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Better Than We Thought: Wall Street Bumps WMG...

Tuesday, February 09, 2010
by  presnikoff

Warner Music Group shed $17 million - or 11 cents per share - during the fourth quarter, a sharp reversal from year-ago gains.  But Wall Street was expecting something worse - closer to 14 cents according to Thomson Reuters - and shares moved upward in Tuesday trading.  At the bell, WMG finished at $5.02, a 4.8 percent gain over the previous close.

After the earnings call this morning, a deeper numbers dive is revealing a few positive wrinkles.  International recording sales gained 2.5 percent on constant currencies to $498 million, a nice counterweight to a 9.5 percent drop in US-based recording revenues (to $285 million).  Additionally, Atlantic Records finished as the top-ranked label in the US, according to WMG chief Edgar Bronfman, Jr.

The digital component has positive elements, though the broader picture is subject to debate.  Digital sales - at $185 million - now account for 20 percent of broader revenues, though year-over-year gains are slowing.  Specifically, Warner pointed to a 5 percent gain (at constant currencies) compared to the previous quarter in 2009.  But sales were flat when compared to the third quarter, reaffirming theories that a digital plateau has arrived.  On top of that, digital percentages are gaining against a sinking top-line revenue level, instead of boosting the broader total.

Meanwhile, diversification remains a serious challenge.  Warner is clearly suffering from the rapid erosion in CD sales, though other revenue sources are not ramping fast enough.  On a revenue total of $918 million, itself rather steady from last year, recordings account for $783 million.  Suddenly, the more stable publishing component - a mere 14.3 percent at $141 million - seems less important, and even publishing is facing its own downward demons.



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