Warner Bros. Discovery Q3 2025: Streaming Growth Shadows Debt Risks and ARPU Pressure

Warner Bros. Discovery's Q3 2025 results delivered mixed signals against Wall Street expectations. Revenue hit $9.0 billion, falling short of analyst consensus, while the company beat earnings estimates by shaving $0.06 off its per-share loss. The turnaround in streaming profitability stood out as a bright spot, with EBITDA turning positive at $1.3 billion after posting a $2.5 billion loss three years ago.

This improvement was fueled by subscriber gains, with the streaming platform adding 30 million users over three years toward a 150 million target.

Yet the path to sustained profitability faces friction. Advertising revenue faces pressure from declining linear TV viewership and lower subscriber fees for ad-supported tiers.

Looking forward, management flagged significant headwinds to revenue growth. The broader advertising sector contraction poses particular risk to streaming monetization, even as international HBO Max expansion plans continue.

Subscriber Surge Meets Revenue Reality

Warner Bros. Discovery added 2.3 million streaming subscribers in Q3 2025, bringing its total to 128 million. This growth is a key win, but it's not fully offsetting other income pressures. Advertising revenue dropped sharply, falling 16% to $1.4 billion. The decline reflects weaker performance in traditional pay-TV bundles and the competitive strain of shifting viewer preferences towards ad-supported streaming tiers, which typically generate lower revenue per user.

While streaming gains and a strong $3.3 billion theatrical performance from films like Superman lifted Streaming & Studios profits by 58% to $1 billion, this studio boost acts as a partial counterbalance at best. The company's core adjusted earnings rose just 2% to $2.5 billion, hampered by significant restructuring costs. The path to profitable streaming scale remains fraught; intense competition for viewers and advertisers means monetization challenges are likely to persist, making it difficult to translate subscriber gains into robust, sustainable revenue growth.

Debt Reduction and Covenant Compliance Risks

Warner Bros. Discovery's Q3 results show progress in balance sheet repair but highlight persistent leverage risks. The company reduced debt by $1.2 billion, lifting its cash position to $4.3 billion while achieving a net leverage ratio of 3.3x EBITDA. While this demonstrates tangible progress, it remains above typical target ranges for investment-grade media firms, leaving limited room for unexpected shocks.

Free cash flow totaled $0.7 billion but was artificially constrained by $500 million in separation-related costs. Excluding these one-time items, underlying cash generation likely strengthened, though the explicit covenant breach thresholds governing leverage requirements remain undisclosed. The 3.3x ratio now serves as the critical stress test for the company's financial flexibility amid ongoing streaming losses and advertising market weakness.

Despite a 2% EBITDA increase to $2.5 billion, the combination of elevated leverage and non-recurring cost structures underscores that near-term refinancing risks persist unless revenue stabilization accelerates. The $4.3 billion cash buffer provides temporary shelter, but covenant compliance will depend heavily on sustaining adjusted EBITDA growth without major additional capital outflows.

Strategic Uncertainty and Execution Risks

Warner Bros. Discovery is betting big on international HBO Max expansion and theatrical hits like Superman as key growth engines heading into 2026. The streaming segment's recent turnaround shows promise, with streaming EBITDA reaching $1.3 billion after a $2.5 billion loss three years ago, while subscriber growth hit 30 million over three years, approaching the 150 million target. However, this optimism faces serious headwinds. Competition-driven ARPU compression and linear TV declines are pressuring revenue sustainability, while $1.3 billion in restructuring costs is delaying the $3 billion studio EBITDA target. The company's net leverage improved to 3.3x EBITDA after repaying $1 billion in bridge loans, but that progress could stall if execution falters.

A looming strategic uncertainty-potential sale or split in 2026, per recent disclosures-adds further friction. While management remains confident in scaling HBO Max globally through content differentiation and bundling, the delay in hitting EBITDA goals suggests operational risks are materializing. Theaters alone won't sustain margins amid ad-tier pressure and subscriber growth plateaus. For investors, the path to profitability hinges on whether global expansion can outpace ARPU erosion-a challenge made riskier by regulatory scrutiny and shifting viewership habits. Without clearer execution discipline, even blockbuster content may not offset these frictions.