Global music entertainment company Warner Music Group (NASDAQ:WMG) missed analysts' expectations in Q2 CY2024, with revenue flat year on year at $1.55 billion. It made a GAAP profit of $0.27 per share, improving from its profit of $0.23 per share in the same quarter last year.
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Warner Music Group (WMG) Q2 CY2024 Highlights:
- Revenue: $1.55 billion vs analyst estimates of $1.57 billion (1.1% miss)
- EPS: $0.27 vs analyst estimates of $0.25 (9.9% beat)
- Gross Margin (GAAP): 46.6%, in line with the same quarter last year
- Free Cash Flow of $160 million is up from -$57 million in the previous quarter
- Market Capitalization: $14.56 billion
Launching the careers of legendary artists like Frank Sinatra, Warner Music Group (NASDAQ:WMG) is a music company managing a diverse portfolio of artists, recordings, and music publishing services worldwide.
Media
The advent of the internet changed how shows, films, music, and overall information flow. As a result, many media companies now face secular headwinds as attention shifts online. Some have made concerted efforts to adapt by introducing digital subscriptions, podcasts, and streaming platforms. Time will tell if their strategies succeed and which companies will emerge as the long-term winners.
Sales Growth
Examining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Unfortunately, Warner Music Group's 7.8% annualized revenue growth over the last five years was sluggish. This shows it failed to expand in any major way and is a rough starting point for our analysis. 
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Warner Music Group's recent history shows its demand slowed as its annualized revenue growth of 4.9% over the last two years is below its five-year trend.
Warner Music Group also breaks out the revenue for its most important segments, Recorded Music and Music Publishing, which are 80.5% and 19.6% of revenue. Over the last two years, Warner Music Group's Recorded Music revenue (new music production) averaged 3.1% year-on-year growth while its Music Publishing revenue (royalties from catalog music) averaged 15.8% growth.
This quarter, Warner Music Group missed Wall Street's estimates and reported a rather uninspiring 0.6% year-on-year revenue decline, generating $1.55 billion of revenue. Looking ahead, Wall Street expects sales to grow 5.4% over the next 12 months, an acceleration from this quarter.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Warner Music Group has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company's free cash flow margin averaged 10.5% over the last two years, slightly better than the broader consumer discretionary sector.
Warner Music Group's free cash flow clocked in at $160 million in Q2, equivalent to a 10.3% margin. This quarter's result was good as its margin was 3.1 percentage points higher than in the same quarter last year, but we wouldn't read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.
Over the next year, analysts predict Warner Music Group's cash conversion will improve. Their consensus estimates imply its free cash flow margin of 10.5% for the last 12 months will increase to 13.7%, giving it more optionality.
Key Takeaways from Warner Music Group's Q2 Results
It was good to see Warner Music Group beat analysts' EPS expectations this quarter. On the other hand, its revenue unfortunately missed due to underperformance in its Music Publishing segment. Overall, this was a bad quarter for Warner Music Group. The stock traded down 2.2% to $27.51 immediately following the results.
So should you invest in Warner Music Group right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.