WMG stock forecast: Can music label big hitter keep pace?
Following Universal’s IPO mic drop, what does the track record look like for Warner?
- Warner's price and the Universal IPO: Any correlation?
- Warner's position
- WMG stock forecast: What next?
In the summer of 2020, Warner Music Group (WMG) – the world’s third-largest record label and home to artists ranging from Metallica to Ed Sheeran – became a publicly traded entity, sparking an immediate interest among rivals and others within the music industry in joining the financial markets.
The most notable of its competitors, Universal Music Group’s Euronext Amsterdam listing came to fruition on 21 September, surging 39% by the end of its debut. Universal's current market cap stands at over €49.5bn ($56.5bn) against a pre-IPO valuation of €33.5bn.
Presumably there were happy shareholders, not least conservative French billionaire Vincent Bolloré, who holds onto an 18% stake as outlined in the prospectus.
The Universal IPO was a big success, but is it affecting the WMG stock price and the WMG stock forecast in 2021 and beyond?
That was a question broached in the recent Q4 earnings report. Steve Cooper, chief executive officer replied: “I think that Universal’s IPO is good news, not only for the broad music sector but content specifically.
“It has put content in a brighter spotlight and it’s made the investor community more aware of the opportunities.” Cooper also mentioned that margins remain the same between companies, despite WMG having half the operating leverage.
What can we learn about the WMG stock forecast going forward? Let’s find out...
Warner's price and the Universal IPO: Any correlation?
The WMG share price at IPO was $25. While the price did not drop much below that, there was solid but not spectacular growth. Following Chinese media company Tencent’s move to buy 10% of Universal in December 2020, one WMG share was worth $37.99 by month's end.
Did the news of Tencent and Universal have an impact, pushing the WMG share price up by around 25%? It’s certainly possible.
WMG stock maintained a sideways market throughout most of 2021, remaining essentially flat throughout June; the month in which Universal’s IPO date was made official. At least in the medium term, it seemed unlikely that news of Universal’s listing would have any impact on how the markets viewed the WMG stock forecast.
In August, when it was announced that UK investment firm Pershing Square Holdings was buying a stake 10% in Universal, WMG started the day at $35.18 and closed at $35.15, thus seeing no observable impact.
Yes, the price did go down, but by such a small amount that the change could be described as negligible. In fact, it could be argued that the Universal news caused more confidence in the music business and pushed prices up.
But WMG stock did rally over the last two months, consistently exceeding the $48 mark throughout November, thus exceeding both short- and long-tail moving averages. It did, however, drop below the 50-day simple moving average as per the latest figures on 15 November.
It is possible that, as suggested by Cooper, the highly successful Universal IPO was a boon for record label stocks as a whole, as investors realised their potential.
Warner Music Group enjoyed a successful public listing in June 2020, increasing appetite for stocks in this sector. Shares jumped by 20% during its first trading day and remained strong throughout 2020.
What is your sentiment on WMG?
The company’s enterprise value has nearly doubled since its IPO, rising from $12.8bn to today’s $24.9bn. Despite a late-September dip, shares have maintained a steady upward trend. Comparing performance since Universal’s IPO, WMG shares enjoyed 7.8% growth against its bigger rival’s 8.8%.
Underlying figures released in the Q4 report show strong double-digit growth in total recorded revenue – up 22% from 2020. Revenue was largely driven by the digital segment, but there was plenty of buzz around the lower-margin physical domain, with vinyl sales driving 22% growth on that side.
Net income for the full year of $307m failed to fill the $407m-sized hole crater from the year prior.
Total recorded revenue for the entire 12-month period was $5.3bn, a 19% year-on-year improvement.
Net debt of $2.84bn also features on the balance sheet, a figure which won’t likely be taken down “for the foreseeable future,” according to Cooper, citing shareholder returns as a higher priority.
On the topic of EPS figures, the full-year figure for the 2021 period was $0.58. But what are the experts saying about the WMG stock forecast going forward?
WMG stock forecast: What next?
The 17 analysts covering WMG stock predictions at Yahoo Finance expect growth in all areas, if only modestly.
A high earnings per share (EPS) estimate of $1.27 and a low of $0.72 averages out to $1.02, rising to a $1.3 average in 2023.
Revenue estimates average at $5.8bn for 2022, rising to a $6.42bn average come 2023.
Yahoo’s $46.38 share price target is timid at best, representing only a fractional climb over current levels. While buy/sell sentiment for the current month is not available, it might be expected that October’s moderate buy viewpoint will veer further towards the hold centre.
Over at CNN’s Warner Music stock forecast, a median price prediction of $48 is given, with a 2022 EPS forecast averaging $1.03. It should be noted that the same analysts’ EPS forecast for 2021 of $0.72 overestimated the reported results by 25%.
In terms of analysts’ WMG stock forecast 2021 sentiment at CNN, eight recommend buying and five to hold, with one investment analyst suggesting a sell strategy. Sentiment moved slightly to the buy side following the latest Q4 report.
The latest share price close of $45.35 is almost exactly on the 50-day simple moving average (SMA) line, which seems reflective of analysts’ modest forecast sentiment. Is WMG stock the hottest ticket in town? Not really, but it could pull off a showstopper just yet.
It might be. There does seem to be some cautious optimism around the company, although that optimism is not, if you’ll pardon the pun, universal. Things can change and there is always the possibility that the price of WMG shares could fall hard.
It could. The general consensus among analysts seems to be that it will rise slightly over the next 12 months. That said, there are predictions the price could go down, so you will need to do your own research before investing and remember that prices can go down as well as up, and you should never invest more than you can afford to lose.
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