Warner Music Group files for IPO, should you buy stocks?
Warner Music Group is taking the public route, again.
Late Thursday, the music giant filed a registration statement with the U.S. Securities and Exchange Commission, paving the way for an initial public offering of its common stock.
It’s a familiar move for WMG, which was a publicly-listed company from 2005 until Ukrainian-born billionaire Len Blavatnik’s Access Industries bought it for $3.3 billion in 2011, taking it into private hands.
The motivation for an IPO is easy to see. The music industry is on the rebound, thanks to the rise of streaming music platforms. Revenues are up, the industry is growing. For the first time since the dawn of the millennium, the record biz appears healthy.
And well-run music companies with hits on the board are, once more, becoming attractive to stock hunters and investors.
Universal Music Group, the global market leader, was recently valued at $33 billion following its deal to sell 10% stake to a consortium led by Tencent, the Chinese tech giant.
Also, Spotify, the leading playing in streaming music with more than 270 million users, began trading on the New York stock exchange in a direct listing almost two years ago, raising billions in capital in the process. Today, its market cap is nearly $US27 billion.
Warner Music Group
Nearly 10 years after making his multi-billion-dollar punt, Blavatnik and his executive team are confident music stocks are on a high. He’s willing to test that theory.
WMG is in decent shape. Just last week, the music giant reported first quarter net income at US$122 million, up from US$86 million in the prior-year quarter.
During the three-month period, total revenue grew 4.4% (or 5.5% in constant currency), with digital sales up by 12.6% (or 13.5% in constant currency), results that were “very strong,” remarked Warner Music Group’s CEO Steve Cooper.
A vertically-integrated music empire, WMG’s recorded music division generated US$3.84 billion of revenue in fiscal year 2019 and, since 2015, the sum has lifted by 50%. Apple and Spotify account for 27% of revenue, according to the filing.
“We adapted to streaming faster than other major music entertainment companies and, in 2016, were the first such company to report that streaming was the largest source of our recorded music revenue,” the company’s S-1 filing reads.
“We believe that, over time, streaming revenues will increase due to pricing increases as the broader market further develops,” the statement continues.
“Streaming services are already at the early stages of experimenting with price increases. For example, in 2018, Spotify increased monthly prices for its service in Norway. In addition, in 2019, Amazon launched Amazon Music HD, a high-quality audio streaming offering that is available to customers at a premium price in the United States. We believe the value proposition that streaming provides to consumers supports premium product initiatives.”
WMG’s roster includes Ed Sheeran, Cardi B, Bruno Mars, Michael Buble and Australian signings Morgan Evans, Glades and Shannon Noll. Its activities in these parts are led by Niko Nordström, president Warner Music Australasia.
Morgan Stanley, Credit Suisse and Goldman Sachs & Co. LLC are acting as joint book-running managers for the WMG offering.
The number of shares of common stock to be sold and the price range for the proposed offering have not yet been determined.
This article originally appeared on The Industry Observer, which is now part of The Music Network.