Warner Music Shares Plunged: What You Need to Know (GOOG, WMG)

Warner Music Shares Plunged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of music giant Warner Music Group (NYSE: WMG ) were playing a sad tune today as they fell as much as 12% in intraday trading.

So what: Warner Music announced fiscal fourth-quarter earnings today and, as has been the case for some time now, the results were nothing to sing about. Revenue for the quarter was down 13% from last year, while the net loss widened from $16 million to $46 million. But before we start strumming the blues too heavily, it's notable that revenue of $752 million was well ahead of analysts' estimates. And since analysts normally exclude extraordinary charges, it would appear that the $0.08 per-share loss we get to after adjusting for severance costs also beat expectations.

Now what: As a music fan, Warner Music is definitely a cool business -- it has a truly impressive catalog that spans Metallica to Notorious B.I.G. and Cher. As a business fan, I can comfortably say that the company has a ways to go before being out of the woods. Looking ahead, the transition from physical media (CDs, etc.) to digital will continue to put a strain on the company, but it's hopeful that growth on the digital side of the business can pull it through. The company recently signed a deal with European streaming service Spotify, and it's looking toward a U.S. launch of that same service as well as a potential music offering from Google (Nasdaq: GOOG ) as future drivers. On the basis of free cash flow -- which is still well in the black -- Warner's shares don't look especially compelling, but I'm not sure I'd totally write this one off yet.

Want to keep up to date on Warner Music Group? Add it to your watchlist by clicking here.

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