Company Reports

Warner Bros. Discovery faces significant uncertainty surrounding its evolution in a media landscape defined by cord-cutting and many streaming choices. Ultimately, we think Warner’s scale, distribution channels, production studios, and content portfolio will make it one of the survivors.

Warner Bros. Discovery once again shared disappointing quarterly results, with very light revenue and profits. But not only do we think the stock is pricing in an overly dire outcome, we think the poor first-quarter headline results obscure several areas of progress as the business evolves toward streaming. We expect significant improvement over the next several quarters, though the fate of Warner's expiring NBA rights is a wild card. We are maintaining our outlook and $20 fair value estimate.

Warner Bros. Discovery's fourth-quarter results were disappointing, as the Max streaming platform is yet to show any renewed momentum. Sales results in the networks and studios segments were also much worse than we anticipated, which we attribute in part to the actors and writers strikes during the second half of 2023. The top-line malaise makes it easy to write off the company's future, but we think that overlooks the cash the firm is increasingly generating and the opportunities it has to significantly improve profitability even without much sales growth. With those components in mind, we're reducing our fair value estimate from $22 to $20.

Warner Bros. Discovery faces significant uncertainty surrounding its evolution in a media landscape defined by cord-cutting and many streaming choices. Ultimately, we think Warner’s scale, distribution channels, production studios, and content portfolio will make it one of the survivors.

Disney, Warner Bros. Discovery, and Fox announced a joint venture to create a streaming platform that will include all of the linear sports content that the firms broadcast. The platform should launch in the fall of 2024 and will include programming from 14 linear networks and a variety of sports leagues. The move doesn't change our fair value estimates—$115 for Disney, $20 for Warner Bros. Discovery, and $43 for Fox. We've expected a streaming bundle and linear sports programming moving increasingly to streaming, and we don't believe this move changes the total monetization pie for sports content.

We are reducing our fair value estimates for Warner Brothers Discovery to $22 and Paramount to $20, each from $25 previously. We are also downgrading our moat rating for each to none from narrow. We broadly view the firms similarly and expect both to figure out the evolving media landscape and be survivors due to their scale, distribution channels, production studios, and content portfolios. However, in an environment defined by cord-cutting and numerous choices for streaming, the companies face significantly more uncertainty than they did when most television entertainment was contained within the pay-TV bundle.

Warner Brothers Discovery faces significant uncertainty surrounding its evolution in a media landscape defined by cord-cutting and many streaming choices. Ultimately, we think Warner’s scale, distribution channels, production studios, and content portfolio will make it one of the survivors.

Warner Brothers Discovery continues to make significant progress in reducing costs, increasing cash flow, and paying down debt. However, third-quarter results show that it has not yet hit its stride with its evolving direct-to-consumer, or DTC, business, and a weak advertising environment weighed on networks revenue, which is still the firm’s biggest segment. Considering its evolving DTC offering and the potential effect of the actors’ strike, we are not reading too much into the quarter’s weaknesses, and we are maintaining our $25 fair value estimate.

Warner Bros. Discovery, the result of combining Discovery Communications and WarnerMedia, is one of the largest media firms in the world with tremendous scale and reach. We project that the company, led by former Discovery CEO David Zaslav, will use its combined content library and production capabilities to drive further growth in its streaming services as it navigates the transition toward a more direct-to-consumer focused model, centered on a combined HBO Max/Discovery+ service named Max.

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.

Warner Bros. Discovery, the result of combining Discovery Communications and WarnerMedia, spun out of AT&T, is one of the largest media firms in the world with tremendous scale and reach. We project that the new company, led by former Discovery CEO David Zaslav, will use its combined content library and production capabilities to drive further growth in its streaming services as it navigates the transition toward a more direct-to-consumer focused model, centered on a combined HBO Max/Discovery+ service named Max.

Warner Bros. Discovery, the result of combining Discovery Communications and WarnerMedia, spun out of AT&T, is one of the largest media firms in the world with tremendous scale and reach. We project that the new company, led by former Discovery CEO David Zaslav, will use its combined content library and production capabilities to drive further growth in its streaming services as it navigates the transition toward a more direct-to-consumer focused model, centered on a combined HBO Max/Discovery+ service named Max.

