Warner Music Group (WMG) faces a more cautious growth outlook amid a slowdown in the global music streaming industry, Morgan Stanley said in a Monday note.

The brokerage said that slower paid user growth across developed markets is making Warner Music's revenue growth increasingly reliant on digital service provider price increases and wholesale increases in per stream or subscriber minimums.

While recent agreements with Spotify (SPOT) and Amazon (AMZN) should eventually benefit the company through higher wholesale rates, the analysts do not expect these to meaningfully drive growth in fiscal 2025.

Robust paid user growth in emerging markets is expected to continue but will likely have a limited impact on Warner Music's revenue due to its lower market share in these regions, they said. Meanwhile, growth in ad-supported and emerging streaming revenue is expected to remain "tepid" for at least the next two years.

Morgan Stanley noted that Warner Music is executing well operationally, but a more conservative growth outlook for both the company and the broader streaming industry leaves a less compelling path for equity outperformance. The analysts also said they lowered their broader global music streaming forecast.

The brokerage downgraded Warner Music shares to equalweight from overweight and lowered its 12-month price target to $32 from $37, citing a more balanced risk/reward outlook.

Shares of Warner Music were down 4.7% in recent Monday trading.

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