Warner Bros. Discovery's Q2 Earnings Discrepancy: A Tale of Two Metrics

Warner Bros. Discovery (WBD) is poised to unveil its Q2 2025 earnings report on August 7, 2025, with analysts split between cautious optimism and skepticism. The company's financial story is a paradox: while its earnings per share (EPS) show a dramatic improvement, revenue growth remains tepid, raising questions about the sustainability of its recovery. This discrepancy demands a closer look at the underlying business dynamics and the investment implications for a company navigating a high-stakes transformation.

The EPS Mirage: A Narrowing Loss, But at What Cost?

Analysts expect WBD to report a loss of $0.14 per share in Q2 2025, a 96.56% improvement compared to the same period in 2024. This sharp reduction in losses is largely attributed to aggressive cost-cutting measures, including $1.8 billion in savings since 2024 through workforce reductions and operational efficiencies. However, the EPS improvement is a double-edged sword. The company's net debt remains a staggering $34.19 billion, with a debt-to-EBITDA ratio of 18.13x—far above industry benchmarks. While the streaming segment's EBITDA is projected to reach $1.3 billion by year-end, this growth is concentrated in a single division, leaving the rest of the business to drag down overall performance.

Revenue Stagnation: A Warning Sign in a Streaming-Driven World

Despite the EPS progress, WBD's revenue is expected to grow by just 1.2% year-over-year to $9.83 billion. This modest gain masks a deeper issue: the company's traditional revenue streams are in freefall. The Linear Networks segment, which includes CNN, TNT, and Discovery Channel, is projected to see a 10% decline in total revenue, driven by plummeting ad sales and shrinking viewership. Advertising revenue for this segment alone is forecast to drop 13.6%, a direct consequence of the shift to digital platforms and the absence of major events like the NCAA Final Four.

Meanwhile, the Studios segment—responsible for blockbuster films and licensing deals—faces its own challenges. While early successes like Superman and Minecraft: The Movie have boosted morale, the segment's content revenue is expected to grow by only 30.6% year-over-year, far below the double-digit subscriber gains in streaming. This imbalance suggests that WBD's revenue diversification strategy is still a work in progress.

The Streaming Saviors: A Glimpse of Hope

The streaming segment remains WBD's lone bright spot. With 122.3 million global subscribers—a 22% year-over-year increase—the division is benefiting from hit series like The Last of Us and And Just Like That, as well as international expansion. HBO Max's adjusted EBITDA surged 295% to $339 million in Q1 2025, and the segment is on track to generate $1.3 billion in EBITDA by year-end. This growth is fueled by ad-supported tiers and localized content, which have proven effective in markets like Latin America and Southeast Asia.

However, even this success comes with caveats. The streaming segment's content revenue is expected to decline by 13.6% year-over-year, highlighting the tension between cost-cutting and maintaining a robust content library. Investors must ask: Can WBD sustain subscriber growth without over-investing in high-cost productions? The answer will determine whether the streaming division can become a true profit engine.

Strategic Split: A Lifeline or a Hail Mary?

WBD's planned split into two publicly traded entities—Warner Bros. (Streaming & Studios) and Discovery Global (Global Networks)—by mid-2026 is a bold move to isolate high-growth assets from declining ones. This restructuring could unlock value by allowing investors to separately assess the streaming business's potential and the linear networks' liabilities. However, the success of this strategy hinges on execution. The Linear Networks segment's continued underperformance could drag down Discovery Global's valuation, while the streaming division's debt burden may limit its ability to reinvest in content.

Investment Implications: Proceed with Caution

For investors, WBD's Q2 earnings report will be a critical inflection point. The company's ability to meet or exceed the Zacks Consensus Estimate for revenue and EPS will provide insight into its operational discipline. However, the broader picture is less encouraging. The Zacks Earnings ESP model predicts a -47.89% chance of beating estimates, and the company's historical performance—missing forecasts in three of the past four quarters—suggests a high risk of disappointment.

Historically, WBD's stock has shown a positive short-term response following earnings releases, with a 61.54% win rate over three days and a 38.46% win rate over 10 and 30 days. The maximum observed return was 2.24% over 54 days, indicating modest but non-trivial price appreciation potential. However, these gains are not guaranteed, and structural challenges like debt and declining traditional revenue could dampen post-earnings momentum.

The stock's current price of $12.72, with an average analyst price target of $14.63, implies a potential 11.77% upside. Yet, this optimism is tempered by the GuruFocus GF Value estimate of $9.98, signaling a 22.61% downside risk. Investors should prioritize the following:
1. Subscriber Retention Metrics: A drop in streaming churn rates would validate the division's long-term viability.
2. Debt Management: Progress on deleveraging the balance sheet will be crucial for investor confidence.
3. Segment-Specific Guidance: Clear differentiation between streaming and linear networks' performance will help assess the split's potential.

Conclusion: A Company at a Crossroads

Warner Bros. Discovery's Q2 earnings discrepancy—strong EPS gains versus weak revenue growth—reflects a business in transition. While the streaming segment offers a glimpse of hope, the company's structural challenges—high debt, declining traditional revenue, and inconsistent earnings—remain significant hurdles. For now, WBD is a high-risk, high-reward proposition. Investors willing to bet on its streaming ambitions must also brace for the volatility of a company teetering between reinvention and collapse.