Warner Music Group Corp. (NASDAQ: WMG)

Sector: Communication Services Industry: Entertainment CIK: 0001319161
Market Cap 15.84 Bn
P/B 24.49
P/E 43.41
P/S 2.36
ROIC (Qtr) 13.64
Div Yield % 2.47
Rev 1y % (Qtr) 14.60
Total Debt (Qtr) 4.61 Bn
Debt/Equity (Qtr) 7.12

About

Warner Music Group Corp. (WMG), a prominent player in the music entertainment industry, has a rich history that dates back to 1811. The company, also known as WMG, operates as one of the world's major music entertainment companies, housing a family of iconic record labels such as Atlantic Records, Warner Records, Elektra Records, and Parlophone Records. WMG's primary business activities revolve around its Recorded Music and Music Publishing segments. The Recorded Music business, which boasts popular artists like Ed Sheeran, Bruno Mars, Cardi B,...

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Price action

Investment thesis

Bull case

  • Healthy cash reserves of 532M provide 12.37x coverage of short-term debt 43M, demonstrating strong liquidity position and minimal refinancing risk.
  • Operating cash flow of 678M provides exceptional 135.60x coverage of minority interest expenses 5M, showing strong core operations.
  • Operating cash flow of 678M provides strong 12.56x coverage of stock compensation 54M, indicating sustainable incentive practices.
  • Tangible assets of 4.89B provide exceptional 17.09x coverage of deferred revenue 286M, showing strong service capability backing.
  • Robust free cash flow of 539M exceeds capital expenditure of 139M by 3.88x, indicating strong organic growth funding capability.

Bear case

  • Operating cash flow of 678M barely covers its investment activities of (340M), with a coverage ratio of -1.99, indicating heavy reliance on external financing for growth which may not be sustainable in a tighter credit environment.
  • Operating cash flow of 678M provides thin coverage of dividend payments of (383M) with a -1.77 ratio, suggesting potential dividend sustainability issues if operational performance deteriorates.
  • Cash reserves of 532M provide limited coverage of acquisition spending of (241M), which is -2.21x, suggesting aggressive expansion might strain liquidity if market conditions deteriorate.
  • High receivables of 1.34B relative to inventory of 62M (21.61 ratio) suggests aggressive credit terms or collection difficulties, potentially masking revenue quality issues.
  • Operating earnings of 647M show weak coverage of depreciation charges of 376M, with a 1.72 ratio indicating high capital intensity and potential reinvestment needs.

Peer comparison

Companies in the Entertainment
S.No. Ticker Company Market Cap P/E P/S Total Debt (Qtr)
1 NFLX Netflix Inc 398.09 Bn 38.16 9.18 14.46 Bn
2 DIS Walt Disney Co 204.13 Bn 16.46 2.16 42.03 Bn
3 WBD Warner Bros. Discovery, Inc. 70.69 Bn 145.75 1.87 33.52 Bn
4 FWONA Liberty Media Corp 53.12 Bn -399.43 13.15 7.04 Bn
5 LYV Live Nation Entertainment, Inc. 33.40 Bn 103.67 1.36 9.39 Bn
6 FOXA Fox Corp 33.26 Bn 16.34 2.02 6.60 Bn
7 PSKY Paramount Skydance Corp 18.94 Bn -1,353.00 0.66 14.73 Bn
8 TKO TKO Group Holdings, Inc. 17.56 Bn 76.76 4.05 4.04 Bn

Industry comparisons

Current Valuation Value Ind Avg Percentile
EV to Assets EV to Assets 2.03 1.53
EV to Cash from Ops. EV/CFO 29.40 25.10
EV to Debt EV to Debt 4.33 5.03
EV to EBIT EV/EBIT 30.81 165.24
EV to EBITDA EV/EBITDA 18.63 -156.71
EV to Free Cash Flow [EV/FCF] EV/FCF 36.98 72.07
EV to Market Cap EV to Market Cap 1.26 2.12
EV to Revenue EV/Rev 2.97 6.42
Price to Book Value [P/B] P/B 24.49 2.40
Price to Earnings [P/E] P/E 43.41 -114.33
Dividend Metrics Value Ind Avg Percentile
Dividend Coverage Ratio Div Coverage (Qtr) 0.95 1.03
Dividend Payout Ratio % Div Payout % (Qtr) 105.80 -17.28
Dividend per Basic Share Div per Share (Qtr) 0.55 0.14
FCF Dividend Payout Ratio % FCF Div Payout % (Qtr) 53.09 7.73
Interest Coverage Int. cover (Qtr) 3.99 -38.17
Growth Metrics Value Ind Avg Percentile
Capex Growth (1y) % Capex 1y % (Qtr) -19.83 -33.75
Cash and Equivalents Growth (1y) % Cash & Equiv 1y % (Qtr) -23.34 248.04
Dividend Growth (1y) % Div 1y % (Qtr) -21.43 0.52
EBIAT Growth (1y) % EBIAT 1y % (Qtr) -13.13 -100.15
EBITDA Growth (1y) % EBITDA 1y % (Qtr) -4.29 -28.24
EBIT Growth (1y) % EBIT 1y % (Qtr) -10.01 -85.91
EBT Growth (1y) % EBT 1y % (Qtr) -13.08 24.10
EPS Growth (1y) % EPS 1y % (Qtr) -16.87 18.31
FCF Growth (1y) % FCF 1y % (Qtr) -15.52 118.70
Gross Profit Growth (1y) % Gross Profit 1y % (Qtr) 0.13 30.85
Liquidity Ratios Value Ind Avg Percentile
Asset Utilization Ratio Asset Util Ratio (Qtr) 0.68 0.60
Cash Payout Ratio Cash Payout (Qtr) 0.47 0.04
Cash Ratio Cash Ratio (Qtr) 0.13 0.45
Current Ratio Curr Ratio (Qtr) 0.66 1.09
Debt to Equity Ratio Debt/Equity (Qtr) 7.12 1.01
Interest Cover Ratio Int Coverage (Qtr) 3.99 -38.17
Times Interest Earned Times Interest Earned (Qtr) 3.99 -38.17
Profitability Value Ind Avg Percentile
EBITDA Margin % EBITDA Margin % (Qtr) 15.30 -65.26
EBIT Margin % EBIT Margin % (Qtr) 9.65 -79.53
EBT Margin % EBT Margin % (Qtr) 7.23 -82.47
Gross Margin % Gross Margin % (Qtr) 45.80 35.56
Net Profit Margin % Net Margin % (Qtr) 5.40 -83.18