Warner Music's stock heads for worst drop on record, but CEO hopes Ed Sheeran can help turn things around

By Tomi Kilgore and Jeremy C. Owens

CEO Robert Kyncl says that new releases will lead to a rebound in second half of fiscal year and points to potential increase in Spotify subscription prices as a 'win-win'

Shares of Warner Music Group Corp. were headed for their worst day on record Tuesday, after the recording and publishing company reported that earnings dove in the most recent quarter.

Warner Music's (WMG) stock sank as much as 12.2% Tuesday and was trading 11% lower with just an hour to go in the regular trading session. Shares have never declined more than 8.8% in a single session since Warner Music returned to the public markets in 2020.

Before trading began, Warner Music reported that net income for the fiscal second quarter fell to $34 million, or 6 cents a share, from $92 million, or 18 cents a share, in the year-ago period. The company did not report an adjusted per-share figure. Analysts on average were looking for 18 cents a share, according to FactSet.

Revenue grew 1.7% to $1.4 billion, above the FactSet consensus of $1.36 billion. Music-publishing revenue increased 12% to $257 million, with digital revenue growing 15% to $146 million. Recorded-music revenue eased 0.3% to $1.14 billion, as digital revenue declined 1% to $796 million.

"While our results in music publishing were best-in-class, we underperformed in recorded music," Chief Executive Robert Kyncl said in a conference call Tuesday morning. "There was plenty of room for improvement, and we're addressing both company-specific and industrywide issues."

Kyncl admitted that the slate of albums released in the first half of the fiscal year "was less robust than normal" but pointed to recent releases from Ed Sheeran, Jack Harlow and Tiesto as evidence of a turnaround in the works. He said that those and other planned albums will lead to a rebound in the second half of the fiscal year but noted that "this recovery may be gradual during the balance of the year."

"Overall, we're confident in our ability to return to a better cadence of releases, which should lead to more consistent results," Kyncl said in prepared remarks. "At the same time, the music industry continues to morph, creating some risks and even more opportunities."

While taking questions from analysts, Kyncl also noted that Spotify Technology (SPOT) executives had sounded amenable to a price increase for subscribers in the streaming service's recent earnings report. Analyst Michael Morris of Guggenheim Securities noted that Spotify's leaders had said increases were "pending discussion with their music partners, their label partners," and asked Kyncl about those talks.

"There's no real update that I can provide you on because those discussions are private, obviously," Kyncl replied, later adding: "Clearly that will be a win-win, not just for Spotify and us, but also for every [digital service provider] if price increases happen."

The stock tumbled 18.7% year to date through Monday, while the S&P 500 gained 7.8%.

-Tomi Kilgore

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05-09-23 1523ET

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