Wells Fargo has initiated coverage on Warner Music Group (WMG) and Universal Music Group (UMG), and as the investment firm sees it, the major labels are in very different operational positions.
This newest coverage of Universal Music and Warner Music (which is scheduled to post its financials for July, August, and September tomorrow) just recently entered the media spotlight, including in a summary from Seeking Alpha. The largest of the major labels, UMG has long touted its perceived deal-making prowess and ability to drive fundamental industry change.
Meanwhile, since beginning as Warner Music CEO at 2023’s start, former YouTube chief business officer Robert Kyncl has made clear his goal of optimizing the company’s technology footprint and capabilities. Upon highlighting the associated tools, though, the exec also acknowledged the need to demonstrate results through the “products that we shape and our delivery.”
Bearing in mind the points, Wells Fargo analysts Omar Mejias and Steve Cahall have issued an equal-weight rating for Warner Music stock (NASDAQ: WMG) and established a $35 target price. When the market closed today, shares were worth $32.85 apiece, reflecting a roughly seven percent decrease on the year.
“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 of the “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 proceeded, further touching on Atlantic’s “extended cold streak” and tech investments’ ability to impact near-term margins and long-term growth alike.
But when discussing the trajectory of Universal Music, which reported close to $3 billion in revenue for Q3 2023, the two were comparatively optimistic, issuing an overweight rating and a €28 target price.
When the market closed today, UMG shares, which are listed on the Euronext Amsterdam and reportedly drew a €6.1 million investment from Bill Ackman earlier in November, were worth €24.17 each. In support of the stance, the Wells Fargo analysts emphasized their belief in the “best in class” A&R management at UMG.
Additionally, the individuals expressed their view of the sizable business’s ability to (as previously mentioned) set in motion and benefit from change relating to superfan monetization, artificial intelligence, and streaming reform.
On the latter front, reports today shed light upon new details about the penalties that labels and distributors may face for artificial streams when Spotify retools its compensation framework next year.