Episode Details

Warner Music Group (WMG) Q3 FY2026 — Fiscal Q3 2026 (quarter ended June 30, 2026): revenue $1,864M vs $1,689M, up 10.4% (+9.3% constant currency, +12.1% excluding a prior-year copyright settlement and the BMG termination). Adjusted OIBDA $433M, up 16.1%, margin 23.2% vs 22.1%. Adjusted EPS $0.51 vs $0.42, up 21%, against a Street bar of $0.39 - a 31% beat. GAAP EPS was also $0.39, up from -$0.03, but that swing is mostly currency. Operating cash flow +209% to $142M. The sequence is the story: the CFO 8-K was accepted at 5:00pm ET Fri Jul 31, the whole quarter was PRE-RELEASED at 8:35am ET Mon Aug 3, and the formal 8-K came 4:03pm ET Wed Aug 5. Monday is the reaction: open $27.27, high $27.75, close $25.10 - down 3.31% on the day and 7.96% from its own open. Closed Fri Aug 7 at $26.39, 24% below the May closing high. On Friday July 31 at 5:00pm ET, after the close, Warner Music filed an 8-K: Armin Zerza had stepped down as CFO AND COO, for personal reasons, effective immediately, fourteen months into the job and ten weeks after being handed the COO title. No successor. The global controller took the chair. On Monday morning at 8:35am, before the open, Warner pre-released its entire quarter - unaudited, with a paragraph stating that KPMG had not performed any procedures on it - and moved the earnings date forward a day. The numbers were good: revenue +10%, Adjusted OIBDA +16%, adjusted EPS +21%, operating cash flow +209%. The stock opened at $27.27, five percent up. It closed at $25.10. The market bought the numbers for about an hour and then sold the finance function. THE CALL: HOLD (3/5, A GOOD BUSINESS WHOSE TWO BEST MARGIN LEVERS ARE NOW LARGELY IN THE BASE, RUN BY AN ACTING CFO, AT THE CHEAPEST MULTIPLE SINCE IT LISTED) — base-case value ~$30.0 vs ~$26.39 today. KEY METRICS: - CALL: HOLD 3/5, fair value $30.00 vs the $26.39 Aug 7 close (+13.7%). Bull $38, bear $18, buy under $25.50. Street: Buy, avg target $39.25 - but all three published targets are dated 8 May 2026. - Revenue $1,864M +10.4%; Adjusted OIBDA $433M +16.1%, margin 23.2% vs 22.1%; adjusted EPS $0.51 vs a $0.39 bar, a 31% beat. - The 12% subscription growth = 6-7% subscribers + 3.5% price + 1% share. Price floors now cover 88% of subscription revenue, from zero. What to watch: UP: a named, external, credible CFO hire removes the discount the market applied on August 3; AI licensing revenue from Suno, Udio, Stability AI and KLAY, which the CEO said will contribute materially to subscription streaming growth starting in fiscal 2027, with Suno transitioning to a licensed model this calendar year; the incremental $100M of restructuring savings ($200M this year to $300M annualised in 2027); and roughly $1.0B of undeployed capacity in the Bain Capital catalog joint venture at a stated ~20% return. DOWN: the per-subscriber-minimum price reset that contributed 3.5 points of the 12% subscription growth now covers 88% of subscription revenue against zero two years ago, so it cannot be repeated; underlying subscriber growth is only 6-7%; ad-supported's 10% was flattered by World Cup advertising and is guided down to mid-single digits in Q4; and nine-month free cash flow of $633M was fully consumed by $505M of catalog acquisitions and $300M of dividends, with the gap funded by $370M drawn on the Beethoven JV and $135M of Bain's capital. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision. Learn investing free in the Charged Alpha app: https://chargedalpha.com/app?source=youtube&ref=video Educational only. Not financial advice.