Goldman Sachs sees a resilient growth story in Warner Music Group as music should fare better among subscription services during recessionary periods. Analyst Stephen Laszczyk initiated the stock as a buy with a price target of $32, which is 43% above its previous close. He said the stock should benefit from subscription growth and ad-supported streaming on top of new licensing opportunities. “We view WMG as one of the highest quality long-term growth compounders in our coverage group,” he said. Warner Music Group is one of the “big three” music labels in the U.S., along with competitors Universal Music Group and Sony Music Entertainment. The conglomerate will have a new chief executive in 2023 as it looks to break into Web3 while also building out core product offerings within music. Shares are down about 45% year to date and 20% since the company went public in June 2020. Laszczyk thinks macro concerns over subscription churn and digital audio advertising may have been overblown by investors. He noted that music streaming will be more resilient in inflationary periods than other streaming services, particularly video, because of its lower-cost subscription prices at an average cost of $9.99 per month. The consumer base is also stickier than video’s, he said, and rights holders are not impacted in the same way as other streaming types when there’s churn. Music streaming is also considered an under-monetized sub-sector, creating room for revenue growth within the ad-supported tier. “Simply stated, we believe paid streaming music services will be one of the last services consumers pull back on because of its value proposition,” he said. He also balked at claims music streaming is contracting. While recorded growth is set to decelerate from 23.7% in 2021 to 6.9% in 2022, he said approximately 40% of the deceleration is due to “one-off” factors including foreign exchange headwinds, costs related to digital service providers, the closure of its Russian business and the extra week in the 2022 fiscal year. But he said there are still some factors that could inhibit growth including increased competition, costs for music catalogs and royalties and continued challenges to the consumer through interest rates and foreign exchange. — CNBC’s Michael Bloom contributed to this report.
