Deals with emerging music platforms and a move towards newer streaming payment models are set to boost Warner Music Group , according to UBS. The bank upgraded shares of the record label conglomerate to buy from neutral in a Monday note. Analyst Batya Levi’s price target of $37, up from $34, implies a potential upside of 19% from the stock’s close of $31.09 on Monday afternoon. Warner Music Group stock is down 11% year to date, providing an attractive entry point for investors, Levi wrote. WMG YTD mountain WMG YTD chart “We see WMG as a LT beneficiary of secular industry trends in music and see the recent pullback as a buying opportunity,” the analyst said. Driven by improving fundamentals, higher digital revenues and increased cost control initiatives, the analyst also expects both an increase in Warner Music’s streaming revenue growth and higher margin expansion in 2024. “We expect the recent digital service providers’ (DSP) price increases … new monetization opportunities from emerging platforms (renewed TikTok deal) and improving stream share to provide upside to the Street,” Levi wrote. Additionally, the analyst believes that Warner Music stands to benefit as the music industry moves towards new deals designed to better reward artists. Simultaneously, these updated music streaming payment models should reduce fraudulent non-music streams. “We expect WMG to maintain its mid-teens global share in our base case while there could be upside if ‘artist-centric’ models are implemented,” Levi wrote. “A similar effort across other DSPs could move the labels’ overall market share in the right direction.” Despite the stock’s year-to-date losses, Warner Music is up 19% over the past three months. Last month, the company appointed Bryan Castellani as finance chief, effective Oct. 16. — CNBC’s Michael Bloom contributed to this report
