We recently published a list of Billionaire Daniel Sundheim’s Top 15 Stock Picks Heading Into 2025. In this article, we are going to take a look at where Warner Music Group Corp. (NASDAQ:WMG) stands against other Billionaire Daniel Sundheim’s stock picks heading into 2025.
D1 Capital Partners might be one of the youngest hedge funds but it is one with a solid track record in a highly competitive landscape. Founded in 2018, the hedge fund successfully navigated the downturn triggered by the COVID-19 pandemic thanks to an aggressive investment strategy that revolves around fundamental research.
Daniel Sundheim is the brainchild, having started the hedge fund with $5 billion seed capital. As the founder and chief investment officer, he propelled the hedge fund to prominence in 2020 with a 54% gain in one of the most unpredictable years in the investment world. The stellar performance that continued into 2021 came as the value hedge fund focused on private equity and emerging startups that accounted for 50% of the portfolio.
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Nevertheless, Sundheim had one of the worst years of his career in 2022 as the overall equity markets came under pressure amid heightened inflation. As the S&P 500 fell 19.4%, D1 Capital ended up underperforming, going down by 30.5%. However, the hedge fund bounced back to winning ways in 2023, gaining more than 19% as it marked down some of its private investments.
Sundheim’s knack for investing started while he was an undergraduate at the Wharton School University of Pennsylvania. While in college, he invested and traded tech stocks. He went on to gain valuable investing experience while working as an analyst at Bear Stearns.
“Certain people are born to do certain things, and Dan was born to deploy capital,” said Dris Upitis, a former portfolio manager at Viking with Sundheim.
D1 Capital Partners’ edge stems from an investment strategy that revolves around fundamental research to uncover undervalued investment opportunities. Additionally, the hedge fund engages in diversification as one of the ways of spreading the risk and shrugging the pitfalls of volatility in specific sectors.
While controlling about $5.2 billion in portfolio value, Sundheim invests close to a third of its capital in private market bets. Industrial services and consumer stocks also account for the most significant share of the hedge fund’s portfolio. It also has substantial exposure to tech stocks from which it is benefiting from the artificial intelligence frenzy.
According to Sundheim, public companies are the best way to tap into the AI frenzy. Likewise, the investment officer expects artificial intelligence, unlike other technological advances, to be felt across all sectors. Companies investing billions of dollars into talent and AI projects are doing so without expecting short-term returns and are focused on long-term returns.
As the chief investment officer, Sundheim leverages long/short equity strategies using equity derivatives, convertibles, and fixed-income instruments to generate value in the markets. D1 Capital Partners is already up by more than 30% for the year, affirming the effectiveness of Sundheim’s investment strategy. The stellar performance has primarily been driven by gains in the industrial and consumer stocks which are benefiting from a resilient US economy.
Billionaire Daniel Sundheim’s top 15 stock picks heading into 2025 consist of stocks poised to benefit from a resilient US economy as interest rates come down.
Our Methodology
To compile the list of billionaire Daniel Sundheim’s Top 15 Stock Picks for 2025, we reviewed D1 Capital Partners’ investment portfolio. We identified the hedge fund’s fifteen largest holdings and analyzed their potential for long-term investment. Finally, we ranked these stocks in ascending order based on D1 Capital Partners’ stakes in each one.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A team of record producers and musicians in the studio, their creative process on full display.
Warner Music Group Corp. (NASDAQ:WMG)
D1 Capital Partners’ Equity Stake: $164.78 Million
Number of Hedge Fund Holders as of Q3 2024: 25
Warner Music Group Corp. (NASDAQ:WMG) is a global music entertainment company involved in the discovery and development of recording artists. The stock has been under pressure, going down by about 9% for the year. The underperformance comes amid growing concerns about waning growth rates.
While total revenue in the third quarter was up 2.8% year-over-year to $1.63 billion, it slowed down from annualized revenue growth of 4.2%. Operating margins also shrunk from 13.4% a year ago to 8.8%. On the other hand, the recorded music subscription segment is emerging as a bright spot, going by the 11% revenue increase in the quarter. Recorded music revenue was also up by 6%.
Similarly, Warner Music Group Corp. (NASDAQ:WMG) has embarked on a restructuring drive as it seeks to reinvigorate its growth prospects. The company is targeting $260 million in pre-tax expense savings as it streamlines its operations as part of the restructuring plan. It plans to take advantage of the expected growth in subscription streaming next year. Other strategies include a new organizational structure, expanding globally, and making strategic acquisitions like Cloud9 Recordings and Apicore.
Artisan Mid Cap Value Fund stated the following regarding Warner Music Group Corp. (NASDAQ:WMG) in its Q3 2024 investor letter:
“We are always on the lookout for companies that are under pressure in some form or fashion as this can create the conditions for an attractive entry price. Though equity markets have made substantial gains over the past year, we have still found select opportunities to put capital to work. Q3 purchases included Warner Music Group Corp. (NASDAQ:WMG), MGM Resorts International and Polaris.
Warner Music Group (WMG) is one of the three largest record labels in the world. The music industry had a challenging run post-Napster and pre-Spotify, with a broken monetization model punishing artists and labels alike. We believe we are in early stages of industry revenue growth as key distributors shift from subscriber growth to subscriber monetization. Despite high-quality streaming being adopted by the mainstream, music remains under-monetized compared to the pre-Internet era. We also believe this shift should benefit artists and labels such as WMG. Seventy percent of WMG’s streaming revenue comes from three services: Spotify, YouTube and Apple. Streaming penetration isn’t as high as one would expect in the US and globally, providing a nice runway for growth. However, the market’s outlook for industry growth is more downbeat as shares were down ~14% YTD at the date of our initial purchase in early July and were trading at a trough multiple relative to its public company history. WMG is also much cheaper than its closest competitor Universal Music Group. In regard to WMG’s financial condition, it is solid and stable, with debt that is well termed out and low cost.”
Overall, WMG ranks 10th on our list of Billionaire Daniel Sundheim’s stock picks heading into 2025. While we acknowledge the potential of WMG as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than WMG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
