of 2020 when it was $161 million, and now comprises 6.6% of recorded music revenue (compared to 7.6% in the first half of 2020).

Examining recorded music from a profit perspective, the company produced $407 million in operating income, which translates into an 18.3% operating margin. That’s up 79.3% from $227 million in the first six months of 2020. If the non-cash charges of depreciation and amortization are added back in, that brings OIBDA to $504 million, a 59% increase from $317 million in the year earlier period.

As for Warner Chappell, publishing revenue grew to $367 million, an 8.3% increase from $339 million in the first six months of fiscal 2020. Operating income fell to $40 million from $44 million in the first half of 2020, but OIBDA improved slightly to $82 million from $81 million last time.

After artist and repertoire costs of $238 million are subtracted, that leaves Warner Chappell with net publisher’s share of $129 million. That’s up from $123 million in the year earlier period when A&R costs were $216 million.

Breaking down publishing revenue for H1 2021:

  • Digital grew 38.1% to $203 million from the first fiscal half of 2020 when it was $147, and now comprises 55.3% of revenue (compared to 43.4% in the first half of 2020).
  • Synch grew 1.4% to $71 million from the first fiscal half of 2020 when it was $70 million, and now comprises 19.3% of revenue (compared to 20.6% in the first half of 2020).
  • Performance fell 25.3% to $65 million from the first fiscal half of 2020 when it was $87 million, and now comprises 17.7% of revenue (compared to 25.7% in the first half of 2020).
  • Mechanical fell 23.3% to $23 million from the first fiscal half of 2020 when it was $30 million, and now comprises 6.3% of revenue (compared to 8.8% in the first half of 2020).
  • Other income held steady at $5 million, roughly equal to the first fiscal half of 2020, and now comprises 1.4% of revenue (compared to 1.5% in the first half of 2020).

Looking at the overall company once again, its cost of goods, including artist and repertoire costs totaled $1.31 billion, which means it's running at a gross profit margin of 49.5%. That’s an improvement from the first half of 2020 when cost of goods totaled $1.185 billion, leaving gross margin at 48.4%.

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