Wells Fargo has initiated coverage on Universal Music Group (UMG) and Warner Music Group (WMG), offering contrasting assessments for the two major labels.

For Warner Music Group, analysts Omar Mejias and Steve Cahall issued an equal-weight rating with a $35 target price. WMG shares currently trade at $32.85, down 7% year-to-date. The analysts remain cautious, citing Atlantic's "extended cold streak" and ongoing technology investments that may impact both near-term margins and long-term growth. They're waiting for "sustained share recovery and more clarity on tech investments" before becoming more bullish on WMG.

Universal Music Group received a more favorable assessment, with an overweight rating and a €28 target price. UMG shares currently trade at €24.17 on the Euronext Amsterdam. The analysts praised UMG's "best in class" A&R management and highlighted the company's potential to drive industry change in areas including:

• Superfan monetization
• Artificial intelligence integration
• Streaming reform initiatives

The divergent ratings reflect UMG's strong market position and execution capability, while WMG is viewed as a "company in transition" under new CEO Robert Kyncl, who joined from YouTube in early 2023. Kyncl's focus on optimizing technology capabilities has yet to demonstrate concrete results through product delivery.

UMG recently reported nearly $3 billion in Q3 2023 revenue and attracted a €6.1 million investment from Bill Ackman in November. The company continues to lead industry changes, particularly in streaming compensation frameworks, with new penalties for artificial streams expected to be implemented on Spotify next year.

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