Warner Bros Discovery's Pay Rejection: A Crossroads for Value or a Value Trap?

The shareholders of Warner Bros Discovery (WBD) have spoken with a clarity that demands immediate attention: a resounding 59% rejection of CEO David Zaslav's $51.9 million compensation package. This vote of “no confidence” isn't just about pay—it's a seismic warning about a company adrift in a media landscape it can't master. Let's dissect why this moment could either be a buying opportunity or a harbinger of more pain ahead.

The Pay Problem: Misalignment at the Top
Zaslav's pay has skyrocketed since 2021, including a jaw-dropping $246.6M package in 2021. Yet under his leadership, WBD has delivered a parade of underwhelming results. Q1 2024 revenue fell 7% to $9.96B, missing estimates by $270M. Even as streaming subscribers grew to 122.3M, the company's global linear networks (cable TV) are hemorrhaging cash, down 11% in Q1 2025. Meanwhile, Netflix's post-pay-rejection reforms—such as tying executive pay to streaming metrics—offer a stark contrast. Will WBD's board force Zaslav to align his pay with actual value creation?

Strategic Stumbles: Streaming Struggles and the Split Decision
WBD's pivot to streaming faces two major hurdles: execution and competition. While its Max platform added 5.3M subscribers in Q1 2025, it's still a distant second to Netflix's 238M. The planned split of cable TV and streaming businesses—reminiscent of Disney's struggles with synergies—carries huge risks. Investors fear that separating legacy TV (which is declining) from streaming (which is growing but unprofitable) could create two undercapitalized entities. Is this a path to value or a recipe for further fragmentation?

The company's debt-heavy balance sheet—$34B in obligations—adds pressure. While Q1 2025 free cash flow improved to $390M, it's still a far cry from Netflix's $3.6B. The recent $1.1B debt repayment is a drop in the bucket if revenue keeps falling.

The Netflix Paradox: Can WBD Learn the Lesson?
Netflix faced its own “say-on-pay” revolt in 2022, with 46% rejecting CEO Reed Hastings' pay. The response? A new compensation structure tying 80% of pay to streaming subscriber growth and EBITDA. WBD's board has so far defended the status quo, but shareholders won't stay silent. A governance shakeup—perhaps a new CEO or board member—could force strategic clarity. Will WBD adapt, or will investors continue to punish the stock?

The Investment Crossroads: Value Trap or Buy the Dip?
The stock is down 19% YTD, trading at just 6.2x 2025E EBITDA. That's a discount to peers like Disney (11x) and Paramount (8.5x). But is this a bargain or a trap?

Bull Case:
- The split could unlock value by focusing resources on streaming's growth.
- Content pipelines like the Harry Potter series and The Gilded Age could boost margins.
- Free cash flow is improving, and Zaslav's reforms may finally take hold.

Bear Case:
- Cable TV's decline could accelerate, dragging down the legacy business.
- Netflix's dominance in streaming leaves little room for error.
- Governance issues could deter institutional investors.

My Verdict: A Speculative Buy—But Keep a Tight Stop Loss
At current levels, WBD is a high-risk, high-reward play. The shareholder revolt and strategic split force Zaslav to deliver—or face consequences. Investors should buy only if they're willing to sell fast if the next earnings miss. Set a 20% stop loss—this stock isn't for the faint-hearted.

The question isn't whether WBD can recover—it's whether it can do so before the cable TV tail wags the streaming dog. For now, it's a gamble. But with a CEO under pressure and a board on the defensive, this could be the moment to bet on change—or watch the value trap snap shut.