Warner Bros. Discovery Hit With a Downgrade at Bernstein
Warner Bros. Discovery (NASDAQ:WBD) has been downgraded from Outperform to Market-Perform by Bernstein, with the firm also slashing its price target from $10 to $8, citing a challenging road ahead for the company's recovery. The downgrade follows a disappointing Q2 performance where WBD missed key financial metrics, including a 6% decline in revenue, a 16% drop in EBITDA, and a 43% reduction in free cash flow year-over-year.
Bernstein analysts pointed to the company's struggles since the WarnerMedia-Discovery merger in April 2022, which has seen WBD's stock plummet nearly 70%, making it one of the worst performers in its sector. The firm expressed concern over the "secular challenges" WBD faces in its linear TV business and the company's inability to achieve necessary scale in its direct-to-consumer (DTC) segment. Additionally, the analysts noted increasing investor frustration over WBD's uncertain future, particularly given its declining EBITDA and elevated leverage ratio of 4x.
The potential loss of NBA broadcasting rights, a key component of TNT's programming for decades, was also highlighted as a significant risk that could further compound WBD's difficulties.
| Symbol | Price | %chg |
|---|---|---|
| MSIN.JK | 1300 | -3.46 |
| FILM.JK | 3160 | 0.32 |
| CNMA.JK | 200 | -3 |
| 352820.KS | 185500 | -3.67 |
Warner Bros. Discovery Reports Wider Q2 Loss, Shares Fall 9%
Warner Bros. Discovery Inc (NASDAQ:WBD) reported a significant second-quarter loss on Wednesday, attributed to a hefty $9.1 billion charge in its networks unit following the loss of NBA media rights.
Shares of Warner Bros. Discovery dropped more than 9% intra-day today. The entertainment conglomerate reported a loss of $4.07 per share on revenue of $9.71 billion, missing Street expectations of a $0.19 loss per share on revenue of $10.07 billion.
The widened loss stemmed from a $9.1 billion hit in its networks segment, exacerbated by a sluggish U.S. linear advertising market and uncertainties related to affiliate and sports rights renewals, including the NBA. Content revenue saw a 6% decline, with a notable 27% drop in EV TV revenue, driven by lower licensing sales.
Global direct-to-consumer (DTC) subscribers reached 103.3 million by the end of Q2, marking an increase of 3.6 million from Q1. The average global DTC revenue per user was $8.00, reflecting a 4% sequential increase in constant currency.
Despite these challenges, the company remains committed to exploring new bundling opportunities to expand the reach of its streaming service, Max. Warner Bros. Discovery emphasized that these initiatives and other strategic actions are expected to drive segment profitability in the latter half of the year and into 2025 and beyond.
Disney and Warner Bros. Discovery Launch Streaming Bundle
Disney and Warner Bros. Discovery's announcement to launch a streaming bundle including Disney+, Hulu, and Max this summer is a strategic move that reflects the evolving landscape of the streaming industry. This collaboration aims to leverage the strengths of both entertainment giants to attract more subscribers by offering a comprehensive package of popular streaming services. The decision to bundle these services was made public on Wednesday, as highlighted by Forbes, signaling a significant shift towards bundling major brands to enhance subscriber appeal and market presence.
Financially, both companies have shown promising results from their streaming services, indicating the potential success of this new bundle. Disney reported a quarterly operating profit of $47 million from its Hulu and Disney+ streaming services, while Warner Bros. Discovery's direct-to-consumer division, which includes the Max streaming service, reported a profit of $103 million in 2023. These figures not only demonstrate the financial viability of streaming services for these companies but also underscore the growth opportunities that lie ahead in the streaming sector.
Warner Bros. Discovery, Inc. (WBD:NASDAQ), in particular, presents an interesting financial profile that could influence the success of the streaming bundle. Despite trading at a loss with a price-to-earnings (P/E) ratio of approximately -6.10, the company's price-to-sales (P/S) ratio of about 0.46 suggests that investors are paying significantly less for each dollar of sales, indicating potential undervaluation. Furthermore, the enterprise value to sales (EV/Sales) ratio of approximately 1.50 and the enterprise value to operating cash flow (EV/OCF) ratio of around 8.30 highlight the company's valuation in relation to its sales and operating cash flow, respectively. These financial metrics suggest that Warner Bros. Discovery is positioned to leverage its streaming services for growth, despite the challenges indicated by a current ratio of about 0.93, which points to potential short-term liquidity concerns.
Disney's CEO, Bob Iger, has expressed optimism about the future of streaming, identifying it as a key growth driver for the company. This strategic bundling of Disney+, Hulu, and Max could not only enhance growth prospects for Disney and Warner Bros. Discovery but also reshape the competitive dynamics of the streaming market. By combining their streaming services, both companies aim to capitalize on their existing subscriber bases and content libraries to create a more compelling offering that could attract a larger audience and drive further growth in the streaming industry.
Warner Bros. Discovery Shares Plunge 13% on Q4 Miss
Warner Bros. Discovery (NASDAQ:WBD) announced its fourth-quarter results that fell short of the average forecasts by analysts. Following the announcement, the company’s shares dropped more than 13% intra-day on Friday.
Facing similar challenges as its peers, Warner Bros. Discovery has been navigating the shift from traditional TV to streaming platforms. CEO David Zaslav highlighted that the company has stabilized its position thanks to a concerted effort to enhance its direct-to-consumer services. He elaborated on a strategic "attack plan" to expand the Max streaming service into crucial international markets and to bolster the studios division with a stronger lineup of releases.
Zaslav expressed confidence in the company's prospects for generating consistent operational progress and improving value for shareholders.
The company's networks segment, home to channels such as CNN and TBS, saw a 14% drop in advertising revenue in Q4. This decline was attributed to shrinking audiences and a sluggish linear ad market in the U.S. Nonetheless, this downturn was partially compensated by increased engagement with Max, leading to a 51% rise in advertising revenue in its direct-to-consumer division.
Overall, the company witnessed a 7% decrease in total revenue to $10.28 billion, below the expected $10.46 billion by Wall Street analysts, while its net loss reduced to $400 million.
Warner Bros. Discovery Misses Q4 EPS and Revenues
Warner Bros. Discovery (NASDAQ:WBD) reported its Q4 results on Thursday, with EPS coming in at ($0.86), worse than the Street estimate of ($0.29). Revenue was $11.01 billion (down 11.3% year-over-year), missing the Street estimate of $11.23 billion, on lower Studios content and Networks advertising revenue.
Adjusted EBITDA was down 5% year-over-year to $2.60 billion, 1.3% above the Street estimates and reflected meaningfully lower DTC losses somewhat offset by lower contributions at Studios and higher corporate costs.
Notably, DTC losses were significantly narrower than expected in the quarter and management is eyeing roughly break-even in Q1/23 ahead of the upcoming domestic launch of the re-imagined streaming service (unveiling slated for April 12th). Cyclical and secular challenges across the linear ad market are weighing on results and sentiment, though it is expected that some of this pressure will abate throughout the year.
