JPMorgan lowers Warner Music Group stock price target to $32

JPMorgan reduced its price target on Warner Music Group (WMG) to $32 from $38, maintaining an Overweight rating, after WMG's shares declined following a Q2 earnings miss and the withdrawal of RM subscription streaming guidance due to challenges in China and a lighter release slate; the stock is trading near its 52-week low. Other firms also adjusted their outlook, with Goldman Sachs downgrading WMG to Neutral with a $28 price target, while Bernstein SocGen initiated coverage with an Outperform rating and $32 target, reflecting varied perspectives on WMG's potential amid streaming revenue challenges and opportunities from initiatives like Spotify's superfan tier.

Analysis

Warner Music Group (WMG) has experienced a notable 7% share price decline since its May 8 report of fiscal second-quarter 2025 results, with the stock now trading at $26.34, near its 52-week low of $25.56. This underperformance prompted JPMorgan to reduce its price target to $32 from $38, though an Overweight rating was maintained. The negative sentiment stems from WMG missing fiscal Q2 2025 expectations, reporting Earnings Per Share (EPS) of $0.07 against a $0.29 forecast and revenue of $1.48 billion versus $1.52 billion anticipated, due to weaker-than-expected growth in subscription and ad-supported streaming revenues. Consequently, WMG withdrew its RM (Recorded Music) subscription streaming guidance for fiscal 2025 and revised its subscription streaming revenue growth forecast for the full fiscal year 2025. These developments followed specific challenges including market share loss in China, a lighter release schedule, and investor concerns over label negotiations with music AI firms, leading five analysts to revise earnings expectations downward according to InvestingPro. Goldman Sachs also downgraded WMG to Neutral from Buy, reducing its price target to $28, citing weaker market share performance and macroeconomic factors affecting advertising revenue. Despite these headwinds and a current ratio of 0.66 suggesting some liquidity constraints, WMG reports annual revenue of $6.33 billion, remains profitable, and has increased dividends for five consecutive years. JPMorgan notes the stock trades near trough valuation levels at approximately 12 times its adjusted operating income before depreciation and amortization (AOIBDA), below its one- and two-year averages of 13.1x and 13.7x respectively. WMG anticipates similar RM trends for its third and fourth fiscal quarters of 2025 and A&R growth exceeding the pace of fiscal 2024. Looking ahead to 2026, analysts foresee a more favorable outlook, potentially benefiting from wholesale pricing increases and superfan tiers. In contrast to Goldman's caution, Bernstein SocGen Group initiated coverage with an Outperform rating and a $32 price target, highlighting strong management and strategic initiatives, including potential benefits from Spotify’s superfan subscription tier, reflecting varied analyst perspectives on WMG's prospects amidst current challenges and future opportunities, even as the company trades at elevated P/E and P/B multiples.

Key Decisions for Investors

• Investors should closely monitor Warner Music Group's upcoming quarterly results for any stabilization in streaming revenue trends and further updates to its fiscal 2025 guidance, particularly concerning RM subscription streaming.
• Consider the current stock valuation near trough levels (approximately 12x adjusted OIBDA) as a potential point of interest, while carefully weighing the acknowledged risks including market share pressures, the impact of AI negotiations, current liquidity (0.66 current ratio), and weaker advertising revenue.
• Evaluate management's execution on capitalizing on future growth drivers, such as wholesale pricing increases, the rollout and adoption of superfan tiers, and sustained A&R investment, as these are critical for achieving the more favorable 2026 outlook anticipated by some analysts.