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Warner Music: I Do Not Like The Sound Of This

Jun. 07, 2020 6:59 AM ETWarner Music Group Corp. (WMG)2 Comments


  • Warner Music is a global leader which has seen impressive growth in recent years, having successfully made the move from physical to digital music.
  • The company is now going public at quite a lofty valuation after being acquired for just $3 billion and change nearly a decade ago.
  • I like the business and the music, yet find current valuations too high to create compelling risk-reward here.
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Amidst the impressive recovery of stock markets with COVID-19 concerns being put to the background, Warner Music Group (NASDAQ:WMG) made a successful public debut. I can see the reason why, as this is a blue chip company with actually some decent sales growth in recent years and diversified operations.

Market conditions have improved quickly and dramatically enough to allow high valued companies to go public again. The combination of a high valuation and modest growth seen in the long run prevents me from jumping aboard.

The Business, A Music Powerhouse

Warner Music hardly requires an introduction as it is one of the leading music entertainment companies. The company has well-known labels which include Atlantic, Warner, Elektra and Parlophone. Besides having signed up many large artists including the likes of Ed Sheeran and Bruno Mars, the company has a publishing business with a big catalog as well, including more than 1.4 million compositions.

The record music business makes up about 5/6 of total revenues, being a near $3.9 billion business, complemented by the music publishing business with more than $600 million in revenues per annum.

The company itself of course claims that its role is more important than ever as global barriers for widespread distribution have been erased. Not only are more tools available to create music, the entire world can easily be reached through digital platforms. This has a backdrop as well, as talent might find it harder to distinguish themselves, although that claim can be debated of course as real talent will still surface through such platforms.

The company was acquired by Access in 2011 for $3.3 billion from its former parent Time Warner, and in the near decade long period which followed, sales have steadily grown, among others, by the half a billion GBP purchase of Parlophone in 2013 in order to bolster

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This article was written by

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Finding value that gets unlocked in M&A, IPOs and other corporate events
The writer is a long term value investor and M.Sc graduate in Financial Markets with over 10 years experience. Value can be found in both long and short ideas and uses options to enhance the risk-return profile of investment ideas. Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice.

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