Warner Music Earnings: Beneath Messy Reported Results, Business Looks Healthy

After appreciating 20% over the past couple of months, Warner Music’s fiscal fourth-quarter results prompted a big pullback in the stock. Fourth-quarter revenue was dragged down by nonrecurring and noncore items and contributed to disappointing profit, but the underlying fundamentals that drive our long-term outlook appeared strong. We believe control of most of the world’s music leads to strong moats for the major record labels—including a narrow moat for Warner—and gives them bargaining power in a subscription music streaming industry with ongoing growth opportunities. We are maintaining our $37 fair value estimate and think the stock is attractive.