Warner Music Sees Lower Profit Margins, Signs Multi-Year Spotify Deal

Warner Music Group Corp WMG stock fell in Thursday’s premarket session after reporting fiscal first-quarter 2025 results.

GAAP EPS of 45 cents beat the analyst consensus estimate of 32 cents. Revenue declined 5% year-on-year to $1.67 billion, beating the analyst consensus estimate of $1.65 billion.

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Recorded Music revenue decreased by 7.0% Y/Y at $1.35 billion in the quarter. Music Publishing revenue grew by 6.0% Y/Y to $323 million. Digital revenue declined 2% Y/Y to $1.08 billion.

Adjusted OIBDA decreased by 20% compared to the previous year, reaching $363 million, and the margin declined by 400 basis points to 21.8%, driven by Licensing Extension and Digital License Renewal.

Warner Music held $802 million in cash and equivalents as of Dec. 31, 2024. It generated $332 million in operating cash flow, up from $293 million in the prior year quarter.

CEO Robert Kyncl noted success with new stars, global superstars, longtime legends, and an irreplaceable catalog during the quarter. He also highlighted ramping up A&R spending, acquiring valuable catalogs, and striking important agreements with streaming services.

CFO Bryan Castellani acknowledged that while temporary macro conditions pressurized the quarter, the company’s engine of business is substantial. He expressed confidence as the industry continues to evolve monetization models.

Warner Music Group acquired a controlling stake in Tempo Music Investments, an investment platform for premium music rights, from Providence Equity Partners. Providence will remain a minority investor in Tempo and continue to work with Warner Music Group in an advisory capacity. WMG and Providence partnered to launch Tempo in 2019, combining Providence’s capital and investment expertise with Warner Music Group’s deep music industry experience, resources, and network to support, promote, and build value around artists and songwriters globally.

Warner Music Group also announced a new, multi-year agreement with Spotify Technology SPOT covering both Recorded Music and Music Publishing. The new deal will help deliver new fan experiences, a deeper music and video catalog, further paid subscription tiers, and differentiated content bundles, building on the companies’ existing alignment around ‘artist-centric’ royalty models.

Warner Music Group lost 12% in stock value in the last 12 months. At least four Wall Street firms cut their price targets on the stock in January 2025.

Price Action: WMG stock is down 1% at $31.78 at last check Thursday.

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