WMG Q3 Deep Dive: Streaming Gains Offset Margin Compression, AI Licensing a Key Focus

Global music entertainment company Warner Music Group (NASDAQ:WMG) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 14.6% year on year to $1.87 billion. Its GAAP profit of $0.21 per share was 38.7% below analysts’ consensus estimates.

Is now the time to buy WMG? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

Warner Music Group’s third quarter saw revenue growth surpassing Wall Street’s expectations, but the market reacted negatively as GAAP profits came in well below analyst consensus. Management attributed the strong top-line results to broad-based gains in both new releases and catalog performance, as well as successful market share expansion across major markets. CEO Robert Kyncl highlighted the company’s “steady global market share gains,” referencing increased presence in the U.S. and on global streaming charts. However, operational cost pressures and a shift in revenue mix—particularly the lower-margin artist services segment—contributed to declining margins and underwhelmed investors. Kyncl acknowledged these challenges, but pointed to momentum in digital transformation and catalog revitalization as ongoing strengths.

Looking ahead, Warner Music Group’s outlook is built on expectations of continued market share gains, incremental revenue from new digital distribution and direct-to-consumer initiatives, and benefits from renegotiated wholesale rates with major digital streaming platforms. Management emphasized that cost savings from organizational restructuring and technology investments are expected to drive margin improvement in the coming year. CFO Armin Zerza noted, “We are operationalizing our strategic pillars through key investments in core music, accretive M&A, and expansion into adjacent revenue streams.” Meanwhile, Kyncl described AI licensing agreements as a potential incremental growth driver, though he acknowledged the evolving risk landscape and stated, “We need to be proactive and lean into the future.”

Key Insights from Management’s Remarks

Management credited robust streaming growth, catalog successes, and market share gains as primary drivers, while also addressing cost pressure and the evolving role of AI in music monetization.

• Streaming subscription strength: Management highlighted 8.4% growth in recorded music subscription streaming, driven by global subscriber growth and improved market share. Renewed agreements with major digital streaming platforms were cited as providing greater pricing certainty and setting the stage for future monetization models.
• Catalog revitalization: The company’s global catalog division demonstrated the ability to re-engage audiences, with targeted campaigns lifting decades-old albums back onto major charts. Management pointed to the Fleetwood Mac “Tusk” campaign as evidence of ongoing catalog value extraction.
• Expansion in artist services: Artist services, including merchandise campaigns, saw significant growth, exemplified by high-profile partnerships with artists like Oasis and My Chemical Romance. However, these revenues carry lower margins, contributing to overall margin compression this quarter.
• AI licensing agreements: Warner Music Group announced several new licensing deals with AI technology partners, with Kyncl emphasizing a “licensed model” approach and opt-in protections for artists. These deals are expected to create new revenue streams over time while maintaining control over music rights.
• Operational efficiency initiatives: Organizational restructuring and technology upgrades were implemented to streamline operations and support scalability. Management expects annualized cost savings from these efforts to increase in the coming years, freeing capital for investments in high-return areas like new music and M&A.

Drivers of Future Performance

Warner Music Group’s forward outlook is shaped by anticipated benefits from new streaming agreements, organizational cost efficiencies, and potential upside from AI-driven licensing and M&A.

• Streaming price and subscriber growth: Management expects global subscriber growth and recently negotiated wholesale price increases with digital streaming partners to drive high-single-digit revenue growth, with incremental lift beginning next year as new contracts take effect.
• Expansion into adjacent businesses: The company is intensifying investments in distribution and direct-to-consumer offerings, citing new leadership and improved capabilities as key to accelerating growth in these areas. These initiatives are expected to diversify revenue streams but may initially weigh on margins.
• AI and M&A opportunities: Executives described a robust pipeline of accretive M&A deals, particularly in higher-margin catalog assets, and see early-stage AI licensing as a source of future growth. Management acknowledged that AI’s rapid evolution brings both opportunity and risk, requiring continued investment in legal and technical safeguards.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will be monitoring (1) the impact of newly renegotiated streaming agreements on revenue and margin, (2) the pace and profitability of expansion in distribution and direct-to-consumer initiatives, and (3) execution on cost savings and organizational streamlining programs. Additionally, we will track the rollout and monetization of AI licensing partnerships and any material M&A activity as signposts of the company’s ability to sustain profitable growth.

Warner Music Group currently trades at $29.69, down from $30.50 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

Now Could Be The Perfect Time To Invest In These Stocks

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.