But Greenfield thinks the stock has more to drop. When he made his call, Greenfield set a price target on the stock of $7.50. Today, he cut his target to $5.
Greenfield says retail floor space for recorded music is shrinking even faster than he originally expected. He had previously expected a 20% contraction in U.S. industry retail floor space devoted to CDs next year; now he says the reduction could be 30% or more, “with highly profitable catalog inventory likely to be dramatically reduced.”
Nicely illustrating the rapid deterioration of the recorded music market, Greenfield says the first four weeks of Q4 have seen a nearly 22% drop in physical CD sales.
Greenfield says the company has “increasingly limited options,” and thinks it is increasingly likely that the company will have to cut its dividend, which now provides a 6.5% yield.
Despite Greenfield’s negative comments, Warner Music shares Monday are up 28 cents, or 3.5%, at $8.36.