Warner Bros. Discovery continues to suffer from weak advertising results as the networks segment posted another dour performance despite a strong sports slate. Cost cutting helped the direct-to-consumer segment post its first adjusted EBITDA gain, albeit with a slight revenue decline and weak subscriber additions. Management now expects the business to generate positive adjusted EBITDA for 2023, a year ahead of schedule. This may be a positive sign to some investors, but we believe that focusing on DTC profitability without topline and subscriber growth is not a sustainable strategy because of the need to replace linear television revenues longer term. We are maintaining our $30 fair value estimate.

Warner Bros. Discovery finally disclosed details about its combined streaming service now called Max at a press briefing on April 12. Max will combine the two current platforms, HBO Max and Discovery+, into one platform that will launch on May 23 in the United States. As we expected, pricing will remain the same at $10 per month for the ad-supported tier and $16 per month for the ad-free tier. In a surprising move, however, management decided to move 4K content out of the standard tier and into a third plan at $20 monthly called “Max Ultimate Ad Free.” As previously disclosed, Discovery+ will remain as a standalone service at the current price. We are maintaining our $30 fair value estimate.

Warner Bros. Discovery, the result of combining Discovery Communications and WarnerMedia, spun out of AT&T, is one of the largest media firms in the world with tremendous scale and reach. We project that the new company, led by former Discovery CEO David Zaslav, will use its combined content library and production capabilities to drive further growth in its streaming services as it navigates the transition toward a more direct-to-consumer focused model, centered on a combined HBO Max/Discovery+ service named Max.

Weak advertising results at the networks segment again hampered Warner Bros. Discovery's performance during its third quarter as a combined entity. However, the focus on cost-cutting at the direct-to-consumer segment appears to be working as the adjusted EBITDA loss decreased sequentially and year over year. While we think investors are looking for lower losses for DTC segments across the media industry, we also believe that those improvements cannot be combined with weak top-line and subscriber growth, as seen this quarter for WBD. We are maintaining our $30 fair value estimate.

Warner Bros. Discovery reported weak third-quarter results with proforma revenue excluding currency effects down 8% year over year. The firm's second quarter as a combined entity suffered from weak advertising results at the networks segment. While we expect all linear TV networks to feel the pain from the ad market slowdown over the next few quarters, WBD will likely be hit harder than most as the legacy Discovery networks are more dependent on ad revenue than peers like Disney that have a higher percentage of linear revenue from affiliate fees. We are lowering our fair value estimate to $30 from $40 due to lower forecast revenue growth in 2022, slower top-line rebound in 2023, and operating income losses continuing into 2023.

Warner Bros. Discovery, the result of combining Discovery Communications and WarnerMedia, spun out of AT&T, is one of the largest media firms in the world with tremendous scale and reach. We project that the new company, led by Discovery CEO David Zaslav, will use its combined programming library and production capabilities to drive further growth in its streaming services as it navigates the transition toward a more direct-to-consumer focused model, centered on a combined HBO Max/Discovery+ service.

In its first quarter as a combined company, Warner Bros. Discovery posted weak second-quarter results with pro forma revenue (excluding currency effects) down 1% year over year. Management laid out its streaming plans, including the launch of a single streaming platform that will combine HBO Max and Discovery+ next summer in the U.S., with a global rollout to 70 countries to follow over the next two years. However, some countries, notably the U.K., Germany, and Italy, will not receive the new platform until after 2025 due to the HBO/Sky deal.

Warner Bros. Discovery reported first-quarter results that reflect only the Discovery side. While the Discovery business posted decent top-line growth, the focus has already shifted to the new combined firm. Discovery+ added 2 million new direct-to-consumer subscribers in the quarter and HBO Max added 3 million, meaning that the new firm ended the first quarter with over 100 million streaming customers across its platforms. The combined net adds were relatively strong, given that market leader Netflix lost 200,000 subscribers in the same quarter. We think the potential combination and/or bundle of HBO Max and Discovery+ along with increased global expansion will spark growth for Warner Bros. Discovery. We are maintaining our narrow moat rating and $40 fair value estimate.