Music ETF (MUSQ) Hits The Right Note With Compelling Content Mix

Author: Benzinga Newsdesk | August 07, 2024 02:52pm

Music entertainment company Warner Music Group (NASDAQ:WMG) made headlines earlier today with the release of its fiscal third-quarter earnings report. Ahead of the disclosure, analysts anticipated earnings per share of 27 cents on sales of $1.56 billion. Actual results fell just shy of overall estimates, with EPS landing at 27 cents on revenue of $1.55 billion.

In the year-ago quarter, Warner Music posted 27 cents with a top line of $1.56 billion. These stats beat out expectations calling for earnings of 20 cents on revenue of $1.47 billion.

Interestingly, revenue for Warner's recorded music segment slipped by 2.4% on a year-over-year basis to $1.25 billion in Q3. However, music publishing sales jumped 7.8% against the year-ago quarter to $305 million. Further, digital revenue saw a boost of 5% YoY to $1.08 billion. Both units benefited from a boost in streaming volume.

Also, adjusted OIBDA (operating income before depreciation and amortization) increased by 6.4% to hit $316 million, with the margin improving by 130 basis points to 20.3%. Warner Music CEO Robert Kyncl pointed to the company's content advantage and "health industry trends" as contributors to its strong subscription streaming growth.

Looking ahead, analysts believe that by the end of the year, EPS could rise to $1.33, up almost 27% from last year's print of $1.05. On the top line, sales could hit $6.44 billion, up 6.7% from last year's tally of $6.04 billion. Further, fiscal 2025 could see yet more business expansion, with EPS jumping to $1.49 on sales of $6.75 billion.

Fundamentally, what's perhaps most encouraging about the content side of the music entertainment industry is the coming global paradigm shift. According to MIDiA Research, music industry revenue may hit $100 billion by 2031 in retail terms. Driving sentiment in the space is the continued expansion of music platform subscribers, which may break above the one billion mark in 2027.

Catapulting this growth could be the music industry's expansion in the Global South. MIDiA estimates that China will become the second-largest recorded music market by 2031.

The MUSQ ETF: To fully take advantage of this burgeoning opportunity in a convenient format, investors may consider the MUSQ Global Music Industry ETF (NYSE:MUSQ). An exchange-traded fund capturing the breadth of the global music industry, ownership of MUSQ provides investors exposure to WMG stock, which currently represents 2.43% of the fund's holdings.

However, the ETF doesn't stop there, with the fund featuring Warner rival Universal Music Group (OTC:UMGNF). It also features Tencent Music Entertainment Group (OTC:TME), which is projected for significant growth thanks to China's blossoming audio content ecosystem. As well, MUSQ investors enjoy exposure to small-capitalization plays like Reservoir Media (NASDAQ:RSVR), an independent music company.

The MUSQ Chart: Like most other publicly traded assets, MUSQ incurred a corrective spell as recession fears hit the major indices. Nevertheless, with the market acclimating to high-level shifts in global economic and monetary policy, the thematic ETF appears to be priced at an attractive rate.

MUSQ gained about 1.4% during Wednesday's afternoon session. It is attempting to break above the psychologically significant $23 level, which is presently acting as resistance.
The next target for the bulls will be to reinforce the upper support line represented by the $24.20 level. From there, a march toward the $25 milestone would be the next logical target.
WMG stock and other music-related enterprises are generally moving higher during the midweek session, potentially enabling MUSQ to hitch a ride higher.