Warner Bros. Discovery Earnings: A Weak Traditional TV Ad Market Drags Down Top Line

The weak traditional TV advertising market remains a drag on Warner Bros. Discovery results, as the networks segment posted another substantial top-line decline. The direct-to-consumer segment didn’t get a subscriber bump from the U.S. launch of the rebranded Max platform but posted breakeven adjusted EBITDA, demonstrating the effectiveness of the cost-cutting measures implemented over the past year. Management now expects the DTC segment to generate adjusted EBITDA losses of a "couple of hundred million dollars" for 2023. While this may be a positive sign to some investors, we remain convinced that focusing on DTC profitability without top-line growth is not a sustainable strategy because of the need to replace linear television revenue longer term. We are lowering our fair value estimate to $26 from $30 on slower DTC margin expansion and higher ad revenue declines.