Home of mega-stars such as Cher, Led Zeppelin, Ed Sheeran and Cardi B, the Warner Music Group has recently announced that it would proceed with an initial public offering that would value the company at up to $13.3bn. In fact, it could potentially be the largest US IPO this year as the Covid-19 outbreak has forced many companies to put their plans on hold.
To get you ready for the event, in this article we recap the company’s background, its recent financial figures and all the known details about the Warner Music Group initial public offering.
From humble beginnings to the globe’s entertainment leader
The company’s founders, the brothers Jack, Sam, Albert and Harry Warner, were sons of Polish immigrants who arrived in the US in the late 19th century. Their father, Benjamin Warner, made a living as an itinerant merchant.
One day, Sam persuaded his father to buy a projector and the family started a travelling show. Shortly after, the brothers rented space in New Castle, Pennsylvania, and opened their first theatre, the Cascade, with chairs borrowed from a funeral parlour.
In 1923, Warner Bros, one of today’s most prominent companies in the global entertainment industry, was founded. In 1958, the firm decided to expand into recording, establishing its own recording division, Warner Bros Records.
From the early 1960s to the early 2000s, a series of complex corporate acquisitions and mergers was made, with a sequence of companies controlling Warner Bros and its related labels. During this time, Warner Bros Records emerged from being the industry’s minor player to one of the top record labels worldwide.
In 2004, Time Warner, then-owner of Warner Bros, sold the company's music assets to a private equity group. This independent company debuted on the New York Stock Exchange as Warner Music Group in 2005. The company remained publicly traded until May 2011, when it was purchased and privatised by Access Industries.
Today, Warner Music Group is one of the "Big Three" recording companies, along with Sony Music Entertainment and Universal Music Group. With a multibillion-dollar annual turnover, the business owns and operates some of the largest and most successful labels in the world, including Warner Records, Atlantic Records, Elektra Records and Parlophone. It also owns one of the globe’s largest music publishers – Warner Chappell Music.
In its recorded music catalogue, the company has 29 of the top 100 US best-selling albums of all time. The list of renowned artists who recorded for Warner Music Group includes, among others, Cher, Prince, Red Hot Chili Peppers, Madonna, Kylie Minogue, Mac Miller, Gorillaz, Linkin Park and My Chemical Romance.
The latest financial figures: could WMG IPO help the company to overcome its latest headwinds?
Like most music companies, Warner Music Group has ridden the streaming wave. In its last fiscal year ended in September 2019, the firm had $4.5bn in revenue, showing an immense growth from $3bn in 2015.
However, things have turned sour in 2020 partially due to issues stemming from the ongoing Covid-19 crisis. During this year’s first three months, or the company’s second fiscal quarter, the business lost $74m.
Although streaming and digital revenues were up 11 per cent and 5.7 per cent, respectively, the company’s total revenue dropped by 1.7 per cent from the same period in 2019, to about $1.07bn. Recorded music revenues shed 2.8 per cent to $907m year-over-year.
The coronavirus outbreak was mainly to blame as it hit the physical sales hard, with the segment losing 27.7 per cent from $130m to $94m year-over-year.
In the meantime, at the end of March, the group had nearly $3bn in debt and $484m in cash.
Steve Cooper, the company’s CEO, remained optimistic addressing the firm’s Q2 fiscal performance:
“I’m pleased that we’ve matched our excellent performance in the prior-year quarter, due in large part to an 11% increase in Recorded Music streaming revenue and a 17% increase in Music Publishing digital revenue. We’re confident that our distinctive combination of creative innovation and financial discipline will help us weather this storm and emerge stronger, better, and more agile than ever.”
Cooper also mentioned the renewal of its global licensing deal with Spotify (SPOT) signed in April and noted that Warner Chappell, the company’s publishing division, contributed to every number-one single on the Billboard Hot 100 in the quarter.
Meanwhile, Goldman Sachs (GS) has recently lowered its forecasts significantly due to widespread disruption across all sectors of the music industry by the coronavirus crisis, expecting global music revenues to plunge by up to 25 per cent this year. On the positive side, analysts said they expect a “strong rebound” of the industry in 2021 and significant growth in the music business over the next decade, with global music revenues reaching a whopping value of $142bn by 2030.
Warner Music Group IPO: what to expect and when?
Investors have been waiting for the WMG IPO for a few months now. The company, which is owned entirely by Access Industries, first announced its intention to go public in February 2020. However, as the music industry has been hit hard by the coronavirus pandemic, on March 2 the company said it would delay its plans, without giving any certain timeframes for the WMG IPO date.
On May 26, it was reported that the business launched an initial public offering of 70 million shares of its Class A common stock. The WMG initial public offering price is expected to be in the range of $23-$26 per share, valuing the company’s equity from $11.7bn to $13.3bn.
The shares of Warner Music Group stock will be listed on the Nasdaq stock market under the ticker symbol “WMG”. The company stated that the IPO will take place “as soon as practicable” after the registration statement becomes effective.
With Warner Music Group going public in 2020, the company may have chosen the best timing possible as the steady growth of streaming over the past years is now combined with increasing consumption of online entertainment caused by the Covid-19 pandemic.
The IPO is to be managed by Morgan Stanley (MS), Credit Suisse (CS) and Goldman Sachs, with BofA Securities, Citigroup (C) and JP Morgan (JPM) acting as joint bookrunners. Another 23 banks are acting as co-managers.
Poised to succeed?
Warner Music Group IPO reflects revitalisation of the music industry, which had been struggling since 2001 disrupted by a rapid development of technology that led to the death of the compact disc.
According to the International Federation of the Phonographic Industry, the global recorded music business’ revenue grew from $14bn in 2014 to $20.2bn in 2019. Streaming, which was barely considered as a source of income only a decade ago, now represents around 80 per cent of retail sales revenue in the US, with prominent music record and publishing companies collecting large licensing payments for the use of their catalogues.
To prove that the industry may now be doing better than ever, Universal Music Group was recently valued at a mind-boggling $33bn, as part of its agreement to sell 10 per cent of itself to a consortium led by Tencent (0700). Moreover, the Wall Street Journal reported on Friday, May 29, that the Chinese tech giant may also be interested in investing $200m in Warner Music Group right before the record company's IPO.
And while its latest financial report showed some growth deceleration, a very impressive WMG IPO valuation suggests the company has the potential to become one of the largest US IPOs this year. The headwinds that the business has recently faced might be only temporary as the passing external factors, such as the coronavirus-driven economic turbulence, will eventually come to an end. As consumers continue to shift towards digital sources, the market opportunity for music content remains global and has the potential to skyrocket going forward.
On June 3, 2020, Warner Music Group IPO has finally happened, with WMG stock going live on the Nasdaq Stock Market at $25 per share! The company's shares are now available for trading through CFDs on Capital.com. Be the first one to get your hands on the US stock market’s biggest ‘summer hit’ and trade while it's hot!
Trade Warner Music Group Corp. - WMG CFD
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