Michael Morris

Michael Morris from Guggenheim Securities asked for more details on Warner Music Group's M&A plans, specifically how they will accelerate growth in 2026 and the expected incremental growth contribution. He also sought elaboration on distribution as a strategic focus, what changes in strategy give confidence for its increased contribution to growth in the coming year.

Answer

CFO Armin Zerza stated that WMG has a strong M&A pipeline, expected to materialize in calendar year 2026, focusing on highly accretive catalog businesses. He noted the joint venture with Bain Capital provides over $1 billion in funding, enabling capital-efficient growth acceleration. Regarding distribution, Zerza explained that it's a significant and growing business, now under new leadership (Alejandro, former Latin America head). He expressed confidence in accelerating distribution growth in 2026 by building capabilities for better customer service and faster, more efficient client integration, aligning with WMG's portfolio strategy to grow business and enhance margins.

Michael Morris inquired about Warner Music Group's M&A plans, specifically what to expect in terms of incremental growth drivers for 2026, and sought further details on distribution as a strategic focus, including any changes in strategy and confidence in its increased contribution to growth.

Answer

CFO Armin Zerza stated that WMG has a strong M&A pipeline, expected to materialize in calendar year 2026, focusing on highly accretive catalog businesses. He emphasized the capital-efficient approach through the joint venture with Bain Capital, providing over $1 billion in funding. Regarding distribution, Zerza explained it's a significant and profitable existing business, now under new leadership (Alejandro, previously head of Latin America). WMG has been building capabilities for better customer service and faster client integration, expressing confidence in accelerating profitable growth in this area starting in 2026.

Michael Morris from Guggenheim Securities asked about the direct response advertising growth, specifically how much the 8% Q3 growth accelerated from Q2's core trend after removing the execution error impact. He also asked if Snap could return to double-digit DR growth, identifying the top two or three contributors, and sought an update on the stability and confidence in bidding and optimization tools post-error.

Answer

CFO Derek Andersen stated that direct response revenue grew 8% year-over-year, a 3 percentage point acceleration from the prior quarter, driven by pixel purchase and app purchase optimizations, and SMB segment strength. He noted strong ad revenue growth in Europe (12% YOY, 6 ppt acceleration) and Rest of World (13% YOY, 10 ppt acceleration), while North America's large client segment (LCS) lagged with a small decline, though North America SMB grew over 25%. He expressed confidence in the ad platform and units, with targeted adjustments in North America LCS to build momentum for future growth.

Michael Morris asked why price increases in the U.K. were smaller on a percentage basis compared to Australia, given both are bundled service markets, and whether future price increases would resemble Australia's or the U.K.'s.

Answer

Alex Norström, Co-President and Chief Business Officer, explained that price adjustments consider various factors like household income, market maturity, and specific value-to-price ratios in each market. He stated that Spotify acts when the timing and magnitude are right for each market.