Warner Music Group, home to the likes of Cardi B, Ed Sheeran and Bruno Mars, reported higher fiscal third-quarter revenue and net income on Tuesday as music publishing revenue grew 30 percent and a bounceback in some parts of the business previously affected by the COVID pandemic.
It also cited “solid underlying streaming growth despite ad-supported pressure” amid macro-economic clouds.
Net income for the latest period ended in June amounted to $125 million, more than double the $61 million recorded in the year-ago period, the company said before the stock market open. Adjusted net income jumped 77 percent from $83 million to $147 million. The improvements came amid higher revenue and “the favorable impact of exchange rates on the company’s euro-denominated debt and a loss on extinguishment of debt in the prior-year quarter.”
Quarterly operating income before depreciation and amortization (OIBDA), another profitability metric, dropped 3.3 percent though, or 2.6 percent on a constant currency basis, to $233 million, “primarily as a result of revenue mix due to the growth of lower-margin artist services and expanded-rights revenue and the unfavorable impact of exchange rates, partially offset by the impact of the mark-to-market adjustment of an earn-out liability related to an acquisition.” Adjusted OIBDA for the fiscal third quarter decreased 3.0 percent to $255 million, or increased 2.4 percent in constant currency.
Quarterly operating income fell 10 percent to $146 million, with adjusted operating income down 8.7 percent to $168 million due to the same factors affecting OIBDA and “higher amortization expenses due to recent acquisitions and capital spending,” the company said.
The music major posted a 6.9 percent revenue increase, or 12.1 percent when assuming constant currencies, for the latest quarter to June 30 to $1.43 billion amid a big jump in music publishing, as well as growth in recorded music and digital.
In recorded music, major sellers in the fiscal third quarter included Ed Sheeran, Dua Lipa, Tatsuro Yamashita, GOT7, Jack Harlow and Gunna. Recorded music revenue in the second quarter rose 3.2 percent, or 8.5 percent in constant currency, to $1.19 billion “due to artist services and expanded-rights revenue growth …, reflecting an increase in concert promotion revenue, which was disrupted by COVID in the prior-year quarter.”
Digital revenue was down 1.7 percent, or up 2.2 percent in constant currency, with streaming revenue down 1.0 percent, or up 2.7 percent in constant currency. “Adjusted for the impact of the new deal with one of the company’s digital partners and (a catch-up payment), recorded music streaming revenue rose 5.0 percent, or 9.2 percent in constant currency.” Digital revenue represented 67.4 percent of total recorded music revenue in the latest quarter, down from 70.7 percent in the prior-year quarter. Physical revenue was down 5.4 percent in the latest quarter, or up 1.7 percent in constant currency, as an unfavorable impact of exchange rates was offset by higher sales “due to the success of new releases in Asia,” the firm said.
Quarterly adjusted OIBDA in the recorded music unit fell 9.1 percent, or 4.1 percent in constant currency, to $231 million. Warner Music cited the “revenue mix resulting from the growth of lower-margin artist services and expanded rights revenue and the unfavorable impact of exchange rates.”
Meanwhile, music publishing revenue jumped 29.6 percent, or 34.6 percent on a constant currency basis, to $245 million in the fiscal third quarter, “driven by growth in digital, performance and synchronization revenue, partially offset by a decline in mechanical revenue.” Digital revenue here was up 27.4 percent, or 32.1 percent in constant currency, with streaming up 29.6 percent, or 34.6 percent, due to the continued growth in streaming and the timing of new digital deals, among other factors. Adjusted for the CRB Rate Benefit, streaming revenue increased 13.9% (or 18.3% in constant currency). Digital revenue represented 58.8% of total Music Publishing revenue versus 59.8% in the prior-year quarter. The slight decrease in digital revenue as a percentage of total Music Publishing revenue is due to an increase in performance revenue as bars, restaurants, concerts and live events continued to recover from COVID disruption. Synchronization revenue increased due to higher television and commercial licensing activity. Mechanical revenue decreased primarily due to the unfavorable impact of exchange rates.
Quarterly adjusted OIBDA in music publishing jumped 29.5 percent, or 32.6 percent in constant currency, to $57 million, with the music major lauding its “strong operating performance, partially offset by revenue mix and the unfavorable impact of exchange rates.”
Management also touted its diversified business as making the company’s results resilient to macro-economic clouds.
“We delivered solid double-digit growth on a constant-currency basis, even against the backdrop of a slowdown in the advertising market and some one-time items affecting year-over-year comparisons,” said Warner Music CEO Steve Cooper. “In June, we saw the beginning of a new wave of amazing releases and we’re looking forward to a strong end to our fiscal year.”
He added: “Long-term, we have the scale to best capitalize on trends in artist development, and the agility and resources to continue to propel the globalization and diversification of our business.”
In pre-market trading, Warner Music shares were down 3 percent.