When Warner announced its plans to go public, it acted with a nonchalance befitting a financially healthy company. Warner doesn’t necessarily need the money like a startup is desperate for capital or a private equity firm seeks a payday for a highly leveraged takeover. Instead, Warner would take advantage of the bull market, allowing owner Len Blavatnik to capture some profits and bulk up cash reserves for possible acquisitions that would close the gap between itself and the two industry frontrunners, Universal Music Group (itself planning an IPO for 2023) and Sony Music Entertainment.
Before COVID-19 worries slammed the markets, a music company had two tailwinds at its back: First, the music industry finally has a great story to tell investors: our double-digit growth is driven by consumers’ subscriptions to primarily Spotify, Apple Music and Amazon Music. Second, the stock markets were hitting record heights and retaining dizzying momentum.
Now Warner is left to wait for the IPO window to open again. But who knows when that day comes? Stock markets have been perilous and volatile. Last week, the New York Stock Exchange shed 11.4% on news COVID-19 infections were reported in Italy and Iran. News of cases in the United States and heightened federal and state reactions did not reassure investors.
Fortunes turned on Monday as the NYSE rose 3.6% and the Dow Jones index recorded its largest-ever single-day point increase.
Warner can afford to delay an IPO until its valuation reaches $15 to $16 billion, the high end of Billboard’s estimate. Far from a cash-burning, mismanaged unicorn like WeWork, Warner has a sturdy income statement thanks to a rebounding music industry and steady management. In calendar year 2019, Warner posted operating income of $492 million, up 29.3% from the prior-year period, while growing revenue 9.5% from $4.17 billion to $4.61 billion. With steady numbers, and $462 million in cash on the books (on Dec. 31, 2019), it only makes sense Warner would wait for the right time to make its move.