Record Labels

Warner Music Trading at All-Time High Following Rosy Outlook From Morgan Stanley

Warner Music Group
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General views of Warner Music Group in Downtown L.A.

It's been a whirlwind two weeks for the music business since Universal Music Group began trading on the Euronext Amsterdam stock exchange on Sept. 21, giving record labels and publishers a stage before global investors. UMG's first-day trading valued the company at roughly $57 billion, precipitating a 12.2% increase in rival Warner Music Group's share price. The hits have kept coming.

Next up, WMG shares rose 2.3% to $45.64, an all-time high that valued the company at roughly $26.8 billion, and closed at $45.18 on Friday, Oct. 8 (mid-day Monday it is hovering at around $45.50), after Morgan Stanley analyst Ben Swinburne upped his price target for WMG from $46 to $53 and raised his music industry outlook. In laying out his case, Swinburne cited "higher long-term streaming outlook and increased expectations for emerging digital platforms," namely in Asia, as well as signs that consumer demand is accelerating as markets re-open.

Morgan Stanley now has the highest price target for WMG of 15 analysts tracked by Refinitiv, which previously ranged from $34 to $50 per share. Separately, Morgan Stanley purchased 2.34 million WMG shares at $44.00 on Sept. 22, the day after the price spiked 13.4% to $45.64 on the day UMG went public.

Labels are pinning their hopes on new moneymakers to add incremental dollars to their bottom lines. Three major players — Facebook, TikTok, Peloton — are licensing WMG's content, padding royalties received from ad-supported and subscription on-demand services.

CEO Stephen Cooper has stated these promising revenue streams provide WMG's record labels with $235 million annually. Morgan Stanley believes these burgeoning revenue sources will grow to about $600 million by 2025.

The U.S. market, the world's largest, is humming — revenue grew 27% to $7.1 billion in the first half of 2021 over the prior-year period, according to RIAA statistics released on Sept. 13. Subscriptions averaged 82.1 million in the period, up 13% year over year and 41% over a two-year period.

Gains from new platforms, and existing streaming services, will increase artists exposure and pad labels' bottom lines. Morgan Stanley increased its forecast for WMG revenues in fiscal 2023 from $6.56 billion to $6.81 billion. Morgan Stanley's $250 million adjustment to forecasted revenue came almost entirely from recorded music streaming revenue and added $56 million to EBITDA, up to $1.58 billion, in fiscal 2023.