WMG - Warner Music Group Faces Distribution Shift - Analysts Are Bullish On Long-Term Growth Prospects | Benzinga
J.P. Morgan analyst Sebastiano Petti reiterated an Overweight rating on Warner Music Group Corp (NASDAQ: WMG) with a price target of $40.
WMG shares declined 6% on September 20 following Bertelsmann's decision to end its recorded music distribution agreement (digital + physical) with Warner Music Group's subsidiary Alternative Distribution Alliance (ADA) - announced on September 18.
As per WMG's 10K, ADA distributes and sells the products of independent labels to retail and wholesale distributors (ex: DSPs).
BMG will in-source distribution to all major streaming platforms, beginning with Apple Music and Spotify, on January 1, 2024.
Petti expects BMG to in-source other DSPs as WMG's distribution agreements are renewed.
BMG's physical distribution will continue to be outsourced, with a new deal likely shortly.
While the headline revenue impact will be sizable, as distribution revenue is recognized on a gross basis, Petti expects the near-zero impact to group AOIBDA and FCF, given typical distribution agreement economics and BMG's scale as the largest independent label in the world.
In BMG's press release, WMG ...