Investing.com -- Morgan Stanley downgraded Warner Music Group (NASDAQ:WMG) shares to Equal-weight from Overweight and cut its price target to $32 from $37 in a note to clients on Monday.
The bank cited lowered industry expectations and reduced company-specific growth visibility.
“We downgrade WMG shares to EW as we lower estimates to reflect more conservative industry and company growth expectations; we are roughly 2-4% below consensus,” Morgan Stanley analysts wrote in a note to clients.
The firm pointed to a softening outlook for the broader music streaming market. Morgan Stanley’s revised global music forecast now estimates 7–8 percent subscription streaming revenue growth in 2025, down from 10–12 percent in each of the past three years.
“Our more balanced outlook for WMG equity reflects our view that market expectations for growth may prove optimistic,” the analysts said.
Morgan Stanley explains that Warner Music’s growth is increasingly dependent on monetization gains rather than subscriber additions, particularly in developed markets like the U.S., where user growth is slowing.
“While we expect WMG to benefit from ARPU tailwinds from both retail price increases and wholesale per stream minimum increases over time, we do not expect that to be a factor in FY25,” Morgan Stanley noted.
Additionally, while emerging markets are driving user growth, WMG has lower market share in these regions, and average revenue per user remains low.
“Streaming industry growth driven increasingly by emerging markets proves less beneficial to WMG revenues than growth from western, developed markets,” the analysts said.
The firm now forecasts 6.5 percent subscription streaming growth for WMG’s Recorded Music segment in FY25—below consensus and at the low end of guidance—with more modest margin expansion.
Despite the downgrade, Morgan Stanley still sees WMG as a “high quality growth asset,” and said it could become more bullish with “improved visibility into revenue growth” and more consistent price increases from platforms like Apple (NASDAQ:AAPL) Music.
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