What happened
Warner Music Group (WMG -1.31%) investors lost ground to the market on Tuesday. The music streaming specialist's stock was down 11% as of 3 p.m. ET compared to a 0.2% dip in the S&P 500. Warner Music shares have had a rough 2023 to date, falling 27% so far compared to an 8% increase in the wider market.
Tuesday's decline was sparked by a quarterly earnings report that showed persistent short-term pressures on the business.
So what
Warner Music said in a premarket announcement that sales rose by 5% through late March after accounting for currency exchange rate shifts. That result marked a modest improvement over the prior quarter's 3% uptick.
Yet Warner Music is still seeing declining demand in some key parts of the music business, driven partly by a weaker portfolio of major releases. "Macroeconomic, currency, and release slate headwinds continued to impact our revenue this quarter," CFO Eric Levin said in a statement.
Net income fell 60% in the period, but executives said they were pleased that cost cuts helped deliver higher profitability on a non-GAAP basis. Adjusted operating profit margin ticked up to 20.4% of sales from 19.9% of sales, they explained.
Now what
Most investors are expecting sales growth will remain muted for the rest of fiscal 2023. On the bright side, Warner Music's positive cash flow and adjusted earnings trends suggest improving reported annual earnings in 2024 and beyond. Still, Wall Street was hoping to see a more concrete rebound in areas like digital streaming revenue and ad-supported streaming sales.
Economic pressures ahead from a potential recession would further weigh on Warner Music's sales over the next few quarters. As a result, many investors chose to push the stock price lower in the immediate wake of the Q1 earnings update.
