Warner Music Group (WMG) stock has been a disappointing performer in 2023.
Warner Music Group (WMG) stock has enjoyed a rather unspectacular ride in 2023. But a number of analysts are cautiously optimistic, with ‘buys’ dotting the landscape.
For more information on Warner Music Group, check out our recent DMN Pro report on the major label, its recent earnings, and its incoming tech-savvy CEO, Robert Kyncl.
Stocks and bonds are enjoying a sudden resurgence in November, thanks partly to cooling inflation and renewed hopes for a soft landing. Heading into this week, the S&P 500 was up nearly 9% on the month, while the Nasdaq has enjoyed an 11% bump.
“Investors are plowing cash into cash into stocks and bond funds,” the Wall Street Journal declared on Monday.
That’s welcomed good news, though music industry mega-player Warner Music Group (WMG) hasn’t benefited much from the tailwind. The question is whether WMG, whose stock has produced scant returns in 2023, could change its trajectory as markets head into 2024.
As usual, the answer relies on a mixture of broader economic and market trends, as well as details tied to the company itself. On the latter, some analysts are seeing room for upward growth. But like many wallowing stocks, performance has been lackluster as inflation and rising interest rates have drained cash out of the market.
At the close of markets on Monday (November 27th), WMG (which trades on the Nasdaq) finished at $33.20, largely level for the day and down over 6% on the year.
Over the past year, shares have bottomed out at a 52-year low of $23.62 after an early January high of $38.76.
The question now is whether that bumbling track record improves. Last week, DMN Pro offered an analytical deep-dive into recent changes at Warner Music Group, with incoming CEO Robert Kyncl reshaping the label with a tech-focused approach. So far, analysts have been mixed on WMG, though there’s optimism in the ranks.
The ebullience doesn’t include Wells Fargo. In a somewhat bearish assessment, Wells Fargo analysts Omar Mejias and Steve Cahall recently issued an equal-weight rating for Warner Music Group stock and established a $35 target price.
“While the cadence of new releases has improved, we remain on the sidelines until we see sustained share recovery and get more clarity on tech investments,” the two spelled out in their analysis of this “company in transition.”
“If/when WMG can turn through tech investments and/or A&R, we think its multiple can re-rate,” Mejias and Cahall continued. The pair further touched upon an “extended cold streak” at WMG-owned Atlantic Records, while highlighting the ability of tech investments to impact near-term margins and long-term growth alike.
Others are coming around. As of November, analyst opinions on Warner Music Group (WMG) stock are starting to look more upbeat.
According to data compiled by FactSet, the consensus rating for WMG stock is ‘overweight,’ with a crop of analysts offering recommendations to buy.
| Analyst | Rating | Target Price |
|---|---|---|
| Zacks Equity Research | Buy | $40.00 |
| Morningstar | Overweight | $37.00 |
| Argus Research | Buy | $38.00 |
| Oppenheimer | Overweight | $39.00 |
| Piper Sandler | Buy | $36.00 |
According to a tabulation by the Wall Street Journal of 18 analysts, nine offer ‘Buy’ recommendations, eight recommend ‘Hold’ positions, and one is calling a ‘Sell.’ Unfortunately, the consensus price target is a modest $35.66, which barely beats Tuesday’s close of $33.20.
Helping to buoy sentiment is a string of tech-focused bets and potential upside from advantageous ‘artist-centric’ deals involving DSPs like Deezer.
But despite an upward push on streaming subscription prices, the music streaming surge threatens to ebb as the industry heads into 2024. Beyond that, concerns remain over Warner Music Group’s ability to narrow its revenue gap with major labels Universal Music Group and Sony Music Entertainment, which consistently outperform the perennial third-place WMG.
Comparison of major labels Universal Music, Sony Music, and Warner Music annual revenue by calendar year. Note: 2023 figures account only for calendar Q1, Q2, and Q3.
Maybe AI can save the day?
Re-enter YouTube veteran Robert Kyncl, who recently compared the AI-generated content issues of today to the user-generated explosion of 15-20 years ago. Not surprisingly, that’s when YouTube first started gaining significant footing in the culture.
“We built a very large multiple end dollar business for our partners from fan-uploaded content of their copyrights, that was using their copyrights,” Kyncl recently told investors. “It required technology, and deal-making, and partnership and all of that, and we applied it all and built it.”
