Goldman Lowers Target On Warner Music But Still Sees Upside

| About: Warner Music (WMG)

Fewer hit records led to declining sales for Warner Music Group (NYSE:WMG) in the first quarter, as the recorded music industry continues to suffer at the hands of digital technology.

Goldman Sachs has lowered its price target on shares of Warner Music Group to US$23 from US$25 following weaker-than-expected results in the company’s digital revenue.

However, this forecast still represents upside of roughly 14% for the stock, and Goldman analyst Anthony Noto thinks Warner could benefit from distributing both its new and existing content via new formats and distribution channels.

In the broader media landscape, he continues to favour content-focused companies, saying in a research note, "we believe that music content specifically is advantaged because it has already suffered through the worst of Internet piracy, while other types of content have yet to be challenged by Internet piracy."

Furthermore, Mr. Noto thinks Apple (NASDAQ:AAPL) iPhone will further feed digital momentum, as well as emerging music strategies from Google (NASDAQ:GOOG), (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT).

Read Warner Music's first quarter conference call transcript, where CEO Edger Bronfman responds to Apple CEO Steve Jobs’ suggestion that major music labels abandon copyright protection on digital music.

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