Skydance Earnings: A Good Talk, but It's All About Execution Now That It Has Acquired WBD

Key Morningstar Metrics for Skydance Productions

• Fair Value Estimate: $12.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: Very High

What We Thought of Skydance Productions’ Earnings

Skydance Productions SKYD had a good third quarter, but it did not disclose results for Warner Bros. Discovery, which it acquired on Oct. 6. As a combined company, it foresees strength in streaming immediately and in studios long term. It also provided some color on where it will achieve $6 billion in cost savings.

Why it matters: If Skydance can achieve its targets, then its stock is grossly undervalued. We’re skeptical about whether the firm can realize its ambitions, but we still see upside in its stock, which we believe is overly depressed by fears about the debt load.

The bottom line: We maintain our $12 per share fair value estimate. Though we believe Skydance’s studios and intellectual property cement the firm as a top competitor in the film and television industry, its heavy reliance on linear TV keeps us from awarding it a moat.

Big picture: Over the next few years, the firm expects mid-single-digit annualized revenue growth, a mid-20s operating margin and $10 billion in free cash flow by 2030, and for the $6 billion in cost savings to bring net debt/EBITDA down to 3 by 2029 from over 6 today.

• Competition in streaming and ongoing linear TV declines make mid-single-digit sales growth unlikely over the next few years, in our view. Lesser growth makes a mid-20s margin and 3 leverage by 2030 overly ambitious, even if the firm meets its cost-savings target.

Key stats: Standalone Skydance’s 7% year-over-year decline in third-quarter linear TV sales completely offset 11% streaming growth, making the combined segments’ revenue flat. Total revenue was up 5%, boosted by an inorganic rise in studio sales due to a 2025 acquisition.

• Warner had similarly high exposure to linear TV, and those businesses should continue deteriorating in tandem.
• Management said pro forma streaming revenue, including Warner, was up 15%, but we expect a slowdown. The firm intends to bundle Paramount+ and HBO Max, resulting in a price reset for overlapping subscribers.