When Eliot Spitzer hands you lemons, just make lemonade.
That may well be the mantra the suits at Warner Music Group
But the second verse ain't the same as the first. Indeed, when Warner -- which went public just this past May -- released its fourth-quarter results yesterday, investors promptly sent its shares flying up the charts by more than 5.5%.
So what's behind the Warner-mania?
Well, while these are early days for Warner as a publicly traded company, the firm seems to have found its revenue groove. Quarterly sales grew by some 13% to $905 million on a year-over-year basis, with digital revenue ticking up by 20% sequentially. And though you have to sort through -- and exclude -- numerous one-off charges to arrive at the figure, Q4 operating income at the company weighed in at $61 million.
With that as a backdrop, Warner positively shellacked the analysts; on average, they had expected a loss of roughly $0.04/share. Instead, except for FAS 123 -- which requires the expensing of stock options -- and special-items charges -- which include $4 million related to the Spitzer settlement -- Warner would have passed out earnings per share of $0.08 per stub.
All of which begs the burning question: Is now the time for investors to dive into a company that counts the likes of Madonna, R.E.M., Green Day, and Tom Petty as its "products"?
I don't think so.
Yes, Warner is clearly making corporate progress and, also yes, the company did a fine job of narrowing its non-adjusted loss from a bone-crunching $1.27 per share during the year-ago period to "just" $0.21 during this go-round. On the downside, while the revenue the firm derived from digital music sales is certainly encouraging, it still accounted for just 6% of the company's Q4 pie -- a drop in the bucket, when what's needed in this crucial, future-is-now area is clearly a big splash.
Last point: Since it's a newly public company, reading Warner's financial results these days is more art than science -- a dynamic that prospective investors (not to mention adjustment-happy financial analysts) should bear in mind before putting the company's stock into their portfolio playlists.
Here's the upshot for Foolish investors with a hankering for more media exposure: Eye more established players whose revenue streams aren't so heavily leveraged to a business model that may soon go the way of the 8-track. The more diversified likes of Motley Fool Stock Advisor pick Time Warner
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Shannon Zimmerman is the lead analyst for the Motley Fool Champion Funds newsletter service and owns shares of Disney. The Fool has a strict disclosure policy.
