Shares of Warner Music Group Corp. priced near the high end of their indicative range Wednesday and traded another 20% higher during the session, with investors jumping on the chance to own a pure-play streaming content company. But investors should be cautious as the valuation approaches 20 times forward estimated Ebitda, IPO Edge Editor-in-Chief John Jannarone told Cheddar TV’s Brad Smith in an interview.
Jannarone also pointed out that corporate governance at Warner could give some investors pause. Using Sentieo, an AI-enabled research platform, he quickly saw warnings from the company such as “we may elect not to comply with certain corporate governance standards, such as the requirement that our board of directors have a compensation committee and nominating and corporate governance committee composed entirely of independent directors.” The shares sold publicly also carry an insignificant amount of voting power, with Leonard Blavatnik’s Access Industries keeping 99% of the voting power.
One other way to bet on a record company: Purchase shares of Vivendi SA (tickers: VIV.PA and VIVHY), which owns most of Universal Music Group. Vivendi, which also owns French TV company Canal+ Group, trades at a much lower valuation of about 13 times 2021 Ebitda, according to Sentieo. If UMG maintains its rally, Vivendi could follow suit.
Jannarone also said he was watching Nikola Motor Company, which begins trading Thursday under NKLA and NKLAW (warrants), having merged with a special purpose acquisition company. The company could have potential similar to Tesla in commercial trucks powered by electricity and hydrogen. Those shares and warrants are set to open sharply higher.
The full Cheddar interview is available below:
John Jannarone, Editor-in-Chief