Looking over the past year of trading on Warner Music Group's (NYSE:WMG) stock, I think the label's own Green Day could score it perfectly by belting out "When I Come Around" now that the stock is back in vogue (sorry, Madonna).
Leading up to last night's earnings report, the company reported that it had considered -- but quickly rebuffed -- a $4.2 billion buyout offer from EMI. That has to make Time Warner (NYSE:TWX) feel pretty stupid these days, since it was Time Warner that unloaded the company for a mere $2.6 billion two years ago.
Warner's new public life as a stand-alone company has been rocky. It had hoped to price its offering as high as $24 a pop last year, but had to settle for $17 a share. That wasn't good enough for the fickle market burned by sluggish CD sales. Two months later, Warner hit rock bottom at $14.50 a stub.
Thanks to its digital prowess and EMI's amorous advances, the market is singing Warner's tune again. The stock has just about doubled off its summer low.
This morning's report rewards the market's faith in better days for Warner Music. Revenue for the quarter was up 10% if you back out the sheet music business that the company recently sold and adjust for currency fluctuations. That may not seem like a lot, but for a music industry that many jaded investors had left for dead, any step in the right direction is a good thing.
Losses narrowed substantially to $0.05 a share, from $0.28 a share a year earlier. That was a lot better than the $0.16 per share deficit that the market was expecting. The fiscal improvement came thanks to a 67% spurt in operating profits. A major contributor here is the high-margin digital music sales that have grown to 11% of total revenue for Warner Music. The welcome downloading craze was also evident in the company's last quarter, when earnings improved despite flat sales growth, thanks to a 176% spurt in high-margin digital sales.
If you're an investor digging the potential of investing in music, the Rule Breakers newsletter service singled out a pair of industry plays last year in satellite radio star XM (NASDAQ:XMSR) and mobile browser software specialist Openwave (NASDAQ:OPWV).
You'll want to keep watching Warner, of course. Beyond the near-term pop of a potential bidding war, the company is taking the right steps to make sure that it matters in the digital age.
Time Warner is a selection of the Motley Fool Stock Advisor newsletter service.
Longtime Fool contributor Rick Munarriz once had his band signed to Sony's Columbia Records label. It didn't exactly pan out. The Fool has a disclosure policy . He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.
