Warner Music Group ( NASDAQ: WMG ) has taken some hits from "self-inflicted wounds," but the underlying story looks intact and is likely to become more evident in coming quarters, Barclays says.
Analyst Kannan Venkateshwar reiterated his Overweight Rating, vs. a more Neutral stance on U.S. Media in general.
Other than the broader macro environment, the biggest driver of Warner Music's equity underperformance has been "the slow drip of negative earnings adjustments," which raise concerns about credibility of management guidance, Venkateshwar said.
That's coming via a series of "one-time" changes that could have been made less surprising, he noted, including a negative rate adjustment in a major digital service provider contract, and more recent guidance to another "one-time" DSP adjustment.
Warner Music ( WMG ) also appears to have overpromised growth from its new revenue sources like gaming and social media - another factor to chalk up to poor communication from a company that's gone public only relatively recently.
Still, the "core anchor" for growth is the "underlying structural tailwind in the form of growth in streaming, which is still seeing double-digit MAU growth and therefore should continue to support double-digit revenue growth over the long term," Venkateshwar said.
With Warner Music's DSP renewals relatively short-term in nature - 3-4 years - there should be more renewals over the course of the coming two quarters.
Venkateshwar is staying positive on the stock; with a model update and lower multiples based on the visibility issues, he's lowered his price target to $33 from $37. Warner Music is up 2.6% Tuesday in a mixed market, meaning the new target implies 31% upside.
Warner Music ( WMG ) recently launched a succession plan to replace longtime CEO Steve Cooper, who's exiting next year .
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Warner Music core strength likely to reappear, Barclays says