The company’s recent IPO success despite COVID-19 volatility just illustrates the music industry’s growing strength.
The firm continues to benefit from that growth, with strong demand from music-streaming services such as Spotify and Apple Music. A full 73% of its sales now come from digital music.
WARNER MUSIC GROUP CORP. (Symbol WMG on New York; www.wmg.com) began trading on June 3, 2020 following an IPO.
Warner Music is one of the world’s leading music entertainment companies. Its record labels include Atlantic Records, Warner Records, and Elektra Records. Musicians recording on these labels includes Bruno Mars, Lizzo, Ed Sheeran, Cardi B, Katy Perry, Madonna, Metallica, Neil Young and Led Zeppelin.
The company also owns Warner Chappell Music, a music publishing company representing more than 80,000 songwriters and composers.
Warner Music’s recorded music business accounts for 86% of its overall revenues. Its music publishing business generates the remaining 14%.
In the three months ended December 31, 2020, Warner Music’s revenue rose 6.3%, to $1.34 billion from $1.26 billion a year earlier. Music publishing sales rose 1.2% to $175 million. Recorded music sales rose 7.1%, to $1.16 billion from $1.08 billion.
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Digital sales of recorded music climbed 16.9%, to $825 million from $706 million. Digital sales now make up 73% of total sales.
Excluding one-time items, earnings in the latest quarter fell 9.5%, to $114.0 million, or $0.22 a share, from $126.0 million, or $0.25. The decline was mostly due to higher marketing expenses.
U.K. billionaire Len Blavatnik acquired Warner Music in 2011 for $3.3 billion. At the time, the music industry was in decline. However, it has since seen a major revival, with Blavatnik positioning Warner Music to benefit from that growth.
Globally, the value of music assets has rebounded following the start of tough times in 2001 due to online piracy and collapsing CD sales. Global recorded-music revenue grew by an estimated 8.2% in 2019 to $20.2 billion in 2020. Streaming accounted for more than half of the total for the first time.
Through Warner Music’s recent IPO, Blavatnik sold 70 million of his own shares. The billionaire still has control of the company after the sale, with 99.1% of the voting shares.
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The company has a strong balance sheet: it holds cash of $566.0 million, and its $3.4 billion in long-term debt is a low 19% of its market cap.
Warner Music recently started paying dividends. Investors received the first regular quarterly payment of $0.12 a share on September 1, 2020. The stock yields 1.4%.
The company’s successful IPO despite COVID-19 volatility shows the strength of the music industry. The rise of music-streaming services Spotify and Apple Music—alongside the continuing popularity of TikTok—are driving that growth.
Recommendation in Power Growth Investor: Warner Music Group is a buy.